Payday Lender Ordered To Pay $39 Million In Misappropriated Funds Suit – Financial Services

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.

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