On February 14, 2022, the Securities and Exchange Commission announced a settlement with a crypto lending company in a “first-of-its-kind enforcement action” for failing to register as an investment company under the Investment Company Act of 1940, as amended (the “Investment Company Act”).  In the novel settlement, BlockFi Lending LLC (“BlockFi”) agreed to pay $100 million in penalties — $50 million of which will be paid to the SEC, and the remaining $50 million allocated to 32 different state regulators for similar charges.  As part of the settlement, BlockFi has undertaken to comply with the Investment Company Act either by registering as an investment company or by proving to the SEC Staff that it is not required to do so.  BlockFi has 60 days from entry of the order to comply and may obtain an extension of another 30 days.  Should BlockFi successfully come into compliance, it could be the first SEC-registered entity to offer a digital asset lending product.[1]  Despite BlockFi’s groundbreaking settlement, BlockFi still faces a putative class action by investors.

RELATED UPDATES:
U.S. Department of Justice and Partners Increasing Enforcement of Sanctions and Export Controls (March 6, 2023)
 New Revelations in Ukraine Lead to Tightening Global Sanctions (April 8, 2022)
Western Companies Starting to Feel Impact of Russian Sanctions (March 24, 2022)
FinCEN Encourages “Increased Vigilance” and Highlights Red Flags for Evasion of Russian Sanctions including Use of Virtual Currency (March 16, 2022)

Last week, the U.S. Department of Justice (DOJ) announced the launch of an aggressive interagency law enforcement task force, Task Force KleptoCapture. The Task Force represents another U.S. enforcement initiative in response to the Russian invasion of Ukraine in which DOJ plans to target Russian officials and “government-aligned elites” for violations of law related to economic sanctions and corruption. In an address to the American Bar Association on Friday, Attorney General Merrick Garland described the task force as a “force multiplier” and stated: “Together with our federal and international partners, we will leave no stone unturned in our efforts to investigate, arrest and prosecute those whose criminal acts enable the Russian government to continue its unjust war against Ukraine.”

Varsity Healthcare Partners has announced the close of its sale of Probo Medical to Avista Capital Partners.

Probo, based in Fishers, Ind., is a supplier of refurbished diagnostic imaging equipment. Founded in 2014, the company’s set of services include equipment sales, part sales, equipment rentals, depot repair service, equipment installation and de-installation, and field-based…

Aarus Enterprises LLC v. Burgerim Group USA, Inc. was filed in the Superior Court of California for the County of Los Angeles on February 15, 2022, seeking civil damages from a fraudulent investment scheme involving the purchase and sale of fast-food burger franchises. Specifically, the complaint alleges promissory fraud, intentional misrepresentation, and concealment.

Plaintiffs include over fifteen individuals and entities who invested in the burger franchises. The Defendants are the burger franchise Burgerim Group USA, Inc. (“Burgerim”) and unnamed individuals who participated in the scheme.

Plaintiffs contend they were presented the chance to invest in Burgerim, which represented itself as the fastest growing fast-food burger franchise.  Burgerim told investors they could purchase a franchise for $50,000, a portion of which could be financed or paid later.  Burgerim also offered to assist with real estate transactions in opening the franchise restaurants.  But Burgerim did not deliver on those promises.  Instead, it gave investors unrealistic financing options and unworkable estimates for construction timelines and costs.  Burgerim also hid from investors that it used new franchisees’ fees to repay existing franchisees and received kickbacks from vendors, real estate agents, and other representatives.

Infinedi Partners has announced it has invested in LaSalle Network.

LaSalle, based in Chicago, is a national staffing and recruiting firm providing services in many sectors, including healthcare revenue cycle, technology, cybersecurity, accounting and finance, and human resources. Founded in 1998, the firm states it operates in more than 20 states and has more…

On March 2, 2022, the U.S. Department of Education’s Office of Federal Student Aid (FSA) for the first time asserted regulatory authority over income share agreements (ISAs) as private education loans. FSA issued an electronic announcement to clarify its authority over income share agreements at institutions that receive federal aid under the Higher Education Act of 1965, as amended (HEA). An ISA is a contract in which a lender gives a student money for education, and in return, the student promises to pay the ISA-provider a fixed percentage of the student’s income for a set amount of time after graduation. The student may repay more or less than the amount received, depending on the terms of the ISA.

GTCR has announced it has acquired a majority equity stake in Experity.

Experity, based in Machesney Park, Ill., is a provider of SaaS software solutions and technology-enabled services for the urgent care industry. Founded in 2019, the company states it provides electronic medical record, practice management and patient engagement software, revenue cycle management solutions and…

Sheridan Capital Partners and Morgan Stanley Capital Partners (MSCP) have completed a recapitalization of SpendMend, according to a news release.

SpendMend, based in Grand Rapids, Mich., provides tech-enabled solutions intended to optimize the cost cycle. Founded in 1993, the company serves healthcare organizations including hospitals, pharmacies and suppliers.

Through the recapitalization, Morgan Stanley…

Tu Le et al. v. Prestige Community Credit Union, filed in the United States District Court for the Central District of California on February 18, 2022, is the second putative class action filed in connection with a church-based investment scheme propped up by Ponzi-type payments, this time targeting the bank that housed the schemers’ accounts.

Plaintiffs Tu Le, Geneva Nguyen, and Mai T. Ly are individuals who invested in a scheme run by entities related to a now-defunct church and its pastor, convicted felon Kent R.E. Whitney (the “Whitney Schemers”).  The scheme targeted individuals by misrepresenting that their funds would be used to open investment accounts earning over 10% interest, but very little of investor funds actually went into trading accounts. Defendant Prestige Community Credit Union (“Prestige”) is the credit union purportedly used by the Whitney Schemers.  Plaintiffs seek to represent a class of all individuals who invested and lost money with any of the Whitney Schemers, as well as a sub-class of all such class members who were residents of California and over 65 years old at the time of investment.

The Securities and Exchange Commission continues to propose rules at a rapid pace. Three of the most recent proposed rules would significantly impact investment advisers by:

  • Requiring documentation of registered investment adviser compliance reviews;
  • Establishing cybersecurity risk management and reporting requirements for investment advisers, investment companies and business development companies;
  • Updating and accelerating beneficial ownership

    • …