Capital Stack LLC lawsuit - case study

1. Norman M. Valz, Esq. Law Office of Norman M. Valz, P.C. PA I.D. No. 61338 434 N. 38th Street Philadelphia, PA 19104 Tel. (215) 756-2424 Fax (215) 827-5758 COMPLETE BUSINESS SOLUTIONS GROUP, INC. (D/B/A PAR FUNDING) 141 N. 2nd Street Philadelphia, PA 19106 vs. CAPITAL STACK, LLC 11 Broadway Suite 814 New York, NY 10004 : Filed and Attested by the Office of Judicial Records 03 APR 2016 11:30 pm J. OSTROWSKI Attorney for the Plaintiff : : : : : : : : : : PHILADELPHIA COUNTY COURT OF COMMON PLEAS Plaintiff CIVIL ACTION NOVEMBER TERM 2015 Defendants : Docket No.:00166 COMPLAINT Plaintiff, Complete Business Solutions Group, Inc. by and through its attorney, Norman M. Valz hereby avers the following causes of action and averments in support thereof against Defendant, Capital Stack, LLC. PARTIES 1. Plaintiff, Complete Business Solutions Group, Inc., is a corporation formed under the laws of the State of Delaware with its principal place of business in Philadelphia, Pennsylvania specifically at 141 N. 2nd Street, Philadelphia, Pennsylvania 19106. 2. Defendant, Capital Stack, LLC is a limited liability company with its primary place of business being 11 Broadway, Suite 814, New York, New York 10004. 3. Defendant, Capital Stack, LLC has been formed under both the laws of the State of New York and also the State of Nevada. As of this filing, Plaintiff has not ascertained whether the active entity known as Capital Stack is either the New York (Capital Stack NY) or Nevada Case ID: 151100166

2. (Capital Stack Nevada) entity. 4. Upon information and belief, Capital Stack Nevada and Capital Stack NY (interchangeably and collective referred to as “Capital Stack”) are mere alter egos and are comingled and intertwined financially and operationally. 5. The sole member of both Capital Stack, LLC entities is David Rubin, a New York resident. 6. Upon information and belief, David Rubin legally changed his name from “David Rubinov” at a point in time presently unknown to Plaintiff. 7. Defendant solicited participation from third parties to invest in a portfolio of purchased merchants cash receivables. 8. On or about December 12, 2013, Plaintiff became a passive investor in a portfolio of merchants’ cash receivables, managed and formed by Defendant (See Exhibit “A” for Syndication Agreement attached herewith). 9. Plaintiff invested $4,095,474.57 in this portfolio and has not received $808,262.99 on its promised RTR (Rights to Return). 10. In this portfolio over 75.9% of the Rights to Return have not been paid to Plaintiff by Defendant due to an allegedly, but unverified high rate of defaults.(See Exhibits B-D attached herewith for lists of non-performing participations). 11. Defendant promised Plaintiff and other investors real-time access to the performance of each merchant account in which Plaintiff chose to participate through Defendant’s Syndicate by providing access to an online “portal”. 12. Plaintiff’s confidence in Defendant’s accounting and ability to accurately distribute investor participations through the syndicate was severely shaken when Plaintiff began to 2 Case ID: 151100166

3. regularly receive participation payments for several deals for which it had not ever purchased a participation. Plaintiff promptly notified Defendant of this error and was told not to worry, that the difference would be made up in future distributions – however the errors persist to this day. 13. Plaintiff avers that Defendant, until the time only subsequent to the filing of the Writ of Summons in this actions, failed to provide access to said “portal” either through technical negligence or a purposeful act. 14. Plaintiff avers that the information available through the abovementioned “portal” is incomplete, often contradictory, and fails to give Plaintiff or other investors any meaningful information regarding the performance of the portfolio. 15. A large proportion of accounts in the aforementioned “portal” and other reports given to Plaintiff by Defendant merely list allegedly non-performing assets as having been sent to “Legal” with no further explanation. 16. In noting this “Legal” designation, said files are really not sent to an independent third-party law firm, but RUBIN LAW, which is managed and owned by David Rubin’s wife, Anna Rubin (né “Zhigun”). 17. Rubin Law shares the physical office with Defendant and all of Rubin Law’s attorneys are listed on the promotional materials for Defendant Capital Stack as if both entities are operating as a single entity (See Exhibit “E “). 18. Plaintiff avers that the day to day business operations of Defendant and Rubin Law are inextricably intertwined and that they in no way act as separate entities. 19. Plaintiff has direct contact with one merchant whose accounts receivable were purchased through the Capital Stack syndicate in which Plaintiff participated and which Defendant has designated as non-performing. 3 Case ID: 151100166

4. 20. Plaintiff’s direct conversations with said merchant, said merchant represented that said account was / or had been performing and had been paid off. 21. Presently, there is litigation in New York wherein a person formerly associated with Defendant alleges that Defendant’s reporting of portfolio performance was misleading and/or inaccurate. (Raharney vs. Capital Stack, NY Supreme Court Index No. 160175/2014). 22. Plaintiff initiated the lawsuit at hand through the filing of a Writ of Summons and seeking accounting information through pre-litigations discovery which Defendant fought seeking a protective Order from Court. 23. To date, Defendant has effectively evaded any attempts by Plaintiff to provide it with solid, factual, comprehensive information regarding its portfolio of accounts which Defendant has reported as having suffered tremendous losses, which to date cannot be verified. 24. Subsequent to Plaintiff’s investment with Defendant, Plaintiff uncovered significant fact, which had they been known to Plaintiff may have thwarted its participation in investments through Defendant. Foremost amongst said misrepresentations is the fact that the sole principal of Defendant, David Rubin in fact changed his name from David Rubinov in an apparent attempt to thwart investors from discovering the fact that the Securities and Exchange Commission had labeled him as a “securities law recidivists” having brought no less than three actions against him for fraudulent stock offerings. (SECURITIES AND EXCHANGE COMMISSION, Litigation Release No. 18222/ July 10, 2003; Securities Exchange Act of 1934, Release No. 46158 / July 2, 2002, Administrative Proceeding File No. 3-10821; and http://nypost.com/1999/08/04/sec-charges-82-in-micro-cap-fraud/). 25. Rather than building industry recognition and value through its tradename “Capital Stack”, Defendant has instead consistently created and modified the name(s) under 4 Case ID: 151100166

5. which it conducts business. Said names include, but are not limited to eProdegy and IWorkforce. COUNT I BREACH OF FIDUCIARY DUTY 26. The allegations of all of the preceding paragraphs are to be incorporated herein as if set forth length. 27. Defendant maintains a fiduciary obligation to Plaintiff for the sound management, effective communication, and upholding the beneficiaries of said relationship’s interests above Defendant’s own interests. 28.As previously detailed in this Complaint, Defendant failed to uphold its fiduciary duties to the Plaintiff: -by allowing or conspiring to see that Plaintiff’s interests as an investor were abridged; and -by self-dealing and attempting to profit at the expense of the Plaintiff over whom said Defendant holds a fiduciary duty. 29.Plaintiff avers that the aforementioned actions of Defendant were carried out in a manner which was willful, wanton and reckless as well as being calculated to harm Plaintiff for the benefit of Defendant. 30. But for Defendant’s failure to uphold its fiduciary responsibilities owed to Plaintiff, Plaintiff would not have suffered damages to the extent to which it has suffered damages. WHEREFORE, the Plaintiff respectfully requests that this Court find in its favor and against Defendant in an amount exceeding $50,000.00 and award it: _some or all of the equitable relief sought so as to protect and determine Plaintiff’s interest 5 Case ID: 151100166

6. in its syndicate participations; _Court costs; _Attorney’s fees and expert witness costs due to bad faith; _and any other remedy which this Court is empowered to grant in order to make the Plaintiff whole from the damages suffered. COUNT II BREACH OF CONTRACT 31. The allegations of all of the preceding paragraphs are to be incorporated herein as if set forth length. 32. Defendant has written obligations to Plaintiff as contained in the Master Syndication Agreement where is Defendant is bound to maintain prompt and accurate communications with Plaintiff regarding the status of its investment participations and to promptly transmit Plaintiff’s investment participation receipts managed by Defendant. 33. Plaintiff avers that Defendant has failed to uphold the aforementioned contractual obligations. 34.Plaintiff avers that the aforementioned actions of Defendant were carried out in a manner which was willful, wanton and reckless as well as being calculated to harm the Plaintiff for the benefit of Defendant. 35. But for Defendant’s failure to uphold its contractual obligations owed to Plaintiff, Plaintiff would not have suffered damages to the extent to which it has suffered damages. WHEREFORE, Plaintiff respectfully requests that this Court find in its favor and against Defendant in an amount exceeding $50,000.00 and award it: _some or all of the equitable relief sought so as to protect and determine Plaintiff’s interest in its syndicate participations; 6 Case ID: 151100166

7. _Court costs; _Attorney’s fees and expert witness costs due to bad faith; _and any other remedy which this Court is empowered to grant in order to make the Plaintiff whole from the damages suffered. COUNT III CONVERSION OF INVESTOR ASSETS/SELF DEALING 36. The allegations of all of the preceding paragraphs are to be incorporated herein as if set forth length. 37. On information and belief, Plaintiff avers that Defendant converted assets and profits to its benefit in a manner concealed from investors with the intent to enrich itself and its principals at the expense of investors and Plaintiff. 38. Plaintiff avers that the aforementioned actions of the Defendants was carried out in a manner which was willful, wanton and reckless as well as being calculated to harm the Plaintiff for the benefit of said defendants. WHEREFORE, Plaintiff respectfully requests that this Court find in its favor and against Defendant in an amount exceeding $50,000.00 and awarding Plaintiff: _full compensatory damages; _Punitive (Treble) or Exemplary damages; _Court costs; _Attorney’s fees and expert witness costs; _and any other remedy which this Court is empowered to grant in order to make the Plaintiff whole from the damages suffered. 7 Case ID: 151100166

8. COUNT IV FRAUDULENT MISREPRESENTATION 39. The allegations of all of the preceding paragraphs are to be incorporated herein as if set forth length. 40. On information and belief, Plaintiff avers Defendant knowingly made misrepresentation to investors and Plaintiff meant to enrich Defendant at the explicit expense of investors and Plaintiff. 41. Said misrepresentations include, but are not limited to: the returns historically enjoyed by the syndicate; the rate of defaults suffered by the syndicate subsequent to Plaintiff’s participation therein; the history and reputation of principal David Rubin (Rubinov); and the accuracy and comprehensiveness of information regarding the returns “enjoyed” by the syndicate. 42. Plaintiff avers that the aforementioned actions of Defendant were carried out in a manner which was willful, wanton and reckless as well as being calculated to harm Plaintiff for the benefit of Defendant. WHEREFORE, Plaintiff respectfully requests that this Court find in its favor and against Defendant awarding Plaintiff: _full compensatory damages in excess of $50,000.00; _Punitive (Treble) or Exemplary damages; _Court costs; 8 Case ID: 151100166

9. _Attorney’s fees and expert witness costs; _and any other remedy which this Court is empowered to grant in order to make Plaintiff whole from the damages suffered. COUNT V NEGLIGENCE 43. The allegations of all of the preceding paragraphs are to be incorporated herein as if set forth length. 44. On information and belief, Plaintiff avers that Defendant’s management of the investment syndicate, its distribution of payments to investors, and its accounting practices in general were conducted in a negligent manner not comporting with industry standards. WHEREFORE, Plaintiff respectfully requests that this Court find in its favor and against Defendant award the following damages: _full compensatory damages in excess of $50,000.00; _Punitive (Treble) or Exemplary damages; _Court costs; _Attorney’s fees and expert witness costs; _and any other remedy which this Court is empowered to grant in order to make the Plaintiff whole from the damages suffered. COUNT VI EQUITABLE RELIEF – JUDICIAL INTERVENTION 45. The allegations of all of the preceding paragraphs are to be incorporated herein as if set forth length. 9 Case ID: 151100166

10. 46. Plaintiff avers that the actions and inactions of Defendant requires Judicial intervention from this Court as allowed under the laws of Pennsylvania and New York, and thus Plaintiff seeks the following specific Court interventions: A Court Order allowing Plaintiff and its representative and/or expert to inspect and study all financial and accounting records associated with the syndicate; Plaintiff would request that this Court take action to determine the fair and full value of Plaintiff’s investment participation through Defendant’s syndicate. 47. Plaintiff seeks a Court Ordered and Judicially Supervised involuntary dissolution of Defendant’s syndicate due to the following: The acts of the managers, officers and representatives of Defendant are oppressive and not in the beneficial interests of the investors, but meant solely to shield the interests of Defendant and its principal; and The business assets of the syndicate are being misapplied and it is in the beneficial interests of the investors that these business syndicates be wound up and dissolved. WHEREFORE, Plaintiff respectfully requests that this Court find in its favor and against Defendant and award it the flowing damages; _full compensatory damages; _Punitive (Treble) or Exemplary damages; _Court costs; _Attorney’s fees and expert witness costs; _and any other remedy which this Court is empowered to grant in order to make Plaintiff whole from the damages suffered. 10 Case ID: 151100166

11. RESPECTFULLY SUBMITTED ________________________ Norman M. Valz, Esq. PA I.D. No. 61338 Attorney for the Plaintiff 434 N. 38th Street Philadelphia, PA 19104 Tel. (215) 756-2424 April 2, 2016 11 Case ID: 151100166