Cardinal Equity Merchant Cash Advance Syndication Lawsuit

FILED: NEW YORK COUNTY CLERK 08/23/2019 04:52 PM INDEX NO.
654888/2019
NYSCEF DOC. NO. 1 RECEIVED NYSCEF: 08/23/2019
SUPREME COURT
SUPREME COURT OF
OF THE
THE STATE
STATE OF
STATE OF NEW
NEW YORK
NE,W YORK
COUNTY
COUNTY
COUNTY OF NEW YORK
OF NEW YORK
SRS Capital
SRS Capital Funds,
Funds, Inc.,
Inc., USRS
USRS Capital
Capital Funds,
Capital Funds,
Funds,
Inc., Capital
Inc., Capital Funding IN,
Funding JN,
IN, Inc., Joseph
Joseph
Schulman, and
Schulman, and Tzila
Tzila
T Schulman
zila Schulman Index
Index No
Index No.
No. /2019
/2019
t2019
SUMMONS
SUMMONS
SUMMONS
Plaintiffs,
Plaintiffs,
Plaintiffs designate
Plaintiffs designate New
New York
York
-against-
-against-
-against County as
County as the
the place
place of
of trial
trial
The basis
The basis of
of venue
venue is
is the
the
Arly
Arty Bujan,
Arty Bujan, William
William Lees,
Lees, and
and Cardinal
Cardinal Equity,
Equity, Defendant's principal
Defendant's principal office
principal office is
is
LLC
LLC located in New York County.
located County.
Defendants.
Defendants.
Defendants
ABOVE-NAMED DEFENDANTS:
TO THE ABOVE-NAMED DEFENDANTS:
yOU
YOU ARE
YOU ARE HEREBY SUMMONEDtotoanswer
HEREBY SUMMONED answer the
thecomplaint
complaint in
in this
this action
action and to serve
and to
aa copy
copy of
of your
your answer
answer on the plaintiffs'
on the plaintiffs' attorneys within 20
attorneys within
within 20 days
days after
after the
the service of this
service of this
summons, exclusive
summons, exclusive of
exclusive of the
the day
day of
of service
service (or
(or within
within 30
30 days
days after
after the
the service
service is
is complete if the
complete if the
summons is
summons is not
not personally
personally delivered
personally delivered to
delivered to you
you within
within the
the State
State of
of New
New York); and in case
York); and of your
case of
failure to
failure to appear
appear or answer, judgment
or answer, judgment will against you
will be taken against you by default for
by default the relief
for the relief
demanded herein.
demanded
demanded
Dated: New
Dated: New York,
York, New
York, New York.
York. Respectfully submitted,
Respectfully submitted,
submitted,
August 23,2019
August 23, 2019
Kasowitz
Kasowitz Benson Tones
Kasowitz Benson
Benson Tones LLP
LLP
1633
1633 Broadway
1633 Broadway
New York,
New York, NY
York, NY 10019
10019
10019
(2r2)
(212) 506-1700
(212) 506-1700
so6-r700
By:
By:
JJe Bergm
Je• Bergm
A a K.K. St k
AA orneys
orneys for Plaintffi
for Plaintiffs
for Plaintiffs
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FILED: NEW YORK COUNTY CLERK 08/23/2019 04:52 PM INDEX NO. 654888/2019
SUPREME COURT OF THE STATE OF NEW YORK

COUNTY OF NEW YORK
SRS Capital Funds, Inc., USRS Capital Funds,

Inc., Capital Funding JN, Inc., Joseph
Schulman, and Tzila Schulman
Index No. ___________/2019
Plaintiffs,
-against- COMPLAINT
Arty Bujan, William Lees, and Cardinal Equity,

LLC
Defendants.
+
Plaintiffs SRS Capital Funds, Inc., USRS Capital Funds, Inc., Capital Funding JN, Inc.,
Joseph Schulman (“Schulman” or “Mr. Schulman”), and Tzila Schulman (collectively, “SRS” or
“Plaintiffs”), by and through their undersigned counsel, Kasowitz Benson Torres, LLP, bring this
action against Defendants Arty Bujan (“Bujan” or “Mr. Bujan”), William Lees (“Lees” or “Mr.
Lees”), and Cardinal Equity, LLC (“Cardinal,” and collectively, “Defendants”) and allege the
following upon knowledge as to their own actions, and otherwise upon information and belief:
PRELIMINARY STATEMENT
1. This dispute arises from a years-long fraudulent investment scheme perpetrated
by Defendants, based on inflated returns on an investment portfolio, which cost Plaintiffs
millions of dollars in out-of-pocket losses and expectation damages based on Defendants’
misrepresentations.
2. Defendants Arty Bujan and Cardinal Equity, LLC, fraudulently induced SRS to
enter into, and continue investing in, a series of syndication agreements with Defendants. The
purpose of the syndication venture was ostensibly to finance the parties’ investment in certain
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merchant cash advance (“MCA”) transactions. In fact, Defendants’ true intention was to line
their own pockets with millions of dollars which were stolen, misappropriated and/or converted
from its syndication partner, SRS.
3. In 2016, to induce SRS to enter into the investment relationship, Defendants made
certain representations to SRS about the historical success of their venture, its future
profitability, the manner in which funds invested by SRS would be allocated and spent, the
transparency of its accounting, and the associated fees. In written and oral communications with
SRS, Mr. Bujan described an exceptionally profitable venture, making returns that easily
exceeded 50% per annum, in which he had invested a considerable amount of his own money.
Given the venture’s purported historical success and Mr. Bujan’s claimed connections to a
reputable MCA business that SRS knew and trusted, SRS decided to make more than $20 million
of investments with Cardinal over a three-year period.
4. During the parties’ three-year relationship, Defendants repeatedly breached their
contractual and fiduciary obligations to SRS by making material misrepresentations about the
performance and status of their investments, actively concealing their misconduct by presenting
fraudulent portfolio data, withholding access to information that was necessary for SRS to
evaluate the value of its investments, and outrageously and fraudulently charging SRS for fees
and services on worthless investments.
5. As SRS has now begun to discover, and upon information and belief, the true
reason for Cardinal’s apparently exceptional returns was Defendants’ use of misleading formulas
and fabricated data. Defendants concealed from SRS the number of accounts that were in
collections or had already defaulted, and continued to charge management and brokerage fees on
accounts that it knew to be uncollectible. Defendants also used proprietary software to
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manipulate the information it presented to SRS and its other syndication partners. Further,
although Defendants charged SRS a 10%-15% broker commission fee, which it represented was
being paid to “independent sales agents,” brokers actually received a substantially lower
commission – and Defendants pocketed the difference.
6. Defendants used these misrepresentations to conceal their misconduct and induce
SRS to continue and prolong its investments in the syndication venture, resulting in millions of
dollars in illegitimate proceeds to Defendants and millions of dollars in losses to SRS.
7. SRS now seeks compensatory and punitive damages of no less than $10 million
for its losses arising from Cardinal’s misconduct, including (a) management fees for deals that
Defendants knew to be valueless; (b) fraudulent and excessive “broker fees”; (c) out-of-pocket
losses for returns paid to SRS’s investors based on Defendants’ misrepresentations about the
performance of the MCA portfolio; (d) expectation damages; (e) lost profits; and (f) other
damages it incurred as a result of Defendants’ fraudulent scheme.
JURISDICTION AND VENUE
8. Jurisdiction is proper herein pursuant to CPLR §§ 301 and 302, and venue is
proper pursuant to CPLR § 503.
PARTIES
9. Plaintiff SRS Capital Funds, Inc., is a corporation organized under the laws of the
State of New York with its principal place of business located at 70 East Sunrise Highway, Suite
500, Valley Stream, NY 11581.
10. Plaintiff USRS Capital Funds, Inc., an affiliate of SRS Capital Funds, Inc., is a
corporation organized under the laws of the State of New York with its principal place of
business located at 70 East Sunrise Highway, Suite 500, Valley Stream, NY 11581.
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11. Plaintiff Capital Funding JN, Inc., an affiliate of SRS Capital Funds, Inc., is a
corporation organized under the laws of the State of New York with its principal place of
business located at 70 East Sunrise Highway, Suite 500, Valley Stream, NY 11581.
12. Plaintiff Joseph Schulman is an individual residing in Israel, a founder and
Managing Partner of SRS Capital Funds, Inc.
13. Plaintiff Tzila Schulman is an individual residing in Woodmere, New York.
14. Upon information and belief, Defendant Arty Bujan is an individual residing in
West New York, New Jersey, who has been the CEO and Managing Partner of Cardinal Equity,
LLC, since he founded Cardinal in 2012.
15. Upon information and belief, Defendant William Lees, Jr. is an individual
residing in Estero, Florida, and an officer and a partner of Cardinal Equity, LLC.
16. Defendant Cardinal Equity, LLC, is a limited liability corporation organized
under the laws of New Jersey that does business in New York with its principal place of business
located at 30 Wall St, New York, NY 10005.
FACTUAL BACKGROUND
The Merchant Cash Advance Business
17. Cardinal is a syndicator in the merchant cash advance business. Merchant cash
advance is a form of short-term financing by which an MCA company – in the instant case,
Cardinal – purchases future receivables from a business in exchange for a lump-sum upfront
payment. Businesses use MCAs to fund their business needs through that upfront payment,
which they repay over time via daily credit card transactions or ACH debits from their accounts.
18. MCA advances typically benefit small businesses with immediate cash needs who
may find MCA to be a relatively attractive short-term financing option for several reasons, as
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Cardinal’s own website explains. First, MCA financing allows for flexibility that is not available
with traditional loans, which typically require a fixed monthly payment that is not affected by the
business’s performance or cash flow and may state specific terms for how the funds can be used.
Second, MCA financing has a simpler approval process than a traditional loan, typically relying
primarily on the business’s daily credit card transactions and positive cash flow statements.
19. As the lead partner or agent in a syndicate, Cardinal locates opportunities to make
advances and purchase receivables, and raises the funds necessary to purchase those receivables
by securing syndication partners (the “participants”). These participants invest in a merchant
cash advance by funding a percentage of the gross amount advanced to the business (the
“participation amount”). In return, the participant receives a percentage of the future receivables
in proportion to its participation amount. As the receivables are paid to the participants, the
funds can be reinvested in additional advances.
20. Cardinal also manages the participants’ funds in an account owned by Cardinal, in
exchange for a management fee proportionate to the participation amount. The relationship
between the participants and the lead is governed by a series of contracts, including a
participation agreement and a participant servicing agreement, which delineate the rights and
obligations of the partners.
21. The agent’s ability to manage and understand the credit quality of the merchants
in its portfolio of advances is critical to the syndicate’s success. Unlike a loan, an MCA is not
secured by collateral, and the syndicate will only realize a positive return on its investment if the
merchant continues to engage in sufficient regular credit card transactions. Accordingly, it is
vital that the syndicate participants have continuing access to accurate information about the
credit of the merchant and the status of the investments -- the amount that has been repaid on
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each account, the number of accounts that are delinquent or in collections, changes in the
delinquency period, the default rate, and so forth -- as it allows the participants to make informed
decisions about how to treat these investments and whether to continue to invest.
SRS Invests with Cardinal Equity
22. In 2016, Cardinal’s CEO, Arty Bujan, first spoke to SRS to discuss investing in
Cardinal’s purportedly profitable MCA syndication venture. SRS was referred to Cardinal by
others in the MCA business, who had previously worked with Mr. Bujan. Although Cardinal
was a relatively new company, Mr. Bujan had been a player in the MCA business for many
years, and his reputation suggested that he was trustworthy.
23. On September 6, 2016, Mr. Bujan spoke to Spencer Silverman (“Silverman” or
“Mr. Silverman”), the founder and Managing Partner of SRS, to discuss Cardinal’s MCA venture
and the online platform, GMA, that Cardinal would be using to monitor the participation
portfolio. Mr. Silverman also scheduled a September 12, 2016 follow-up meeting between Mr.
Bujan and Mr. Schulman, SRS’s Managing Partner, to discuss the venture and demonstrate the
platform.
24. At that time, Mr. Silverman was in talks with one or more potential investors that
had expressed an interest in investing with SRS for the purpose of engaging in MCA
transactions. Mr. Silverman asked Mr. Bujan how large of an investment he would be able to
invest immediately pursuant to the syndication venture. Mr. Bujan represented that no amount
was too high, and suggested that Mr. Silverman obtain $20,000,000 from the investors for an
initial investment.
25. During and after these initial meetings, Mr. Bujan made a series of
misrepresentations to SRS about his venture, its profitability, and the way that funds invested by
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SRS would be allocated and spent. These representations included, but are not limited to, the
following: (a) that the syndication venture was making and would continue to make returns
between 65% and 75% a year; (b) that Mr. Bujan had invested a substantial amount of his own
funds in the venture; (c) that Mr. Bujan was working with a reputable third party within the
MCA industry that SRS knew and trusted; and (d) that Mr. Bujan’s brokers would be paid a 10%
broker fee for each transaction.
26. Mr. Bujan also underscored the legitimacy of his representations by offering to
“put his money where his mouth is”; as an alternative to the proposed investment, he offered
SRS the option of a flat, guaranteed 45% return. A forty-five percent rate of return is not
unusual in the MCA business, and Mr. Bujan’s flat-rate guaranteed offer thus seemed reasonable.
Nevertheless, relying on Mr. Bujan’s representations of even greater returns, SRS elected to
forego the opportunity.
27. Based on Bujan’s representations, and after conducting appropriate due diligence,
SRS decided to invest with Cardinal on September 20, 2016. On that day, SRS provided
Cardinal with an account containing $70,000 to initiate the investment. Mr. Bujan claimed this
amount would not be enough to access the larger, more-lucrative deals, and SRS agreed that it
would continue to raise additional capital.
28. In response to Mr. Bujan’s representation that additional capital would be needed
for SRS to recognize a meaningful return on its investment, Plaintiffs raised and invested
additional capital several times in September, October and November of 2016. These included,
but are not limited to, additional investments of $25,000 on or about October 19, 2016; $14,000
on or about October 31, 2016; and $200,000 shortly thereafter.
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29. On December 1, 2016, SRS formalized the parties’ existing agreement when it
signed and submitted the first in a series of related oral and written participation agreements and
participant servicing agreements (the “Syndication Agreements”).
30. Through these agreements, Cardinal agreed to use funds invested by SRS to
purchase future receivables from credit-worthy merchants at a heavily discounted price (the
“syndication principal”). SRS would then own an interest in the purchased receivables, which
would remain in an account managed by Bujan to be reinvested, subject to SRS’s option to veto,
in other opportunities selected and purportedly vetted by Cardinal (the “Participation Portfolio”).
In practical effect, this meant that Cardinal would send SRS daily digests of MCA deals that it
had supposedly underwritten and selected, and, based upon Cardinal’s representations, SRS was
given the option to veto the deal(s) or allow its money to be reinvested.
31. Under the parties’ agreements, SRS’s profits would be the difference between the
syndication principal and the value of receivables Cardinal collected, minus certain fees and
expenses to be collected by Cardinal. These fees included a 10% broker fee, which Cardinal
would deduct from SRS’s managed accounts and distribute to its brokers, and a management fee,
which Bujan was allowed to collect on accounts he managed.
32. In managing SRS’s accounts, Cardinal and Mr. Bujan were obligated by contract
to act “in compliance with applicable laws and in accordance with prudent industry standards for
the efficient and effective servicing and management of similar property,” and employ
“commercially reasonable efforts in order to maximize collections in respect of the Participation
Portfolios.”
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The Defendants’ Fraudulent Scheme
33. As SRS began to invest with Cardinal, Mr. Bujan and other Cardinal employees
made ongoing representations to SRS that its investments were performing well and yielding
substantial profits, and encouraged SRS to invest more money into the venture.
34. From December 2016 to February 2017, Mr. Bujan engaged in multiple calls with
Plaintiffs in which he stated that the only way to raise the statistics in the portfolio was to invest
more money, so as to access larger and more lucrative MCA deals. For example, in a call on
December 19, 2016, Mr. Bujan and Mr. Silverman discussed the possibility of increasing SRS’s
investment. On that same call, Mr. Bujan represented that SRS’s existing investments were
making money, and that missed payments and defaults on the deals in the Participation Portfolio
were very low.
35. Based on these and other representations about the success of the Participation
Portfolio, SRS continued to raise and invest additional capital in the syndication venture. SRS
also promised and ultimately made certain payments to its own investors, equal to 20% of the
syndication principal per annum, in reliance on the information Bujan provided about the
purported performance of the portfolio.
36. On February 23, 2017, as part of their continuing investments with Cardinal,
Plaintiffs signed another Master Participation Agreement between USRS Capital Funds, Inc. and
Cardinal Equity, LLC. Shortly thereafter, on March 8, 2017, Plaintiffs opened up an account for
USRS Capital Funds, Inc., which contained $500,000 that were invested with Cardinal. At this
time, Mr. Bujan also had a phone call with Mr. Silverman, during which Mr. Bujan described the
formula he used to calculate profits, and stated that all MCA companies calculated profits in the
same manner.
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37. The formula Bujan used to calculate profits -- and the accuracy of the inputs it
used -- was critical for SRS to monitor the deals in the Participation Portfolio. Unlike traditional
loans, which may be paid in specific installments over time or as a lump sum payment, merchant
cash advances are paid back a little bit each day through the collection of ACH debits from
merchant accounts, and the money generated is then immediately reinvested in other deals.
Because the portfolios contain numerous deals in different stages of collection, and because the
money is being actively reinvested, it is almost impossible to monitor the collections being made
and the profits being generated as to each investment; therefore, the value of a syndication
portfolio is typically monitored as a whole using a profit formula.
38. In order for these formulas to have any utility as a tool for monitoring the
investment, the lead syndicator must provide accurate values. One of the key values for the
formula is the default rate, or percentage of loans that will not be paid back. An accurate default
rate is very important in the context of an MCA deal where, unlike in a traditional loan, the
advance is not collateralized. A default in payments on an advance results not only in the loss of
interest, but also the loss of the principal amount. Further, default rates in the MCA business
tend to be higher than in other industries. For these reasons, the default rate has a massive
impact on the rate of return of a syndication portfolio, and misrepresenting the default rate will
artificially inflate the value of a syndication portfolio.
39. During all times relevant to this litigation, Cardinal consistently represented that
the default rate for the investments in the Participation Portfolio was approximately 10 to 12%, a
rate that was well within normal margins for the MCA business. This is the rate that was input
into the formula used by Cardinal to calculate the profits generated by its investments.
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40. Also in early 2017, Cardinal informed Plaintiffs that it would begin using its own
proprietary online platform, called “Redbird,” to monitor, record and present data about the
accounts and transactions in SRS’s Participation Portfolios. Cardinal began to transfer the data
from the GMA platform, its original reporting system, to the proprietary Redbird system, in or
around January of 2017, though it continued to use a mix of both systems for several months
thereafter.
41. Throughout this time, in all communications and meetings with Plaintiffs,
Cardinal consistently represented that SRS was making money on its investments. For example,
on July 5, 2017, Mr. Silverman met with Mr. Bujan in New York City to discuss SRS’s
investment. During a dinner meeting, Mr. Bujan reiterated that the accounts were performing
very well. Mr. Bujan and other Cardinal employees also made similar representations in emails
and documents sent to SRS, including a July 10, 2017 spreadsheet provided by Cesar Valero,
Cardinal’s Director of Business Development.
42. On July 25, 2017, at 11:30 am, Mr. Schulman met with Mr. Bujan at Cardinal’s
offices in New York. During the meeting, which lasted over 2.5 hours, Mr. Schulman and Mr.
Bujan reviewed the numerous accounts that SRS had with Cardinal. Mr. Bujan claimed that all
accounts were doing phenomenally well, repeatedly insisted that the SRS investment portfolio
was performing at substantially over 50% annual returns, and stated that defaults were below
10%. Following these representations, Mr. Bujan also encouraged SRS to raise more money
from its own investors and to continue augmenting its investments in his platform.
43. During that same July 25, 2017 meeting, Mr. Bujan also made certain
representations about Redbird. Mr. Bujan, who claimed to have an affinity for technology,
represented that he had spent more than $2 million developing the proprietary computer system
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and platform. He further stated that the new system would offer greater transparency to
syndication partners, which he believed would give him a competitive advantage over others in
the MCA marketplace. Mr. Bujan also provided Mr. Schulman with an electronic copy of the
formula that he claimed would be used to monitor and calculate SRS’s profits on an ongoing
basis, based on inputs from his new system.
44. Once the roll-out of Redbird began in earnest in July 2017, Cardinal and Mr.
Bujan began sending SRS data using the new platform. The numbers provided to SRS using
Redbird appeared to support Mr. Bujan and Cardinal’s assertions about the profitability of the
deals in Plaintiffs’ portfolios. Given that the software was both new and proprietary to Cardinal,
SRS sometimes had difficulty interpreting the Redbird data, and needed to reach out to Bujan or
Cardinal for help understanding the formula being used or the numbers the formula generated.
In calls explaining the new system, Mr. Bujan represented that the main numbers to focus on
were the receivables and the net profit after management fee. The numbers generated by
Cardinal continued to present a default rate of about 10%.
45. For several months, the investment appeared to be performing well, with Cardinal
generating considerable profits for SRS. By March 2018, SRS had increased its total
participation amount to $7,000,000. SRS continued to see daily increases in payments it
received from merchants, as well as receivables and net profit. When SRS observed that the
system appeared to mistakenly list certain accounts as “active” after they should have been
moved to “default,” SRS inquired with Cardinal about this issue. In response, Cardinal provided
a spreadsheet generated by the Redbird platform, which appeared to show that SRS’s investment
was still extremely profitable, and that the inactive accounts were not a cause for concern. Mr.
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Bujan also continued to represent that the default rate for these accounts was below 12%, and
used that figure to calculate the profitability of the portfolio.
46. In May 2018, after SRS had invested $10,000,000 in capital with Cardinal, SRS
observed a dip in its daily income, as well as changes to how certain items were being classified
by the Redbird system. Mr. Silverman discussed the developments with Mr. Bujan, who
explained that the investments were still generating profits, and that the drop in daily income was
due to a relatively large amount of money being invested into a few big deals that went bad.
Cardinal continued to make oral representations that the default rate was in the range of 10-12%.
47. In July 2018, SRS began to notice some discrepancies between Mr. Bujan’s
representations and the data being reported. After receiving a spreadsheet on June 25, 2018,
from Morgan Quinn, Cardinal’s Chief Operations Officer, SRS observed what appeared to be an
increase in accounts in collections and write-offs despite the high rate of return. SRS requested
an explanation of the formulas and how they worked, the data Defendants had used in their
accounting, and the decrease in daily income reports. Bujan and Quinn both promised answers
about the accounts in default. Defendants, however, failed to provide timely answers to SRS’s
questions.
48. In the months that followed, SRS encountered increasing difficulties in contacting
Defendants, who seemed to be ignoring their inquiries, particularly about the defaults and
accounts in collections. Despite Defendants’ repeated promises that the investments were
performing well above-market, it was difficult for SRS to obtain concrete information about the
performance of its Participation Portfolio. Defendants ignored SRS’s requests for documentation
about the performance of its investments, taking weeks or months to respond to simple requests
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or ignoring them outright. When Defendants did reply to SRS’s inquiries, it was often to
promise work product that was not delivered on time, or not delivered at all.
49. In July 2018, in furtherance of these requests, Mr. Silverman travelled to
Cardinal’s New York office for a scheduled meeting with Mr. Bujan. Mr. Bujan failed to attend,
leaving Mr. Silverman with Morgan Quinn, who was unable to answer his questions.
50. SRS repeatedly requested current and accurate information about accounts in
collections. Defendants failed to provide this information. When Cardinal and Mr. Bujan finally
responded to inquiries, they asserted that the defaults did not have a material impact on the
profitability of SRS’s investments, representing specifically that 85% of active deals, 70% of
suspended deals, 50% of deals in collections, and 30% of deals in inactive collections were being
collected.
51. After more than a month of questioning, Mr. Bujan also elaborated on the
formulas in his accounting process. However, the information he provided was inconsistent with
information he had provided orally, and did not help SRS to understand the numbers that were
being generated by Cardinal’s “proprietary” Redbird system. Further, Bujan failed to provide
current, accurate information about the default values that he used when making his calculations.
52. Despite Defendants’ numerous assurances that the accounts were profitable and
defaults were below 12%, SRS’s investments with Cardinal suddenly began to show a negative
rate of return in August-November 2018. The negative rate of return was first apparent in a
spreadsheet provided by Mr. Lees on August 28, 2018.
53. Subsequently, at a February 13, 2019 meeting between SRS representatives Seth
Grossman and Craig Gherman and Cardinal’s Arty Bujan and William Lees, Jr., Mr. Bujan and
Mr. Lees finally came clean and acknowledged that the accounts had not made any net profit in
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the past two years, and had in fact lost a considerable amount of money. Defendants had never
given any prior indication that the venture was not profitable, that a substantial number of the
accounts were not collectible, or that the portfolio was rapidly decreasing in value.
The Truth Behind Defendants’ Fraudulent Scheme
54. SRS now knows that many of the representations made by Defendants,
particularly Mr. Bujan, were materially false and misleading.
55. In truth, SRS’s investment accounts were not as lucrative as Mr. Bujan asserted,
and -- as Mr. Bujan and Mr. Lees conceded -- made zero net profit during the parties’ years-long
relationship, and had in fact caused millions of dollars in losses. Based on consultation with a
licensed CPA, SRS now believes that Defendants presented SRS with fraudulent numbers
throughout the parties’ business relationship to create the illusion that the accounts were
profitable. It was based on the false premise that the accounts were collectible and performing
above-market that Cardinal continued to enter into new agreements with SRS.
56. The core of the misrepresentations made by Cardinal surround the default rate.
For more than two years, Defendants deliberately concealed the levels of delinquency and
defaults on deals in the Participation Portfolio. Defendants represented to SRS that the default
rate was 10-12%, a rate that was within normal margins for the MCA business. However, as
SRS later learned, the true default rate was about three times as high as Cardinal claimed.
Given the importance of an accurate default rate to MCA deals -- and given that these advances
are not collateralized -- Cardinal’s intentionally low default estimate was purposefully intended
to conceal the fact that, not only was SRS seeing no positive returns on these defaulting deals,
but in fact, Cardinal’s deployment of SRS’s funds was hemorrhaging money. Cardinal’s efforts
to conceal defaults prevented SRS from learning about the poor quality of the Participation
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Portfolio, and based on these fraudulent numbers, induced SRS to continue reinvesting its money
into the MCA deals suggested by Cardinal.
57. Defendants also abused Mr. Bujan’s proprietary platform to manipulate
accounting documents in order to conceal the true value of the investments, including by
manually editing data and quickly moving accounts from “active suspended” into “write off”
status without disclosing that to SRS. This maneuver artificially inflated SRS’s profits and
appeared to support Mr. Bujan’s optimistic valuation of the Participation Portfolio.
58. Through Redbird, Defendants also used inaccurate formulas and numbers to
artificially inflate the value of SRS’s investments. The Redbird accounting system was based on
“lifetime values,” which includes all deals that had been in the portfolio since 2017, rather than
just current deals -- a shift that made it far more difficult for syndication partners to discern
deterioration in the current portfolio. The data yielded by these formulas and values was too
high, misrepresented the actual value of the investments, and was knowingly intended to conceal
the massive losses that SRS was actively experiencing. Defendants also used the system to
generate misleading documents to support their misrepresentations to Plaintiffs.
59. Defendants also took management fees for investments that they knew to be
valueless. Unbeknownst to SRS, Defendants repeatedly extracted management fees upfront for
deals that had already defaulted, deals that were written off within the first month, and deals that
were written off within the first few weeks of SRS’s investment.
60. Defendants took these management fees, equal to 7% of the value of each
account, even though they knew the relevant accounts were uncollectible. Defendants also failed
to timely disclose the status of these accounts to SRS, even after SRS requested information
about the accounts in collections.
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61. In addition, Defendants charged Plaintiffs fraudulent and excessive “broker fees.”
Cardinal represented to SRS that it was charging SRS a 15% brokerage fee. In fact, many of
Cardinal’s brokers were paid far less than 15%, but Cardinal deducted the entire 15% from
SRS’s profits, pocketing the difference for itself.
62. SRS was also charged broker fees on accounts that defaulted within the first thirty
days. Cardinal would claw back the commissions paid to these brokers, but it appears that
Cardinal never credited SRS’s account for the clawed-back amounts, instead keeping the funds
for themselves.
63. In addition to being false and misleading, this conduct is clearly contrary to the
Master Participation Agreement, which provides that broker commissions would be paid to
“independent sales agent[s]” who have contracted with Cardinal -- not to Cardinal itself.
64. Additionally, upon information and belief, Cardinal engaged in side agreements
with merchants, co-funders, and other parties related to the deals in the Participation Portfolio.
Cardinal’s side deals with merchants allowed Cardinal to collect money and receivables related
to the MCA deals that were not reflected in or distributed to the accounts belonging to Plaintiffs.
Its deals with co-funders also caused some investors to receive higher returns than other
investors, at Plaintiffs’ expense.
65. Moreover, contrary to his representations, Mr. Bujan also did not invest his own
funds in the syndication venture. Nor did he have the business relationship he claimed with the
reputable player in the MCA business.
Defendants Continue Their Efforts to Defraud Plaintiffs
66. Even as the truth began to emerge, Defendants continued their scheme to defraud.
Among other things, Defendants ignored or failed to abide by Plaintiffs’ requests to stop debiting
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their accounts for new investments. Cardinal’s usual practice was to send SRS daily digests of
MCA deals, at which time SRS could decline to invest in the advance, and its account would not
be debited. In November 2018, when Plaintiffs grew concerned about the apparent downturn in
the profitability of their investment, Plaintiffs requested that Defendants stop debiting Plaintiffs’
accounts to make new advances. Defendants nevertheless debited a large amount of money from
Plaintiffs’ accounts shortly after the request was made.
67. Similarly, even after Defendants finally admitted that SRS had made no money
during the parties’ relationship -- and agreed to make up for a portion of these losses through a
fee-sharing arrangement -- Defendants failed to adhere to that agreement. Defendants also
continued to ignore and delay responding to SRS’s requests for vital information, purposefully
standing in the way of Plaintiffs’ efforts to understand what has happened to their investments.
68. In addition to being willful, fraudulent, materially false and misleading,
Defendants’ conduct is in clear violation of its contractual obligation to use commercially
reasonable efforts to maximize collections, and perform its duties in compliance with applicable
laws and prudent industry standards.
69. Cardinal’s misconduct as alleged herein was intentional, or at a minimum, in
certain instances, grossly negligent.
SRS Suffered Considerable Harm as a Result of the Fraud
70. As outlined above, Defendants’ wrongdoing has caused SRS significant harm,
including, without limitation: (a) management fees that were wrongfully collected by Mr. Bujan,
in an amount that exceeds $1.7 million and may be as great as $4 million; (b) excessive “broker
fees” collected by Cardinal that were never distributed to “independent sales agents,” in an
amount that exceeds $1.25 million; (c) out-of-pocket costs and expenses, including returns paid
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to SRS’s investors based on Mr. Bujan’s misrepresentations, which amounts to twenty percent of
reported earnings on Plaintiffs’ $20 million investment weighted over the course of the
Plaintiffs’ two-year investment, in an amount not less than $4 million.
71. SRS has also experienced losses in the form of: (a) profits and expectation
damages due to Mr. Bujan’s false promises and contractual breaches, in an amount that exceeds
$8.5 million; and (b) proceeds from a lost opportunity due to Mr. Bujan’s misrepresentations,
which caused SRS to forego an alternative opportunity to make returns in an amount that
exceeds $4 million. Plaintiffs also have more than $2 million in outstanding capital
contributions that have not been returned by Cardinal.
COUNT ONE
(Fraud in the Inducement – Against Bujan and Cardinal Equity, LLC)
72. Plaintiffs repeat and reallege the allegations set forth in paragraphs 1 through 71,
as if fully set forth herein.
73. In order to induce Plaintiffs to invest more than $10,000,000 in the syndication
venture, Defendants made fraudulent misrepresentations to SRS about the venture, its
profitability, and the way that funds invested by SRS would be allocated and spent.
74. For example, Mr. Bujan mispresented the venture’s historical performance,
thereby inducing SRS to believe it would receive substantial revenues from its investments.
These representations included the representation that the syndication venture was making
returns between 65% and 75% a year, and that a substantial amount of Mr. Bujan’s own funds
were invested in the venture. Mr. Bujan’s claim that the investment was making a 65-75% return
caused SRS to forego an alternate opportunity to earn a flat, guaranteed 45% return on its
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investment. Upon information and belief, the syndication venture never made returns anywhere
near the promised 75%.
75. Mr. Bujan also represented that a substantial amount of his own money would be
invested in the syndication venture alongside that of the participants, including SRS. As SRS
later learned, Mr. Bujan had not invested a significant amount of his own funds into the
syndication venture. To the contrary: SRS was its primary investor.
76. Mr. Bujan and Cardinal further represented that his brokers would be paid a 10%
broker fee for each transaction, and later, a 15% broker fee for each transaction. SRS was
charged these rates, but now knows that the brokers were not paid these rates, and Defendants
pocketed the difference.
77. Such material misrepresentations and material omissions of fact were false and
known to be false by Defendants. Defendants made these material misrepresentations and
associated material omissions with the intent of inducing SRS’s reliance thereon.
78. After Defendants made these representations, and after conducting the necessary
due diligence, SRS entered into a series of related oral and written participation agreements and
participant servicing agreements. SRS’s execution of the Syndication Agreements was made
based upon Cardinal’s claimed history of above-market performance, successful collections of
receivables, and ample opportunities to invest with credit-worthy businesses.
79. SRS reasonably relied upon the knowingly false misrepresentations by Mr. Bujan
to its detriment by investing in the syndication venture, in which SRS would not have invested
had it known the truth.
80. The Syndication Agreements govern SRS’s investment in Cardinal’s syndication
venture.
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81. SRS was fraudulently induced into entering the Syndication Agreements. This
was a continuing wrong because SRS entered into multiple contracts with Cardinal, and Cardinal
continued to make misrepresentations to SRS about the profitability of the investments each time
that it induced SRS to enter into a new participation agreement.
82. SRS has been injured as a result of Defendants’ material misrepresentations and
material omissions of fact.
83. Based upon the foregoing conduct, SRS is entitled to compensatory damages in
an amount to be determined at trial, but in any event no less than $10,000,000, plus punitive
damages, and interest.
COUNT TWO
(Fraud -- Against All Defendants)
85. As set forth above, Defendants made material representations to SRS throughout
the three-year period after SRS invested in Cardinal’s syndication venture, which were sustained,
repeated, knowingly false and intended to conceal Defendant’s misconduct.
86. For example, Defendants made repeated and material misrepresentations about
the number of delinquent and defaulting deals in the Participation Portfolio. These
misrepresentations were made orally to SRS, and were represented in the documents Cardinal
provided to SRS, which used Mr. Bujan’s formula for calculating portfolio value using the
inaccurate rate. Cardinal and Mr. Bujan represented to SRS that the default rate was 10-12%.
As SRS later learned, the true default rate was about three times as high as Cardinal claimed.
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Cardinal’s use of misleadingly low default rates artificially inflated the value of the portfolio and
prevented SRS from learning the truth about the negative value of its investment.
87. Defendants also misrepresented that 10% and later 15% of SRS’s investment
went to broker fees. SRS later learned that Cardinal was not actually paying its brokers such
fees, and was instead pocketing the difference between the actual and reported broker payments.
Defendants also made secret arrangements with brokers to claw back broker fees for accounts
that quickly defaulted, but failed to pass along those clawed-back payments to SRS. Defendants
also collected management fees on accounts that were already in default, or that defaulted within
weeks.
88. Defendants also mispresented the venture’s performance throughout the course of
the parties’ relationship by asserting that SRS was making returns of 65-75% on the investments
in its Participation Portfolio. Now, however, Cardinal claims that SRS has made no profits at all
during the two years that SRS invested with Cardinal, and in fact concedes that SRS’s accounts
lost money. Cardinal continuously charged management and brokerage fees on these
investments, though it knew that they were valueless.
89. Further, Defendants provided SRS with doctored, incomplete, and misleading
documents, generated using its own proprietary software, in order to support its false
representations about the performance of the investments in the Participation Portfolio.
90. Defendants knowingly and fraudulently misrepresented the performance of the
investment, causing SRS to keep investing in the syndication venture, so that Cardinal could
continue to line its own pockets with the funds it received from the syndication venture while
collecting brokerage and management fees on SRS’s participation principal.
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91. Defendants made these material misrepresentations and material omissions with
the intent of deceiving SRS and depriving it of its rights.
92. SRS reasonably relied to its detriment upon the fraudulent and knowingly false
representations made by Mr. Bujan and others at Cardinal.
93. SRS has been injured as a result of Defendants’ material misrepresentations and
material omissions of fact by, inter alia, making substantial payments to its own investors based
on the returns that Cardinal promised it was making. SRS would not have agreed to give its
investors interest payments of 20% if it had known that its investments were not generating
revenue.
94. Based upon the foregoing fraud, SRS is entitled to compensatory damages in an
amount to be determined at trial, but in any event no less than $10,000,000, plus punitive
damages, and interest.
COUNT THREE
(Breach of Contract -- Against Cardinal Equity, LLC)
96. The syndication agreements between the parties, including the Master
Participation Agreement(s), are valid and enforceable contracts.
97. SRS has performed all of its obligations under the aforesaid agreements.
98. Cardinal has willfully breached its express obligations under the governing
agreements in multiple ways. Cardinal’s breaches include, but are not limited to, breaches of the
following provisions of the Master Participation Agreement(s):
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99. Cardinal has breached Section 4.3 of the Master Participation Agreement(s) (“On
each Settlement Day Lead shall pay to Participant, its pro-rata Share of Collections, less the
amounts to be paid to Lead hereunder, via ACH transfer to a bank account designated by the
Participant to receive payments”), by failing to deposit the full amount of funds owed to SRS
into the SRS accounts and instead retaining certain funds for itself.
100. Cardinal has breached Section 4.2 of the Master Participation Agreement(s)
(“Upon receipt by Lead, and upon request of Participant, Lead will provide Participant with
copies of all financial statements, reports, and officers’ certificates that have been delivered by
Client or by any Guarantor. . . .”), by failing to timely provide information about the status and
value of the investments in SRS’s Participation Portfolio. Cardinal has repeatedly failed to
deliver pertinent information that SRS requested despite multiple inquiries, and in many cases,
failed to respond to SRS at all.
101. Cardinal has breached Section 5.1 of the Master Participation Agreement(s)
(“Lead shall administer the Transaction in accordance with the Standard of Care”), by failing to
conduct itself in accordance with the Standard of Care. Cardinal’s actions do not meet any
acceptable standard for the “degree of care” that the Lead would follow in similar transactions
with its other clients. Cardinal failed to do its due diligence and chose accounts that were not
credit worthy in order to inflate the value of the portfolio. In addition to choosing investments
which Cardinal knew or should have known to be worthless, Cardinal did not provide an
accurate estimated default rate to reflect the fact that the accounts could not be collected.
102. Cardinal also breached Section 8.2 of the Master Participation Agreement(s),
which provides that Cardinal “agrees to indemnify Participant, on demand, for and against any
and all claims, demands, liabilities, obligations, losses, damages, penalties, actions, judgments,
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suits, costs, expenses or disbursements (including fees and disbursements of counsel) of any kind
or nature whatsoever which may be incurred by Participant with respect to this Agreement
caused by the intentional misconduct or gross negligence of Lead.” Cardinal breached this
provision by failing to indemnify Plaintiffs after SRS made repeated demands that Cardinal
compensate plaintiffs for the losses which resulted from Defendants’ intentional misconduct and
gross negligence.
103. Cardinal has further violated its contractual obligations to SRS by charging
management fees on accounts that it knew to be in default, and by retaining for itself broker fees
that, under the contract, could only go to “independent sales agents.”
104. Cardinal has also breached the Standard of Care imposed upon Cardinal by under
each Participant Servicing Agreement, which guarantees that it will use “commercially
reasonable efforts” to maximize collections, and perform its duties in compliance with applicable
laws and prudent industry standards. Cardinal also failed to meet the required level of care when
it failed to do its due diligence and chose accounts that were not credit worthy in order to inflate
the value of the portfolio. In addition to choosing investments which Cardinal knew or should
have known to be worthless, Cardinal did not provide an accurate estimated default rate to reflect
the fact that the accounts could not be collected.
105. As a result of Cardinal’s multiple, sustained and repeated breaches of contract,
SRS has been damaged in an amount to be determined at trial, but in any event no less than
$8,500,000, including the full amount of its pro rata share of collections that SRS is entitled to
receive under the Syndication Agreements, together with interest, costs, and attorney’s fees.
Attorney’s fees are due to SRS under Section 9.2 of the Master Participation Agreement(s),
which provides that “[i]n the event that either Party finds it necessary to retain counsel in
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connection with the interpretation, defense, or enforcement of this Agreement, the prevailing
party shall recover its reasonable attorney’s fees and expenses from the unsuccessful party. . . .”
COUNT FOUR
(Promissory Estoppel – Against All Defendants)
107. As alleged above, Defendants made multiple clear and unambiguous promises to
SRS in connection with the planned MCA investments.
108. SRS clearly and reasonably relied upon Defendants’ promises to its detriment:
Defendants represented that they were already making 65-75% returns on the investments in
their syndication venture, and Defendants represented that they were working with a reputable
firm in the MCA business that SRS knew and trusted.
109. SRS, in reliance upon Defendants’ promises, expended considerable resources
through, among other things, making payments to its own investors based on the returns that
Cardinal represented SRS had made. These returns paid to SRS’s investors amount to twenty
percent of reported earnings on Plaintiffs’ $20 million investment weighted over the course of
the Plaintiffs’ two-year investment. SRS would not have made these payments to its own
investors if it had known that its investments were not generating revenue.
110. Furthermore, SRS passed up certain alternative business opportunities, as it
believed that Defendant would deliver on its promises that its syndication venture had generated
and would continue to generate returns substantially in excess of 50%. Specifically, SRS
forewent the opportunity to make a flat, guaranteed 45% rate of return on its investment, as it
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believed that it could rely on Defendants’ repeated representations that it was making returns of
65-75%.
111. But-for SRS’s reliance on Defendants’ promises to deliver these outstanding
returns, SRS would have taken advantage of this alternative business opportunities in order to
earn the income that would have been required to finance the substantial distributions that SRS
was making to its own investors in reliance on Cardinal’s promises and misrepresentations.
112. Based upon the foregoing fraud, SRS is entitled to compensatory damages in an
amount to be determined at trial, plus punitive damages, and interest.
COUNT FIVE
(Breach of Fiduciary Duty – Against Bujan and Cardinal Equity, LLC)
114. As the lead agent of the syndication deals with SRS and the manager of SRS’s
Participation Portfolio, Cardinal and Bujan had a relationship of confidence and trust with SRS.
Because of this relationship, Plaintiffs actually reposed confidence and trust in Cardinal.
Accordingly, Cardinal and Bujan owed fiduciary duties to Plaintiffs.
115. Cardinal and Bujan breached their fiduciary duties to SRS by, among other
things: (a) making materially false representations concerning the syndication venture, the
default rate of SRS’s investments in the Participation Portfolio, and the value of the Participation
Portfolio; (b) denying SRS access to timely and accurate information concerning the investments
in SRS’s Participation Portfolio; (c) using their own proprietary record-keeping software in an
effort to mislead SRS and obfuscate the truth of its financial position; (d) misleading SRS about
the percentage of its money that was being paid to brokers and pocketing the difference for itself;
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and (e) retaining certain other funds that SRS was entitled to receive under the Syndication
Agreements.
116. Cardinal and Bujan’s conduct, as described above, is outrageous, intentional,
malicious and willful, and in blatant and reckless disregard of SRS’s rights.
117. As a direct and proximate result of Cardinal and Bujan’s breaches of fiduciary
duty, SRS has been damaged.
118. Based upon the foregoing conduct, SRS is entitled to compensatory damages in
an amount to be determined at trial, plus punitive damages, and interest.
COUNT SIX
(Conversion -- Against All Defendants)
120. Pursuant to Section 4.3 of the Master Participation Agreement, Defendants are
required to pay to SRS “its pro-rata Share of Collections, less the amounts to be paid to Lead
hereunder . . . to a bank account designated by the Participant to receive payments.” To date,
Defendants have failed and refused to distribute moneys to SRS that it represented were being
made during the course of the parties’ contractual relationship.
121. For example, Defendants withheld and converted monies that were required to be
paid to SRS when it falsely represented that 10% and later 15% of the principal amount was
being collected from its investment account in order to pay brokerage fees. As SRS later
learned, Defendants’ brokers did not receive such a brokerage fee. Instead, Cardinal paid its
brokers a lesser fee and pocketed the difference for itself.
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122. Upon information and belief, Defendants have also failed to pay SRS the
proceeds (if any) that were generated by its investments during the course of the parties’
relationship. Despite representing that SRS was making returns of between 65 and 75%,
Defendants now claim that SRS has made no profits, and concedes that SRS lost significant sums
of money. Defendants also still hold more than $2 million of the money that it received from
SRS.
123. The foregoing acts were committed at the direction, approval, or acquiescence of
the Defendants.
124. Therefore, Defendants exercised unauthorized dominion over funds that rightfully
belonged to SRS under the Syndication Agreements.
125. As a direct and proximate result of the foregoing, Defendants damaged SRS in an
amount to be determined at trial but in any event not less than $6,000,000, together with interest,
costs, and reasonable attorney’s fees.
PRAYER FOR RELIEF
WHEREFORE, Plaintiffs respectfully pray for relief against Defendants as follows:
A. On the First Cause of Action, against Mr. Bujan and Cardinal Equity, LLC for fraud in
the inducement, damages in an amount to be determined at trial but in any event not less
than $10,000,000, plus punitive damages, and interest;
B. On the Second Cause of Action, against Defendants for fraud, damages in an amount to
be determined at trial, but in any event no less than $10,000,000;
C. On the Third Cause of Action, against Cardinal Equity, LLC for breach of contract,
damages in an amount to be determined at trial but in any event not less than $8,500,000,
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including the full amount of its pro rata share of collections that SRS is entitled to receive
under the Syndication Agreements, together with interest, costs, and attorney’s fees.
D. On the Fourth Cause of Action, against Defendants for promissory estoppel, damages in
an amount to be determined at trial;
E. On the Fifth Cause of Action, against Mr. Bujan and Cardinal Equity, LLC for breach of
fiduciary duty, damages in an amount to be determined at trial;
F. On the Sixth Cause of Action, against Defendants for conversion, damages in an amount
to be determined at trial but in any event not less than $6,000,000;
G. Reasonable attorney’s fees, as provided for in the Master Participation Agreement;
H. Costs; and
I. Such other and further relief as the Court deems just and proper.
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Dated:
Dated: New
New York,
York, New
York, New York
York Respectfully
ly submitted,
Respectfully
Respectful submitted,
submitted,
August
August 23,
23, 2019
2019
23,2019
Kasowitz
Kasowitz Benson
Benson Torres
Torres LLP
LLP
1633
1633 Broadway
1633 Broadway
New York,NY
York,
New York,
New NY
NY 10019
10019
10019
(2r2)
(212)
(212) 506-1700
506-1700
s06-r700
By:
By:
Jed
Jed I.
Jed I. ergma
ergma
Ann i .. Stark
Ann Stark
for
Attorneys for
Attorneys Plaintffi
for Plaintiffs'
Plaintiffs'
32 of 32

Cardinal Equity Merchant Cash Advance Syndication Lawsuit

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Cardinal Equity Merchant Cash Advance Syndication Lawsuit

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FILED: NEW YORK COUNTY CLERK 08/23/2019 04:52 PM INDEX NO.

SUPREME COURT OF THE STATE OF NEW YORK

SRS Capital Funds, Inc., USRS Capital Funds,

Arty Bujan, William Lees, and Cardinal Equity,

1. This dispute arises from a years-long fraudulent investment scheme perpetrated

by Defendants, based on inflated returns on an investment portfolio, which cost Plaintiffs

millions of dollars in out-of-pocket losses and expectation damages based on Defendants’

from its syndication partner, SRS.

of investments with Cardinal over a three-year period.

4. During the parties’ three-year relationship, Defendants repeatedly breached their

and services on worthless investments.

accounts that it knew to be uncollectible. Defendants also used proprietary software to

commission – and Defendants pocketed the difference.

6. Defendants used these misrepresentations to conceal their misconduct and induce

dollars in illegitimate proceeds to Defendants and millions of dollars in losses to SRS.

damages it incurred as a result of Defendants’ fraudulent scheme.

JURISDICTION AND VENUE

proper pursuant to CPLR § 503.

500, Valley Stream, NY 11581.

12. Plaintiff Joseph Schulman is an individual residing in Israel, a founder and

Managing Partner of SRS Capital Funds, Inc.

13. Plaintiff Tzila Schulman is an individual residing in Woodmere, New York.

LLC, since he founded Cardinal in 2012.

16. Defendant Cardinal Equity, LLC, is a limited liability corporation organized

located at 30 Wall St, New York, NY 10005.

The Merchant Cash Advance Business

by securing syndication partners (the “participants”). These participants invest in a merchant

funds can be reinvested in additional advances.

obligations of the partners.

merchant continues to engage in sufficient regular credit card transactions. Accordingly, it is

SRS Invests with Cardinal Equity

years, and his reputation suggested that he was trustworthy.

23. On September 6, 2016, Mr. Bujan spoke to Spencer Silverman (“Silverman” or

broker fee for each transaction.

forego the opportunity.

would continue to raise additional capital.

on or about October 31, 2016; and $200,000 shortly thereafter.

participant servicing agreements (the “Syndication Agreements”).

which Bujan was allowed to collect on accounts he managed.

“commercially reasonable efforts in order to maximize collections in respect of the Participation

The Defendants’ Fraudulent Scheme

were very low.

purported performance of the portfolio.

portfolio is typically monitored as a whole using a profit formula.

artificially inflate the value of a syndication portfolio.

Cardinal’s Director of Business Development.

basis, based on inputs from his new system.

Cardinal continued to present a default rate of about 10%.

participation amount to $7,000,000. SRS continued to see daily increases in payments it

used that figure to calculate the profitability of the portfolio.

49. In July 2018, in furtherance of these requests, Mr. Silverman travelled to

spreadsheet provided by Mr. Lees on August 28, 2018.

The Truth Behind Defendants’ Fraudulent Scheme

particularly Mr. Bujan, were materially false and misleading.

into the MCA deals suggested by Cardinal.

57. Defendants also abused Mr. Bujan’s proprietary platform to manipulate

appeared to support Mr. Bujan’s optimistic valuation of the Participation Portfolio.

generate misleading documents to support their misrepresentations to Plaintiffs.

about the accounts in collections.

SRS’s profits, pocketing the difference for itself.

investors, at Plaintiffs’ expense.

reputable player in the MCA business.

Defendants Continue Their Efforts to Defraud Plaintiffs

Plaintiffs’ accounts shortly after the request was made.