The co-founder of an investment firm that focused on financing structured settlements was indicted in October in the Southern District of New York on allegations including that he and his companies repeatedly misled his lenders about material issues such as the amount of collateral it had and for misusing the money secured by the lenders was spent by his company, 777 Partners LLC, on risky investments. The indictment also shows the co-founder, Joshua Wander, was indicted for concealing the company’s borrowing base deficiency by recording assets that were not truly under its control.

The indictment asserts that Wander tried to cover his tracks by misrepresenting the financial health and business prospects of 777 Partners — employing such maneuvers as double-pledging of assets to satisfy multiple lenders, temporarily moving money in and out of accounts to bolster their bottom line, and digitally altering bank account records.

The second part of the fraud, according to the indictment, alleges that Wander solicited outside investments in a series of fundraising rounds for 777 Partners and another business of his, 600 Partners LLC (collectively, the issuers). It goes on to claim that Wander fraudulently induced investors to participate in the issuers' joint private equity offering through investor presentations that predicted a substantial positive net income and by falsely claiming that investors in the offering would receive a 10% dividend on their investment, and by embellishing the issuers' financial condition.

All told the threatened loss is in the range of $500 million, according to the FBI, resulting in charges of wire fraud, securities fraud, and conspiracy counts for each of those charges. Wander’s co-founder, Damien Alfalla, already has pleaded guilty and is reported to be cooperating with the government.

In a parallel proceeding, the U.S. Securities and Exchange Commission filed a civil suit against Wander, Alfalla, and a third business partner, Steven Pasko, accusing them of fraudulently raising capital through the issuers' private equity offering. The SEC alleges that the SEC defendants violated the anti-fraud provisions of the Securities Act of 1933 and the Securities Exchange Act of 1934 by concealing from investors that a credit facility they were relying on was overdrawn; that they misled investors regarding the use of the borrowed funds and improperly used those funds to prop up 777 Partners' financial condition; and that Wander and Pasko diverted funds for their personal use.

Wander, Alfalla, and Pasko each face significant financial penalties, disgorgement of ill-gotten gains, and prohibitions on future business activity. Wander's criminal indictment could result in a multi-year prison sentence.

The takeaway is clear: People or companies (rightly or wrongly) receiving attention from government investigators should be prepared to deal with "parallel investigations" — criminal, civil, and sometimes administrative, as well. All three must be addressed and managed in tandem; and companies can consider partnering with outside legal counsel to help navigate this complicated strategic landscape.

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