The Securities and Exchange Commission (SEC) has filed a lawsuit against Joshua Wander, Steven Pasko, Damien Alfalla, 777 Partners LLC and 600 Partners LLC.
The SEC’s complaint, seen by FX News Group, alleges that between January 2021 and May 2024 (the “Relevant Period”), the defendants fraudulently solicited preferred equity investments, jointly offering 777 Partners and 600 Partners, and which raised approximately $337 million from investors.
Wander and Pasko were the co-founders and administrators of Issuers. Alfalla was the chief financial officer (CFO) of both entities. Wander, Pasko and Alfalla managed the publishers as a consolidated business. The issuers presented their financial statements on a consolidated and combined basis.
The SEC’s complaint alleges that during the Relevant Period, the defendants misled investors about the Issuers’ financial condition and fraudulently induced investments in the offering by falsely suggesting that the Issuers were earning and would continue to earn substantial positive net income sufficient to pay investors a 10% annual dividend.
In fact, Wander and Alfalla knew or recklessly ignored, and Pasko knew or should have known, that the issuers were in a serious and worsening liquidity crisis and had no realistic prospect of earning net income sufficient to pay the dividend.
At the heart of the Issuers’ dire financial situation was the misuse and subsequent overdraft of $300 million of a credit facility in violation of the terms of the credit facility.
The borrowers under the credit facility were certain limited liability companies that were subsidiaries of SuttonPark Capital LLC. SuttonPark was the largest subsidiary of 600 Partners and the largest operating company in the Issuers’ businesses.
Prior to the relevant period, SuttonPark’s earnings formed a significant part of the Issuers’ earnings. By diverting cash and other collateral from the Credit Facility, the Issuers jeopardized SuttonPark’s ability to generate profits, thereby jeopardizing the Issuer’s own financial health. In addition, the Issuers concealed the misuse and overdraft by the lender of the Credit Facility.
The complaint alleges that Wander directed the misuse of the Credit Facility and the concealment of the overdraft from the lender. Alfalla helped make these activities happen. Pasko, who additionally founded and managed both 777 Partners and 600 Partners, was also the chief executive officer (“CEO”) of SuttonPark, knew or should have known of the overdraft and yet signed credit facility compliance reports for transmission to the lender without verifying their accuracy or completeness. In fact, such reports were false and misleading.
Due to the overdraft on the Credit Facility, the Issuers would need to generate $300 million to repay the Credit Facility lender before they could begin to earn profits to pay dividends to investors in the Offering. By the summer of 2021, there was no realistic prospect that the Issuers could do so and the Issuers’ financial prospects worsened as time went on and the Issuers continued to raise money from additional investors using materially false and misleading information.
In marketing the Offering, defendants Wander and Alfalla made false and misleading statements about the prospects and ability of the Issuers to pay dividends, and concealed the $300 million overdraft from investors and its causes. Alfalla prepared slides used in an investor presentation and related editorial support material that falsely represented that the Issuers expected to continue to earn significant positive net income. Wander has reviewed and approved the Investment Presentation and Diligence Materials before they are sent to investors. Wander also engaged in telephone conversations with prospective investors in which he reinforced a false and misleadingly positive image of the Issuers’ prospects.
As a board member of 600 Partners and 777 Partners, Pasko signed board consents approving the form, terms and provisions of the Subscription Agreement. Pasko also signed each investor’s Subscription Agreement on behalf of 600 Partners and 777 Partners. The SEC alleges that, although it knew or should have known of the overdraft of the Credit Facility and its serious impact on the Issuers’ prospects, Pasko failed to take steps to ensure the accuracy or completeness of the Investor Presentation and Due Diligence Materials or the term sheet incorporating the terms of the Offer.
Wander also allegedly misled investors about how the Issuers would use the proceeds of the Offering. Wanderer misrepresents in the Investor Presentation and the Term Sheet that the Issuers would use the Offering proceeds for general corporate purposes.
In fact, Wander intended to, and ultimately did, force the Publishers to divert approximately $33 million of investment funds to Wander and Pasko personally. Specifically, in September 2021, after receiving offering proceeds from investors, the Issuers (on Wander’s instructions) sent approximately $24.9 million to Wander’s personal bank account and approximately $8.03 million to Pasko’s personal brokerage account.
Further, the Issuers never remedied the overdraft on the Credit Facility and the Issuers’ financial condition continued to deteriorate. The Credit Facility lender eventually discovered the abuse and overdraft and commenced legal action.
In 2024, Wander, Pasko and Alfalla stepped down from their roles at 777 Partners and 600 Partners and their affiliates, and a restructuring consultant was hired to manage the Issuers. Investors in the Offering have suffered substantial financial loss as a result of the Defendants’ actions.
The regulator is seeking permanent injunctions against the defendants, disgorgement of ill-gotten gains and civil monetary penalties.