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Case 4:13-mc-00076-KES Document 1 Filed 07/29/13 Page 1 of 8 PageID #: 1

Case 2:13-cv-03975-JCJ Document 1 Filed 07/10/13 Page 1 of 8

IN THE UNITED STATES DISTRICT COURT

FOR THE EASTERN DISTRICT OF PENNSYLVANIA

UNITED STATES OF AMERICA,

Plaintiff

v.

GIV VENTURE PARTNERS, L.P.,

Defendant

Civil Action No. I3-ev-

COMPLAINT FOR RECEIVERSHIP AND INJUNCTION

Plaintiff: the United States of Americ~ for its complaint in this action alleges as

follows:

1. The United States of America brings this action against defendant, GIV

Venture Partners, L.P., alleging violations of the Small Business Investment Act, IS U.S.C.

Section 661, et seq., and the regulations issued pursuant thereto, 13 C.F.R. § 107.1, ~

PARTIES

2. The plaintiff is the United States of America. It brings this action on behalf of

its agency, the United States Small Business Administration ("SHA"). SBA's central office is

located at 409 Third Street, S.W., Washington DC 20416.

3. The defendant is GIV Venture Partners, L.P. ("GIV" or "Licensee"), a

Delaware Limited Partnership with its principal place of business at 150 North Radnor Chester

Road, Suite F-200, Radnor PA 19087.

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Case 2:13-cv-03975-JCJ Document 1 Filed 07/10/13 Page 2 of 8

JURlSDICTION AND VENUE

4. The Court has jurisdiction pursuant to the Small Business Investment Act of

1958. as amended ("the Act"), IS U.S.C. §§ 687(d), 687c, and 687(h); the Small Business Act,

15 U.S. § 634(b)(1); and 28 U.S.C. § 1345.

S. Venue is proper pursuant to IS U.S.C. §§ 687(d) and 687(h) and 28 U.S.C. §

J39I(b), because GIV's principal place of business is in this District.

FACTUAL BACKGROUND

6. On or about March 26, 2002, SBA licensed GIV as a Small Business

Investment Company ("SBIC") solely to do business under the provisions of the Act and the

regulations issued pursuant thereto. The general partner in GIV is GIV Venture Partners GP,

LLC. SBA is a preferred limited partner in GIV.

7. Sections l.01 and 2.01 ofGIV's Agreement of Limited Partnership (ULPA")

provide that GIV is subject to the Act and the regulations issued pursuant thereto ("the

Regulations").

8. Section 4.03(a) of the LPA provides that 13 C.F.R. § 107.1820 is incorporated

by reference into the LPA, as if set forth again in full. Section 107.1820 enumerates, inter aJia,

removal conditions, contingent removal conditions, and restricted operations conditions and the

remedies to which SSA is entitled as a result thereof.

9. Section 4.03(b) ofthe LPA provides that GIV and its partners consent to the

exercise by SBA ofall of its rights under 13 C.F.R. § 107.1820 and agree to take all actions

required by the SBA under that section.

10. Pursuant to Section 303 of the Act, 15 U.S.C. § 683, SBA provided funds to

OIV through the purchase and/or guaranty of Participating Securities, a lorm of leverage, as

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Case 2:13-cv-0397S-JCJ Document 1 Filed 07/10/13 Page 3 of 8

those tenns are defined under the Regulations. Pursuant to 13 C.F.R. § 107.50, "Participating

Securities" means preferred stock, preferred limited partnership interests, or similar instruments

issued by licensees.

ll. Currently, $25,002,281.00 in Participating Securities Leverage remain

outstanding. Pursuant to 13 C.F.R § 107.50, "leverage" means financial assistance provided by

SBA to a licensee, evidenced by a security ofthe licensee.

l2. The Participating Securities described in Paragraphs 1 0-ll hereinabove are

expressly subject to and incorporated by reference in the applicable regulations, inter alia. 13

C.F.R. §§ 107.1820-50 and 107.507.

13. Section 308(d) of the Act, 15 U.S.C. §687(d), provides that upon

detennination and adjudication of noncompliance or violation of the Act or the regulations, all of

the rights, privileges and franchises ofa licensee, such as GIV, may be forfeited and the

company may be declared dissolved.

]4. Section 311 of the Act, 15 U.S.C. §687c. provides that upon a detennination

by SBA that a licensee, such as GIV, has engaged in or is about to engage in any acts or

practices which constitute or will constitute a violation of the Act or ofany regulation issued

pursuant to the Act, or of any order issued under the Act, then SBA may make application for

an injunction, and such Court shall have jurisdiction of such action and grant a pennanent or

temporary injunction, or other relief without bond, upon a showing that such licensee has

engaged in or is about to engage in any such acts or practices. The Court is authorized, inter

aliih to appoint SBA to act as receiver for such licensee.

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Case 2:13-cv-0397S-JCJ Document 1 Filed 07/10/13 Page 4 of 8

NONPERFORMANCE OF AGREEMENT WITH SSA

COUNT ONE

15. Paragraphs 1·14 hereinabove are incorporated by reference as if set forth

again in full.

16. Pursuant to 13 C.F.R. §107.507(a), Nonperformance of any written

agreement with SBA constitutes a violation ofthat regulatory section.

17. Pursuant to 13 C.P.R. §I07.l820(b), ifa licensee has a condition of"capital

impairment," it is not in compliance with the terms ofits leverage, and the SSA has the right to

impose the applicable remedies for non-compliance as provided by 13 C.P.R. §§ 107.1810(g)

and 107.l820(f). Pursuant to 13 C.F.R. §107.1820(c), OJV's Capital Impairment Percentage

may not exceed 60 %. 13 C.P.R. § 107.l830(c) provides further that the Capital Impairment

Percentage is calculated pursuant to a formula set forth in 13 C.F.R. §107.1840.

18. As of September 30,2010, SSA determined that GIV had a condition of

Capital Impairment of 82.3%, a percentage greater than that allowed under § 107.1830 ofthe

Regulations.

19. As a consequence of its failure to cure its condition ofcapital impairment

under 13 C.F.R. § 107.1820 (e)(3), by letter ofJanuary 5, 2011, SBA placed OIV in restricted

operation status under under 13 C.F.R. §107.1820(1).

20. As a further consequence of its failure to cure its condition ofcapital

impainnent, ON was notified, by letter dated May 11, 2011, that it had been placed into

liquidation status by SBA and that ON was to continue to comply with the restricted operations

conditions described therein.

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Case 2:13-cv-03975-JCJ Document 1 Filed 07/10/13 Page 5 of 8

21. On or about April 17, 2012, GIY and SBA entered into a Wind Down

Agreement ("the Agreement") whereby SBA agreed to forebear from exercising its regulatory

and statutory remedies and allowed GIY to liquidate itself under the terms of a Wind Do,"n

Plan (''the Plan") submitted by OIY to SBA on or about April 6, 2012.

22. SBA's approval of the Plan, and its execution of the Agreement, was based

on cash flow projections from OIY anticipating the full repayment of SBA's outstanding

debenture leverage in fulL

23. GIY failed to meet its projected repayment targets for calendar year 2012.

24. On or about May 7,2013, SBA received revised projections from OIY, along

with an email. indicating that OIY was not going to meet its repayment targets for calendar year

20]3.

25. By that same email dated May 7. 2013 and referenced in paragraph 24,

above, GIY informed SBA that it would not meet its repayment targets for 2014, due in pari to

the devaluation ofan asset held by OIY.

26. The revised projections from GIY indicate that it will be unable to repay

SBA's leverage in full even after calendar year 20)4 and will thus be unable to meet the terms

ofthe Plan.

27. Under the terms ofthe Agreement, SSA's decision granting approval for the

OIY to proceed with its own liquidation was subject to reconsideration if the actual wind down

substantiaJly and negatively deviated from that projected by GIY in the Plan.

28. Section 11 or the Agreement provides that in consideration ofSBA's

agreement to the Plan, OIY would execute a consent order of receivership so that SBA could

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Case 2:13-cv-03975-JCJ Document 1 Filed 07/10/13 Page 6 of 8

proceed with a receivership action if, in SBA's discretion (a) GIV was no longer substantially

meeting the material terms of the Plan or (b) the Plan was no longer advisable. Section 11 of

the Agreement further provides that the consent order of receivership could be executed by

SBA on or after September 16. 20] 2.

29. After reviewing GIV's revised projections as submitted on May 7, 2013,

SBA determined that GIV was no longer substantially meeting the tenns of the Plan and that the

Plan was no longer advisable.

30. By email dated June 18,2013, SBA advised GIV that it was no longer

substantially meeting the terms of the Plan and that the Plan was no longer advisable in part due

to the failure ofthe revised projections to provide for the repayment ofSBA's leverage in fuU.

31. GIV's failure to meet the tenns ofthe Plan and of the Agreement constitutes

nonperformance of a written agreement with SBA and violation of 13 C.F.R. §] 07.507(a).

32. As a consequence ofGIV's violation of 13 C.F.R. §] 07.507(a) ofthe

regulations, SBA is entitled to be appointed as liquidating receiver for GIV and is further

entitled to the injunctive reJiefprovided under the Act. 15 U.S.C. § 687c.

WHEREFORE, Plaintiff prays as follows:

A. That this Court enter the Consent Order filed simultaneously herewith and

grant injunctive relief. both preliminary and pennanent in nature, restraining and enjoining

GIV, its past or present general partner(s), managers, management company, directors, officers,

agents, employees. and other persons acting in concert or participation therewith from: (1)

making any disbursements ofGIV's funds; (2) using. investing, conveying, disposing,

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Case 2:13-cv-03975-JCJ Document 1 Filed 07/10/13 Page 7 of 8

executing or encumbering in any fashion any funds or assets of GIV. wherever located; and (3)

further violating the Act or the regulations promulgated thereunder.

B. That this Court detennine and adjudicate GIV's noncompliance with and

violation ofthe Act and the Regulations promulgated thereunder.

C. That this Court, pursuant to 15 U.S.C. § 687c, take exclusive jurisdiction of

OIV and all of its assets, wherever located, appoint SBA as receiver of GIV for the purpose of

marshaling and liquidating the assets of OIV and satisfYing the claims ofcreditors as approved

by this Court, and such other relief as contained in the proposed order for the appointment of

SBA as receiver orON in accordance with 15 U.S.C. § 687c flJed simultaneously with this

Complaint and with Plaintiff's motion for injunctive relief.

D. That this Court grant such other relief as may' be deemed just and proper.

Respectfully submitted,

~~~~~

Assistant United States Attorney
Chief, Civil Division

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Case 2:13-cv-03975-JCJ Document 1 Filed 07/10/13 Page 8 of 8

'.LLrLL'......, M. BERNSTEIN (PA.#

~ssistant United States Attorney
615 Chestnut Street Suile 1250
Philadelphia PA 19106·4476
(21S) 861-8334
(21S) 861-8618 (fax)

OF COUNSEL:

ARLENE M. EMBREY
U.S. Small Business Administration
409 Third Street, S.W. 7111 Floor
Washington DC 20416
(202) 205-6976
(202) 481-0324(f)

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