August 15, 2022

Volume XII, Number 227

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August 12, 2022

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Payday Lender Ordered to Pay $39 Million in Misappropriated Funds Suit

On June 29, a Florida court issued a final judgment against a Miami-based payday lender and its CEO resolving allegations that the defendants misappropriated investor funds. According to the complaint, the business fraudulently raised upwards of $66 million through the sale of promissory notes to more than 500 Venezuelan-American investors who were told that the company would use their funds to finance payday loans through the offer and sale of “safe and secured” promissory notes. Investors were promised returns of up to 120%, yet it was alleged that the company did not generate revenue to cover its principal and interest payments due to investors.

The complaint also alleged that the CEO misappropriated investor funds for personal use and authorized the transfer of funds to friends and relatives for no apparent legitimate business purpose.

The company and CEO agreed to a final judgment under which they are permanently banned from trading securities in the future and from committing further violations of the Securities Act and the Exchange Act. The company must also pay investors back $39 million. The CEO is liable for roughly $4.5 million, which, if paid, will correspondingly reduce the amount owed by the company.

On July 13, the SEC filed new, related charges against four sales representatives of the company for their roles in soliciting investor dollars into the unprofitable business. The complaint, filed in Southern District of Florida, alleges that the representatives sold upwards of $25 million in unregistered promissory notes to nearly 350 investors. None of the representatives were registered with the SEC as brokers nor were they associated with registered brokers.

Putting It Into Practice: The misuse of investor funds in this particular instance was especially egregious. However, this series of enforcement actions should serve as a stark reminder that companies engaged in the sale of promissory notes must comply with federal and state securities laws at every step and at every level of employment, from sales representative to CEO. The SEC, in particular, has signaled that it will vigorously enforce violations at both the corporate and individual level.

Copyright © 2022, Sheppard Mullin Richter & Hampton LLP.National Law Review, Volume XII, Number 202
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About this Author

Moorari Shah Bankruptcy Lawyer Sheppard Mullin Law Firm
Partner

Moorari Shah is a partner in the Finance and Bankruptcy Practice Group in the firm's Los Angeles and San Francisco offices. 

Areas of Practice

Moorari combines deep in-house and law firm experience to deliver practical, business-minded legal advice. He represents banks, fintechs, mortgage companies, auto lenders, and other nonbank institutions in transactional, licensing, regulatory compliance, and government enforcement matters covering mergers and acquisitions, consumer and commercial lending, equipment finance and leasing, and supervisory examinations,...

213-617-4171
A.J. S. Dhaliwal Bankruptcy Attorney Sheppard Mullin Washington DC
Associate

A.J. is an associate in the Finance and Bankruptcy Practice Group in the firm's Washington, D.C. office. 

A.J. has over a decade of experience helping banks, non-bank financial institutions, and other companies providing financial products and services in a wide range of matters including government enforcement actions, civil litigation, regulatory examinations, and internal investigations.

With a diversified regulatory, compliance, and enforcement background, A.J. counsels financial institutions in matters involving...

202-747-2323
Katie Daw Government Investigations Attorney Sheppard Mullin Law Firm
Associate

Katie’s practice focuses on government investigations into antitrust and competition issues and antitrust litigation.

Prior to joining the firm, Katie completed internships with United States Senator Dianne Feinstein and with United Kingdom Member of Parliament Graham Allen, for whom she conducted nutritional poverty research and drafted initiatives. She also served as a law clerk for the Baltimore Police Department, where she focused on compliance with the city’s consent decree entered into with the Department of Justice.  

202-747-2191
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