Affinity Fraud- Bankruptcy Fraud- Squeeze-Out- Fraudulent Transfer
22January 21, 2013 by jllafitte
The Bernard Madoff Ponzi scheme started mainstream awareness of the crime referred to as Affinity Fraud. The Sec has warned about these crimes, in which a member of an ethic or religious group preys on his own.
My story is a scheme by two fraternity brothers, in which I lost $200,000 and was left to pay the bills after they did a Squeeze-out to remove me followed by a Fraudulent Transfer to avoid creditors. Transferring the company back to themselves after they defaulted on a loan to the FF&E lender, General Electric Finance Corp, for $1.1 million.
I will call my brothers, T-Boy and Boudreaux, and our company “Scam Your Brother” planed to open six Thibodaux’s restaurants.
The year was 1998, T-boy I knew for twenty-five years before he recruited me to invest in Scam Your Brother. Boudreaux I had known for fifteen years. Boudreaux called it the Boudreaux and T-Boy increase their net worth by $13,000,000 each Business Plan.
Under the plan neither Boudreaux nor T-Boy would put any money into the company or if they did, they would get it out right away. I was soliciated to invest $200,000 with expectatiobs of an 100% annual return starting in year five. “Investor Expectations must be met” the operating agreement read.
affinityfraud 
I have created this site for a several reasons:
1. To create awareness of Affinity Fraud.
2. To give those who become prey an case history into the the thought process and actions of how the predators work and what options they have.
3. For feedback; I continue to find terms used to describe the actions of T-Boy and Boudreaux and different legal options that still might exist or mistakes that were made along the way such as: Squeeze-Out Merger and Bustout Bankrputcy Fraud,
5. For those who write laws to consider what laws need to written or changed to protect citizens. It was after the stock market crash of 1933 that Congress passed the Uniform Securities Act and other laws to protect citizens.
6. For those studying law enforcement to understand how to apply the numerous codes that have been written to protect citizens.
From Wikipedia, the free encyclopedia AFFINITY FRAUD includes investment frauds that prey upon members of identifiable groups, such as religious or ethnic communities, language minorities, the elderly, or professional groups. The fraudsters who promote affinity scams frequently are – or pretend to be – members of the group. They often enlist respected community or religious leaders from within the group to spread the word about the scheme, by convincing those people that a fraudulent investment is legitimate and worthwhile. Many times, those leaders become unwitting victims of the fraudster’s ruse.
These scams exploit the trust and friendship that exist in groups of people who have something in common. Because of the tight-knit structure of many groups, it can be difficult for regulators or law enforcement officials to detect an affinity scam. Victims often fail to notify authorities or pursue their legal remedies, and instead try to work things out within the group. This is particularly true where the fraudsters have used respected community or religious leaders to convince others to join the investment.
Many affinity scams involve “Ponzi schemes” or pyramid schemes, where new investor money is used to make payments to earlier investors to give the illusion that the investment is successful. This ploy is used to trick new investors to invest in the scheme and to lull existing investors into believing their investments are safe and secure. In reality, the fraudster almost always steals investor money for personal use. Both types of schemes depend on an unending supply of new investors; when the inevitable occurs, and the supply of investors dries up, the whole scheme collapses and investors discover that most or all of their money is gone.
[edit] Examples
Affinity frauds can target any group of people who take pride in their shared characteristics, whether they are religious, ethnic, or professional. Agencies such as U.S. Securities and Exchange Commission have investigated and taken action against affinity frauds targeting a wide spectrum of groups.[1] Some of the cases include the following:
The slavery reparations scam.
On November 16, 2007, Michael Owen Traynor a Bradenton, Florida, investment broker, who had found many of his clients though his church and private school social circles, was arrested on a first degree felony grand theft charge that he had stolen $6.5 million from his investors. It is believed Traynor stole funds from at least 34 clients in Sarasota, Manatee and Hillsborough counties between 2001 and February 2007. Traynor was subsequently sentenced to 12 years in Florida state penitentiary.
“Armenian-American community loses $19 Million”: The SEC’s complaint alleges that this affinity fraud targeted Armenian-Americans with little investment experience, for some of whom English was a second language.
“Criminal charges against South Florida man for $51.9 million fraud”: African American victims of this investment scheme were guaranteed that their investments would generate a 30% risk-free and tax-free annual return.
“‘Church Funding Project’ costs faithful investors over $3 Million”: This nationwide scheme primarily targeted African-American churches and raised at least $3 million from over 1000 investing churches located throughout the United States. Believing they would receive large sums of money from the investments, many of the church victims committed to building projects, acquired new debt, spent building funds, and contracted with builders.
“Baptist investors lose over $3.5 Million”: The victims of this fraud were mainly African-American Baptists, many of whom were elderly and disabled, as well as a number of Baptist churches and religious organizations located in a number of states. The promoter (Randolph, who was a minister himself and who is currently in jail) promised returns ranging between 7 and 30%, but in reality was operating a Ponzi scheme. In addition to a jail sentence, Randolph was ordered to pay $1 million in the SEC’s civil action.
11 USC § 523 – Exceptions to Bankruptcy discharge
(a)A discharge under section 727, 1141, 1228(a), 1228(b), or 1328(b) of this title does not discharge an individual debtor from any debt—
(A)false pretenses, a false representation, or actual fraud, other than a statement respecting the debtor’s or an insider’s financial condition;
(B)use of a statement in writing—
(i)that is materially false;
(ii)respecting the debtor’s or an insider’s financial condition;
(iii)on which the creditor to whom the debtor is liable for such money, property, services, or credit reasonably relied; and
(iv)that the debtor caused to be made or published with intent to deceive; or
(4)for fraud or defalcation while acting in a fiduciary capacity, embezzlement, or larceny;
(6)for willful and malicious injury by the debtor to another entity or to the property of another entity;
10)that was or could have been listed or scheduled by the debtor in a prior case concerning the debtor under this title or under the Bankruptcy Act in which the debtor waived discharge, or was denied a discharge under section 727(a)(2), (3), (4), (5), (6), or (7) of this title, or under section 14c(1), (2), (3), (4), (6), or (7) of such Act;
(11)provided in any final judgment, unreviewable order, or consent order or decree entered in any court of the United States or of any State, issued by a Federal depository institutions regulatory agency, or contained in any settlement agreement entered into by the debtor, arising from any act of fraud or defalcation while acting in a fiduciary capacity committed with respect to any depository institution or insured credit union;
(19)that—
(A)is for—
(i)the violation of any of the Federal securities laws (as that term is defined in section 3(a)(47) of the Securities Exchange Act of 1934), any of the State securities laws, or any regulation or order issued under such Federal or State securities laws; or
(ii)common law fraud, deceit, or manipulation in connection with the purchase or sale of any security; and
(B)results, before, on, or after the date on which the petition was filed, from—
(i)any judgment, order, consent order, or decree entered in any Federal or State judicial or administrative proceeding;
(ii)any settlement agreement entered into by the debtor; or
(iii)any court or administrative order for any damages, fine, penalty, citation, restitutionary payment, disgorgement payment, attorney fee, cost, or other payment owed by the debtor.
Journal of Forensic & Investigative Accounting
Vol. 2, Issue 3, Special Issue, 2010
75
The Bankruptcy Reform Act and Bankruptcy Fraud: Implications and Opportunities for CPAs
Katherine Barker
Nicole Forbes Stowell
Charlie Polansky
Daniel Kieffer*
The most common types of bankruptcy frauds involve concealment of assets and false or
incomplete statements provided by debtor. According to the FBI, 70% of all bankruptcy crimes
involve both of these schemes and are hard to separate since concealment of assets automatically
assumes false or incomplete statements. Individuals filing bankruptcy inherently do not want to
surrender all of their assets. It is common for individuals to omit jewelry, pieces of art, real
estate, and stock (United States Trustee Manual, Volume 5: “Bankruptcy Fraud & Abuse
Enforcement Program”). Another common concealment of assets is the debtor’s omission on
bankruptcy filings of foreign bank accounts or interest received from foreign bank accounts
A “bustout” is a fairly common bankruptcy fraud scheme. It is a planned bankruptcy
scheme and often occurs when a company is actually set up to fail. The business first establishes
a good credit history by paying bills promptly. Having established a good credit rating, the
business then obtains excessive amounts of merchandise on credit with no intention of paying
creditors. The business quickly sells the merchandise and the owner pockets the cash. The
business then files for bankruptcy relief and the creditors are unable to locate any assets.
Although many bustout schemes involve a start-up company, these schemes can also
involve an existing, reputable firm with good credit. Fraudsters use the existing firm’s good
reputation and credit history to obtain excessive amounts of inventory. The fraudsters then
renege on the payments to the suppliers and sell merchandise to other illegitimate businesses.
The end result is a bankruptcy with no assets.
Credit Card Bustouts: Individuals contemplating bankruptcy run up large consumer
credit card debt and then file bankruptcy. The purchases and cash advances occur
within a short period of time. Frequently, the same individual files bankruptcy several
times, using false social security numbers and aliases. Or the fraudulent perpetrator
assumes another person’s name or social security number. False statements are
usually made on credit applications, and the assets acquired from the fraud are
concealed when the bankruptcy is filed. T-Boy had $430,000.00 in Credit Card debt on his 2003 Bankruptcy.
Freeze-out merger
From Wikipedia, the free encyclopedia
It has been suggested that this article or section be merged into squeeze out. (Discuss) Proposed since September 2010.
A freeze-out merger is a technique by which one or more shareholders who collectively hold a majority of shares in a corporation gain ownership of remaining shares in that corporation.
The majority shareholders incorporate a second corporation, which initiates a merger with the original corporation. The shareholders using this technique are then in a position to dictate the plan of merger. They force the minority stockholders in the original corporation to accept a cash payment for their shares, effectively “freezing them out” of the resulting company.
The legal community has criticised the present rules with regard to freeze-out mergers as being biased against the interests of the minority shareholders. For example, if a gain in stock value is anticipated by the majority, they can deprive the frozen-out minority of its share of those gains.[1]
David Fox
Kirkland & Ellis LLP
601 Lexington Avenue
New York, NY 10022
Under prior Delaware decisions, including an arguably controlling and
inconsistent Delaware Supreme Court decision (Kahn v Lynch), a freeze-out merger was always subject to the entire fairness standard and use of procedural safeguards, such as a majority of the minority vote or a special committee, only served to shift the burden of proof regarding fairness from the subsidiary target to the plaintiffs alleging the unfairness of the transaction.
Minority Freeze-Out Transactions Revisited
Law360, New York (September 07, 2010) — It is not uncommon for controlling stockholders of U.S. publicly listed corporations to engage in minority freeze-out transactions — that is, the acquisition by the controlling stockholder of the interest in the corporation held by the minority stockholders.
The acquisition is typically accomplished by either a one-step merger or a two-step transaction comprising a tender offer followed by a short-form merger once the controlling stockholder has acquired 90 percent of the target corporation.
Minority freeze-out transactions have been closely scrutinized by Delaware courts in light of the inherent conflict of interest between the controlling and minority stockholders in these transactions.
11 USC § 548 – Fraudulent transfers and obligations
(a)
(1)The trustee may avoid any transfer (including any transfer to or for the benefit of an insider under an employment contract) of an interest of the debtor in property, or any obligation (including any obligation to or for the benefit of an insider under an employment contract) incurred by the debtor, that was made or incurred on or within 2 years before the date of the filing of the petition, if the debtor voluntarily or involuntarily—
RE: Revere’s Warrant Application on Thomas, Boudreaux, and Pierre
1 page petition of Codes violated.
Revere lost $240,000 in this Affinity Fraud/ Ponzi Scheme and asks you to reconsider your dismissal for hearing his Citizens Warrant on grounds of Jurisdiction and Statute of Limitations. He have thousands of pages of exhibits, eight depositions (four taken in Fulton County), two declarations (prepared in Fulton County), and emails from Pierre in December 2012 to support my allegations. This appeal is limited to one page-a more detailed appeal is posted at http://www.AffinityFraud.wordpress.com. In 2008 the New Orleans FBI and 2011 the San Jose FBI declared the case too small for then to investigate. In 2012 the New Orleans DA citied Federal Court.
Jurisdiction: Code 17-2-1. (1) The crime is committed either wholly or partly within the state; The 2003 and 2004 tax returns of SYB, LLC were filed by Chief Operating Officer and 34.25% owner, Pierre, who used his home in Fulton county as the company office. Pierre sold the home on 2009. He has been living in Florida. Meetings between Boudreaux and Revere took place in Atlanta. Meetings between Thomas, Boudreaux, and Pierre to discuss the default to GE Capital took place in Atlanta.
Tolling the Statute of limitations: 2003-2006 Pierre & Boudreaux with Thomas consulting, violated Georgia Code 17-14-17 Fraudulent Sale to avoid creditors and 18-2-74 Fraudulent Transfer. SYB, LLC owed money to Revere and GE Finance Corp- assets were transferred to a lienor (Second Line) in 2004 and back to Pierre* in 2006. In March 2003, Boudreaux drafted a plan and consulted with his accountant to sell SYM, LLC to a third party, be hired with a partner to manage SYM, LLC and be able to buy in back. RICO has 5 years. In 2003 T-Boy filed a Bustout Bankruptcy Fraud for $12,000,000, in 2006 Thomas and Boudreaux company Bayou Electronics lost a $1M lawsuit to Aurora Phones, and in Dec 2007 T-Boy swore he was still bankrupt. 11 USC § 523 – Exceptions to discharge
Any of three separate causes justify tolling the statute of limitations:
GA Code 9-3-94 Removal of Defendant from State- time defendant is removed from GA shall not count in his favor. Pierre acquired Jaguarville Restaurant from Second Line in March 2006 and resides in Florida. He is removed from the state of Georgia, since approximately 2006.
GA Code 9-3-96 Tolling of limitations for Fraud of defendant. If defendant deters plaintiff, the period of limitation shall run only from the time of discovery of fraud. Thomas, Boudreaux, and Pierre deterred Lafitte in numerous ways. Pierre stated: “I don’t recall” 160+ times in his deposition…. Boudreaux refused to provide annual financial returns from 1999-2004. The 1998 was misleading enough for the Accountant to put a disclaimer on it….. Boudreaux swore he had loaned Lafitte’s money to B&C to get a better interest rate, when he actually transferred Lafitte’s funds to his other business, Falcon violating 16-4-2,3,4 for Theft and 10-5-51 Omitting a material fact in selling a security. Gaston refused to provide B&C and Falcon books to verify Boudreaux’s declaration or answer questions. … Boudreaux swore he had paid in full a $250,000 loan Lafitte made to SYB, LLC at 10% yet SYB, LLC records show $12,000.00 in due to funds. SYBLLC only paid Lafitte interest of less than $5,000.00 despite having funds for more than a year… Other examples to deter exist, but a 1 page limitation does not permit. Boudreaux (swore in declaration) and Pierre refused to answer questions regarding that transfer of Jaguarville to Secondline resulted from a “loan default”. Boudreaux emailed his Accountant the Second Line loans were forgiven. Boudreaux and Pierre concealed from REvere that Boudreaux sold/pledged to sell (34.25%) stock to Pierre in August 2003. Cases tolling: State v. Brannon 154 GA App 285, 267, S.E. 2d 888 Tolled until time known by victim…….Adams v. State 231, GA App 279, 499, S.E. 2d 105 Tolled until victim and state first learned of offense….Revere did not learn of crimes 16-8-2,3,4,8 ; 18-2-74; 14-9-105, 502; 14-8-34, 16-9-51, 53; 23-2-52,53; until 2012.
A conspiracy continues until the objectives of the conspiracy succeed or are abandoned per US Supreme Court decisions Kissel 218 U.S. 601 and Grunewald 353 U.S. 391. In 2000 Boudreaux drafted a plan to remove $13,000,000 in assets from Thomas, before Thomas filed bankruptcy in 2003. Pierre assisted with the removal. Lafitte still has claims against Thomas deterred by Pierre’s 2012 emails sent to Revere in Atlanta on the Bankruptcy Fraud, Contribution, and Breach of Fiduciary. Pierre still operates Jaguarville restaurant denying Lafitte $40-50,000 a year in dividends. The conspiracy of Pierre, Boudreaux, and Thomas to use Revere’s funds for their Atlanta restaurants and conceal the transfer still exists. GA Code 16-14-4,5,8; 14-9-105, 502; 14-8-34, 16-9-51, 53; 23-2-52,53; 14-2-1202; 9-11-37
Boudreaux-T-boy Affinity Fraud Conspiracy. In Jan 1998 T-boy was showing Revere annual returns of $300,000 for the MCI Knoxville restaurant. In Feb Lafitte wanted to invest in Falcon, LLC for Atlanta -both were capitalized at over $600,000. Boudreaux drafted a Plan stating “investor expectations of 100% annual returns MUST be met”. Boudreaux’s scheme was for T-Boy to recruit his friends and receive huge commissions: For recruiting Lafitte, T-Boy received $86.500.00 in stock value. Boudreaux also received $86,500.00 in stock value. These outrageous commissions were achieved by omitting to tell Revere that the Capitalization Sentence of the Operating Agreement was deleted. Boudreaux’s cover letter stated the Agreement was the same as Falcon, which required all partners to pay for their equity. Boudreaux also deleted a sentence in Section 9 prohibiting him from selling all the assets of the company without unanimous approval. Seven years later he sold assets of the company to Second Line. 14-2-621
17-2-1. Jurisdiction over crimes and persons charged with commission of crimes generally
(a) It is the policy of this state to exercise its jurisdiction over crime and persons charged with the commission of crime to the fullest extent allowable under, and consistent with, the Constitution of this state and the Constitution of the United States.
(b) Pursuant to this policy, a person shall be subject to prosecution in this state for a crime which he commits, while either within or outside the state, by his own conduct or that of another for which he is legally accountable, if:
(1) The crime is committed either wholly or partly within the state;
(2) The conduct outside the state constitutes an attempt to commit a crime within the state; or
(3) The conduct within the state constitutes an attempt to commit in another jurisdiction a crime under the laws of both this state and the other jurisdiction.
(c) A crime is committed partly within this state if either the conduct which is an element of the crime or the result which is such an element occurs within the state. In homicide, the “result” is either the act which causes death or the death itself; and, if the body of a homicide victim is found within this state, the death is presumed to have occurred within the state.
(d) A crime which is based on an omission to perform a duty imposed by the law of this state is committed within the state, regardless of the location of the accused at the time of the omission.
Perjury, Deter, Fraud Before the Court
Boudreaux Deposition: P196-197
Claude : “Why is it you did not disclose that to Charles Revere?”
Boudreaux: “Certainly if I could change history, I know it hurt his feelings and I would change history. I was looking for what I thought was the best interest of the company. “
However throughout his deposition Boudreaux commits perjury to cover-up other Frauds and omissions that were violations of Georgia Law. His answers to many questions are equivocating words and phrases aimed at creating an impression that something specific and meaningful has been said, when in fact only a vague or ambiguous claim, or even a reputation has been communicated.”
Boudreaux was able to get numerous False conclusions in a Motion for Summary Judgment Ruling by Judge XXX based on these Frauds to the Court.
Attorney Codes of Ethics 3.3, 3.4, 3.5 require Boudreaux Attorneys to inform the court they presented Fraudulent Evidence to the Court.
Example Boudreaux Depo P245-248. His attorney Bailey stated: “I object to the witness testifying further about the document, because it’s not complete.” In the document Boudreaux refers to himself as “The dictator” of SYB.
Line 16 (p245) “Now, did you prepare this document?” Boudreaux answer: “I’m sorry what was your question?” The question was: “Whether or not you prepared this document.” Boudreaux answer: “I can’t answer without the whole document. I don’t know.” Claude Question: “Can you offer an explanation as to how is that document made its way to your file?”
Boudreaux attorney (Bailey): “I object to the witness testifying further about the document, because it’s not complete.”
To support these allegations Revere has a preponderant amount of evidence including depositions Thomas, Boudreaux, Gaston, Laura Baker, Glenn Redwood, and Claire Redwood and 1000 exhibits.
Revere was deterred by taking further action after Boudreaux was successful in getting Judge XXX to deny several of Revere’s Fraud claims based on False Evidence, Perjury, and Fraud before the court.
Boudreaux story as told on pages 195-205 of his deposition is that:
1. He admits he omitted to tell Revere about the loan to B&C, it happened after SYB had Revere’s funds sitting in a 2-3% checking account for several months and presented an opportunity to earn 10% from B&C Recovery owned by Glenn and Claire Redwood, and thus benefited the company and Revere. He claims it was a short term loan. This story was supported by Jerry Thomas and Glenn Redwood. Redwood’s attorney who threaten sanctions against Revere and his attorney, who refused to supply Revere with documents requested by subpoena and a deposition to explain such documents.
Actually what happened was that TORTOLLA, owned by Gaston, Boudreaux, Thomas, and Boudreaux needed money and Revere wanted to invest in TORTOLLA after he was told of the capitalization amounts required by the partners and the expertise they brought to the company.
TORTOLLA needed Revere’s money but did not want to pay him returns on his investment, as did Boudreaux, Thomas, and Gaston for SYB.
The manner they used to obtain Revere’s funds is illegal by numerous Georgia Codes. The Cover-up is also illegal by numerous Georgia codes. Finally the failure to repay him when the company dissolved and his annual distributions of the Jacksonville Profits also violated numerous Georgia codes.
Judge XXX ruled that since Revere was not damaged by the loan to B&C, he had no claim. Revere was damaged (he lost the majority of his $200,000 investment, was left to pay creditors, and denied his share of profits) and 10-5-51 Fraud in the sale of a security prohibits such actions.
What did Boudreaux and Thomas really do?
Within days of receiving Revere’s funds Boudreaux wrote checks to TORTOLLA to secure the Atlanta Market from Copelands. It was not a loan to B&C.
When B&C repays the loan over a year period, which is a form of Money Laundering, the interest is distributed to Boudreaux and Thomas. There is no benefit to SYB. Actually there is harm to the financials.
Not having the cash to operate SYB, Boudreaux loans his money to SYB at a cost to SYB of 11%.
To prevent Revere from discovering what is going on, Boudreaux provides Revere with a Fraudulent Financial Report in 1998 and fails to provide Revere with reports in 1999-2005.
Boudreaux commits wire fraud when Revere emails him in 2005 to explain the checks to B&C; Mail fraud when the Operating Agreement is mailed to Revere, stating it is the same (capitalization) as TORTOLLA.
Once Revere sues Boudreaux, witness are tampered with to keep the cover-up continuing, Boudreaux commits perjury numerous times, and Boudreaux lawyers present false evidence to the Tribunal in Summary Judgment.
Applying Georgia Law to these violations: (there may be other laws violated that are not yet evident)
1. 10-5-51 Fraud in the sale of a security- Revere would not have invested in SYB had he known the omissions made by Boudreaux and Thomas.
2. 16-14-8 RICO Mail Fraud, Wire Fraud, Extortion, Witness Tampering, Victim Tampering, and more
3. 16-8-3 Theft by deception- Services promised that were not preformed
4. 16-8-4 Theft by Conversion- Boudreaux and Thomas converted Revere’s funds to their own use.
5. 16-10-20 Perjury
6. 16-10-72 Subordination of Perjury
7. 16-8-16 Theft by Extortion
8. 23-2-52 Misrepresentation as legal fraud
9. 14-9A-129 Fraudulent statements to shareholders
10. 14-2-1620 Fraudulent Financial Statements to Shareholder
11. 23-2-51 Constructive Fraud
12. 16-8-2. Theft by taking
13. 16-4-8. Conspiracy to commit a crime
14. 14-2-621. Issuance of shares
15. 17-14-17 Fraudulent sale to avoid creditors
16. 23-2-20. Which accidents relievable in equity Capital Contribution Buy/ Sell
17. 23-2-52. Misrepresentation as legal fraud
18. 23-2-25. Form of conveyance contrary to intent
19. 23-2-135. Damages when specific performance impossible
20. 23-2-31. Rescission for unilateral mistake of fact
21. 9-11-37. Failure to make discovery; motion to compel; sanctions; expenses
Fraud event #1—Larceny –using Revere’s funds for Thomas and Boudreaux other needs.
Boudreaux evasive actions in his deposition to deter Revere from realizing the extent of the fraud and discovery of other frauds are deceptive and worked for many years.
1. He was asked “Did you disclose this loan or these loans to Charles Revere?”
2. His Answer: “I did.” He does not say that he did seven years later, when Revere was advised by an attorney of several payments to B&C.
3. So then he is asked: “At the time they were made, you disclosed them to Charles Revere.?
4. His answer: “I did not”
5. Why?
6. He does not answer this question and answers: “…. I know it hurt his feelings….” “I do not regret the fact that the company made a premium based on the interest they paid….”
7. Why did they need the money?
8. His answer: “I don’t recall.”
9. Boudreaux never advises that the interest earned went to him and Thomas as dividends through SYB.
10. Instead Boudreaux advises the court and Revere the interest funds stayed with SYB.
11. Boudreaux stated SYB did not need the funds at the time May 1998.
12. However in October 1998, Boudreaux loaned money to SYB at 11%, as SYB needed cash.
13. Thus the Transfer of funds to TORTOLLA was a loss to SYB.
14. The next questions and false answers to cover up a false Financial statement to hide the loan and the $200,000.00 Revere expected Boudreaux and Thomas to contribute to SYB.
Fraud Event #2 (p198) False Financial Statements and no Financial Statements
15. Q: What money was it that SYB had in its bank account at that time?
16. His Answer: “During the span of the loans, based on the financial statements which are somewhere in the pile, as memory serves after the loans were made there was somewhere in the neighborhood of 350 to 400,000 of cash in the bank.”
17. Boudreaux tried to answer without answering, so he is asked again: “At the time the loans were made, not during the span of the loan, all right, how much money was in the bank?
18. His answer: “I would have to have the bank statement to answer it definitively.”
19. He gets the exhibits and responds: “Based on what you’ve put in my hands, I don’t know.”
20. The bantering without answer continued on this topic.
21. He is then asked: “All right. You said that there was a period of time following or during the course of these loans where there was money in the bank, is that correct, and I think you said close to $400,000.?
22. His answer: “I said the financial statement prepared by the accountant showed money in the bank, the 1998 financial statement.”
23. He is then asked: “ Why is it you said that the financial statements of the LLC during the spans of the loans showed that there was close to $400,000.00 in it?
24. He asks to have the question repeated.
25. His answer: “I believe I said between 350 to 400, or in that range.”
26. He is then shown the Compilation report and asked who prepared it.
27. His answer: “…Ashworth and Associates…”
28. Question: “ Isn’t it true according to Exhibit Number 7 that on December 31st, 1998 there was a withdrawal from the cash in the bank in the amount of $394,000 in payment of a loan to Boudreaux Development?
29. His long answer ends with: “I’m not comfortable with certainty verifying any balances based on what appears to be an Excell Spreadsheet.”
30. More questions are asked to pin Boudreaux down on how the 1998 financial report could contain $394,000.00 as cash on hand that was in the account for less than 3 days.
31. His answer: “ I know that my dealing with this account involved turning in bank statements. I would assume an accountant would rely on those bank statements.”
32. Question: “If one were to receive that compilation report as a member of SYB, they would be led to believe that the company was in good stead financially?”
33. His answer: “…they could draw their own conclusions.”
34. He is asked (p207) “Why is this coded TORTOLLA/ B&C?”
35. His answer: “I don’t know.”
36. What the facts support: The Larceny transfer to TORTOLLA was repaid by B&C. He should know that. Glenn Redwood hinted at that in his deposition. Gaston confirmed that TORTOLLA needed cash.
37. He is asked (p210) “were the loans made by SYB to B&C recovery used to benefit the operation that TORTOLLA had in Atlanta with Glenn Redwood.”
38. His answer: “I don’t know.”
39. How can he not know, he was a partner in TORTOLLA.
40. He is asked if the loan proceeds were used to benefit TORTOLLA should Revere have been told.
41. His answer is long and does not answer the question: “I did act in the best interest of the company, because we made a lot more money than we would have. All that said, as I testified before if I could change history, I know it hurt Charles, and I ‘m sorry that it did.”
42. Later the checks written to TORTOLLA are found and a Larceny is confirmed.
43. Boudreaux never advises that after interest from the B&C loan was transferred to SYB, he distributed the interest to himself and Thomas each made $3,005 from this loan in 1998 alone and SYB did not benefit.
44. Because SYB did not have funds on hand in the Fall of 1998, Boudreaux loans money to SYB at 11%.
45. Thus the Transfer of funds to TORTOLLA hurt SYB and was Larceny.
Applying Georgia Law to these violations: (there may be other laws violated that are not yet evident)
1. 16-14-8 RICO Mail Fraud, Wire Fraud, Extortion, Witness Tampering, Victim Tampering, and more
2. 16-8-3 Theft by deception- Services promised that were not preformed
3. 16-8-4 Theft by Conversion- Boudreaux and Thomas converted Revere’s funds to their own use.
4. 16-10-20 Perjury
5. 16-10-72 Subordination of Perjury
6. 23-2-52 Misrepresentation as legal fraud
7. 14-9A-129 Fraudulent statements to shareholders
8. 14-2-1620 Fraudulent Financial Statements to Shareholder
9. 23-2-51 Constructive Fraud
Fraud Event # 3 Securities’’ Fraud, Theft by Deception, & Equity Principles violations
46. Fraud in the consideration of shares.
47. Boudreaux is asked more questions regarding Thomas’s 43.75% ownership for only recruiting Revere and his sale of those shares to Lanner for a $70,000.00 interest in real estate.
48. Frauds: 14-9-502 , Promise to contribute
49. 14-2-621 The consideration to be received for shares is adequate
50. Neither the Operating Agreement nor the Amendments spoke of Sweat Equity
51. Boudreaux’ cover letter stated the Operating Agreement was the same as TORTOLLA which had a capitalization of $6,500.00 per percent of stock ownership.
52. Boudreaux omitted that sentence in the SYB Agreement.
53. This violates standard Partnership Operating Agreements which specify Capital Contributions of Partners.
54. Omitting a material fact is considered Securities Fraud Rule 10b-5
55. Omitting a material fact violates GA Code 10-5-51
56. Revere funds were then used for Boudreaux and Thomas other interests (TORTOLLA) which is Theft by Conversion or Larceny.
57. Boudreaux, Thomas, and Redwood then commit perjury to cover-up the Larceny, Theft, and Money Laundering.
58. Revere’s funds go to TORTOLLA, the funds are repaid overtime with B&C profits.
59. The interest earned is transferred to Thomas and Boudreaux
60. Boudreaux has to loan funds to SYB in the meantime at 11% payable to Boudreaux.
61. It is a net loss to SYB.
62. Yet Boudreaux testifies that he loaned the money to B&C and made a profit for SYB.
63. Mary, Boudreaux attorney, misrepresents numerous facts in her motion for Summary Judgment.
64. Judge XXX accepts Boudreaux Declaration and Mary’s Statements without evidence, denies Revere the chance to present evidence in court to prove their perjuries.
65. Evidence does not support the verdict.
66. Boudreaux informs Revere that because Mary clerked for Judge XXX, he has received favorable rulings.
67. Boudreaux and Thomas with no evidence to support their position of receiving $700,000.00 each in Sweat Equity in SYB and despite GA Equity Laws prohibiting such an action were able to convince Judge XXX to accept such a position.
68. In fact emails exist between Revere, Thomas, and Boudreaux in 2005 where Boudreaux denies he and Thomas were to receive $700,000.00 in sweat equity for making loans.
69. Boudreaux Depo P141:
70. Q: “Are there any written documents that you are aware of that would reflect that you and Mr. Thomas would be entitled to your 43.75% interest each in the LLC for the sweat equity that you were giving to the LLC?”
71. A: “I don’t know.”
72. Q: “Are you aware of any?”
73. A: “I don’t know.”
74. Chapter 23 of the Georgia code on Equity and Chapter 14 of the code on selling stock for fair value.
Fraud Event #4 “Squeeze-out of minority partner.” And Breach of Fiduciary Responsibility
Delaware Supreme Court: Weinbergh v. UOP: Fair Dealing and Fair practice in Squeeze out Mergers of Minority Partners. From Leo Herzel “The powers of a majority stockholder and rights of a stockholder are statutory, although subject to additional restraints imposed by the courts applying fiduciary responsibility and other equitable principles.”
Elliot J. Weiss: “Situations arise with regularity in which the majority shareholders of a corporation wish to continue their participation while terminating the minority shareholders position in the enterprise.”
“Vulnerability of Professional-Client Privilege in Shareholder litigation”, by F.Hodge O’Neil
When a plan to eliminate a minority shareholder from a corporation (a Squeeze-Out) is being evolved, those in control of the company are likely to ask the corporations attorney and accountant for guidance and the attorney or accountant may prepare letters in which he describes methods to accomplish the desired objective.
The conferences of majority shareholders, directors, and business advisors as they search for the most advantageous and least risky way to eliminate the minority shareholder may take on all the coloration of a full fledged plot or conspiracy.
When corporate officials and attorneys involved realize their correspondence may be discoverable and not protected by attorney client privilege, which reveal their plotting against a minority shareholder….may set the stage for a settlement.”
By William Pricket: “These recurring disputes center on fairness obligation owed by the majority to the minority stockholders. The obligation stems from the Majority stockholder’s control of the corporation and forbids unfair use of that control to the detriment of the minority stockholders.”
Boudreaux had begun working with accountants and lawyers in 2003 to remove Revere and continue to operate the Jacksonville without having to pay Revere his capital distribution and annual dividends.
He wrote: “As SYB has not cash flowed, one could argue its stock was of little value” Of course most business enterprises have an initial start up period that does not produce cash flow before hitting the cross over point and Profitability.
Pages 269-272 of Boudreaux deposition regarding the selling of stock .to Jerry Gaston
Jacksonville was a huge success. Boudreaux wanted to move forward without having to pay Revere his capital contribution and annual dividends. Thus a Squeeze-out was put in place.
Fraud event #5- Bankruptcy Fraud & Financial Intuition Fraud–
developing a plan (which happened) to transfer Jerry Thomas’s assets in 2000 prior to Thomas’s filing for Bankruptcy in 2003. Boudreaux removed his $6M+ prior to going to GE in 2004 in hardship and asking for forgiveness of his debts.
76. Removal of Thomas from SYB, Universal Solutions, and TORTOLLA in 2000
77. Two years to avoid Preference Charges
78. Incur $400,000 in Credit Card charges
79. File Bankruptcy in 2003
80. A document presented in discovery by Boudreaux to Revere outlined a plan to removed Jerry Thomas’s assets to avert Bankruptcy.
81. P255
82. Q: “How much did Mr. Thomas owe you at time that he transferred his interest in Prodining to you, if anything?
83. A: “I don’t know if he did.”
84. A:”It says, If Thomas does not pay off by random date 12/1/00, Thomas’s stock reverts back to Boudreaux. As Prodinig has not cash flowed, one could argue it is of little value. Do you see that?”
85. P274
86. Q: “Does it suggest to you that this was prepared sometime in the year 2000?
87. A: “Yeah, I ‘d answer the same, 2000 or before: yeah.”
88. Q: Okay: Now, I understand that according to this, it’s represented that Mr. Thomas as of this date, the date that this was prepared, had a net worth of $14,508,823.00?
89. A: “I’m not with you there. I don’t see that.”
90. Q: “Third to last paragraph.”
91. A: “Thank you”
92. Q:”Shortly after this, within a three year period Mr. Thomas declared bankruptcy. Do you know if he listed $14,508,823.00 as a net worth on his bankruptcy?
93. A: “As I testified earlier, I haven’t seen his bankruptcy schedule.”
94. Q:”You list yourself as having as of that time a net worth of $6,812,706.00. Is that roughly your net worth today?”
95. A: “No”
96. Q: :How has that decreased?
97. A: “It’s been quite some time since I’ve… or since I’ve prepared one. I would like to think there would be a plus sign on my current personal financial statement.”
98. Q: “Do you know when Mr. Thomas claimed Bankruptcy?”
99. A: “I do not.”
100. Boudreaux letters in 2001 state that Thomas is Bankrupt.
101. Q: “Were you a creditor in Mr. Thomas’s bankruptcy?”
102. A: “I don’t know”
103. Q: “Did you ever assist Mr. Thomas in attempting to remove assets from his name in anticipation of his bankruptcy?”
104. A: ”NO”
Fraud event #6 – Fraudulent Transfer to avoid Creditors (Revere)
Omitting to advise Revere that Boudreaux has sold 32% of SYB from his stock to Jerry Gaston starting on August 10, 2003 with 7.8%. Not offering it to Revere. Avoiding telling of the event in his deposition.
105. In Dec 2012 emails Gaston still denies that he acquired stock in SYB when Revere was a member
106. Boudreaux FEMOF denies in his deposition
Fraud event #7 Fraudulent Transfer to avoid Creditors (FF&E Lenders with Revere to pay for personal guarantee)
107. The first known Fraudulent Transfer is between Thomas to Boudreaux via Mal Tiempo and Boudreaux Dining In (owned 49% by Thomas) 2000. Through this transfer the creditors for the FF&E in Pineville and Charlotte are avoided.
108. In 2000 there is also the Transfer of Universal Solutions Stock to Glenn Redwood.
109. In 2004 there is the transfer of SYB by Boudreaux and Gaston to Second Line and back to Gaston to avoid GE.
110. Boudreaux net worth has gone down to nearly zero to avoid GE and is confirmed by Glenn Robl, an attorney.
111. At the same time Boudreaux claims to Revere that he is helping Marala with GE, Boudreaux attorney is advising GE to go after Revere.
112. Thomas(through GDI) was a creditor to Boudreaux Dining in an DTD, yet Boudreaux never went after him for Personal Guarantees.
113. Redwood claimed in his deposition that Thomas transferred the Universal Solutions stock to Redwood for the B&C debt and because Thomas felt “bad”.
114. Numerous emails exist between Boudreaux and PD accountants, attorneys, Revere, Second Line, and GE to support that Boudreaux planned the transfer to SECOND LINE to A. Obtain the FF&E without fully paying GE and B. Squeezing-out Revere before the profits started.
115. Second Line “loaned” SYB $700,000 in August 2003 within 10 months it was gone ($70,000.00 per month). While Jacksonville is reporting $474,000.00 ($40,000.00 per month) in income in 2003 and Boudreaux and Gaston are reporting in March 2004 how great things are to GE.
18-2-74. Fraudulent transfer; determination of actual intent (a) A transfer made or obligation incurred by a debtor is fraudulent as to a creditor, whether the creditor’s claim arose before or after the transfer was made or the obligation was incurred, if the debtor made the transfer or incurred the obligation:
(1) With actual intent to hinder, delay, or defraud any creditor of the debtor; or
(2) Without receiving a reasonably equivalent value in exchange for the transfer or obligation, and the debtor:
(A) Was engaged or was about to engage in a business or a transaction for which the remaining assets of the debtor were unreasonably small in relation to the business or transaction; or
(B) Intended to incur, or believed or reasonably should have believed that he or she would incur, debts beyond his or her ability to pay as they became due.
(b) In determining actual intent under paragraph (1) of subsection (a) of this Code section, consideration may be given, among other factors, to whether:
(2) The debtor retained possession or control of the property transferred after the transfer;
(3) The transfer or obligation was disclosed or concealed;
(4) Before the transfer was made or obligation was incurred, the debtor had been sued or threatened with suit;
(5) The transfer was of substantially all the debtor’s assets;
(6) The debtor absconded;
(7) The debtor removed or concealed assets;
(8) The value of the consideration received by the debtor was reasonably equivalent to the value of the asset transferred or the amount of the obligation incurred;
(9) The debtor was insolvent or became insolvent shortly after the transfer was made or the obligation was incurred;
(10) The transfer occurred shortly before or shortly after a substantial debt was incurred; and
(11) The debtor transferred the essential assets of the business to a lienor who transferred the assets to an insider of the debtor.
Jacksonville Dining Concepts currently owns Jacksonville Copelands with Jerry Gaston as Managing partner.
Boudreaux in his deposition states:
116. Q: “All right. Are any of the restaurants that were opened by Pro Dining previously still open today?”
117. L: “I can speculate.”
118. Q: “Do you know.”
119. A: “Jacksonville”
120. Q:”All right. Do you retain an interest in that?”
121. A: “I do.”
Fraud Event #9 Frauds against Equity and standard Partnership operating Principles
123. The General Partner’s unsecured loans do not get paid before the Secured Loans. ($1.8M repaid to Boudreaux before GE is Paid)
124. A Limited Liability Corporation is just that LIMITED LIABILITY for the LIMITED PARTNERS (Revere pressured to sign personal Guarantees)
125. The agreement will state the Capitalization of the company ($650,000.00 for TORTOLLA — no mention for SYB)
126. The agreement will state the Limited Partners will be paid back their Capital contribution first.
127. New Partners shall not be added without approval of the limited partners. Jerry Gaston added on August 10, 2003 without informing Revere.
128. Loans to the Partnership do not qualify as Capital contributions at the same time.
129. Annual financial reports will be provided.
130. Stock will be sold at fair prices to the partnership.
Fraud event #10 Methods used to deter Revere from discovering the crimes and other reasons to toll Section 9-3-96 Tolling if Victim deterred
1. Conspiracy continues until last disbursement of illegal profits US v. Dynalectric Co. 169 ALR FED 575–, – US v. Bornman 559K 3d 150, 153 3d Cir
2. Extortion- Threatening to harm Revere politically if he does not settle
3. Withholding information- 45 boxes of Documents not given until September 24, 2003 for review at the time Motion for Summary Judgment is filed
4. Perjury- Declarations and Depositions and interrogatives
5. Witness tampering- Jerry Gaston and Claire Redwood represented by Boudreaux attorney (Bailey); Bailey also drafts statement for SECOND LINE.
6. Victim Tampering
7. Fraud before the court- Boudreaux attorney motion and Thomas acceptance of her motion
8. Threat of Sanctions by Redwood’s attorney with refusal to comply with subpoena and Gaston does not comply either
9. Failure to provide Financial Statements
10. Purpose not abandoned – US v. Northern IMP 814 F. 2d 540 (8th Cir 1987)
11. Gaston and Thomas Out of Georgia State most of the last 10 years.
12. Till Victim first learned of offenses/ crimes– ADAMS v. State 231 GA. APP. 279, 499 S.E. 2d 105 (1998) – State v. Brannon 154 GA. APP 285, 267 S.E. 2d 888 (1980)
13. 18 USC 3284 Concealment of assets extends statute of limitations Baily v. Glover US Supreme Court; Comerford v. Hurley 154 GA app 387, 268 SE 2d 358, 1980
14. 9-3-94. Removal of defendant from state
Unless otherwise provided by law, if a defendant removes from this state, the time of his absence from the state until he returns to reside shall not be counted or estimated in his favor.
15. Victim used reasonable diligence, defendant conduct was that of moral turpitude
16. Thomas states he is still bankrupt Dec 2007 and Revere will have no financial benefit if successful in civil court
17. 9-11-37. Failure to make discovery; motion to compel; sanctions; expenses
(2) Motion; protective order. If a deponent fails to answer a question propounded or submitted under Code Section 9-11-30 or 9-11-31,
(3) Evasive or incomplete answer. For purposes of the provisions of this chapter which relate to depositions and discovery, an evasive or incomplete answer is to be treated as a failure to answer; and
.Withholding evidence as noted by Claude in the Gaston deposition. P98
18. Judge XXX denies Revere’s civil claim for Fraud, based on mistake.
Conspiracy
131. Boudreaux, Thomas, and Redwood have all maintained that Revere’s money that was invested into SYB was loaned to B&C Recovery at 10% and was a benefit SYB. Redwood refused Revere’s subpoena to provide information to Revere to confirm this.
132. However Revere found checks written to TORTOLLA not B&C and Revere found Thomas’s tax returns from 1998 showing dividends from SYB that match a 43.75% of the interest earned.
133. Since Revere’s funds were gone from SYB, Boudreaux loaned money to SYB at 11% with the end result a loss to SYB.
134. Judge XXX accepted Quirk’s motion and missed the numerous laws broken by Boudreaux, Thomas, and Redwood to con Revere out of his $200,000.00
135. From 2000 to 2003 there was Thomas’s Bankruptcy Fraud.
136. From 2004-2005 there was the Ericsson RICO action.
137. From 2003-and 2013+ there was the “Squeeze-out of Revere by Boudreaux and Gaston followed by the Fraudulent Transfer to avoid creditors.
Errors in Judge XXX’s Order and Ruling supported by evidence
1. “Charles Revere invested in restaurants franchises with a close friend of 25 years, Jerry Thomas, and an acquaintance Fraternity brother for 15 years , Jay Boudreaux.”
2. “The Venture Failed was reformed after Revere was “squeezed-out” , money to one extent or another was lost by all partners” made by Thomas who invested nothing and received 43.75% of the venture, Boudreaux who stated he is still involved and received hundreds of thousands of dollars of tax credits and pull out over $1.5M, but was lost by Revere who invested $200,000.00 and was liable for Boudreaux and Gaston’s default to General Electric.
3. “A few years after that, the venture had failed…been reformed without Revere by Gaston and maybe Boudreaux as Jacksonville Dining Concepts and still exists today. In 2003, Jacksonville was the highest sales Copelands in the chain.
4. “Revere and Thomas had done business together.. Thomas was a silent Partner” the managing partner. Determining was salaries to pay agents and how to market.
5. “Revere was there following a divorce, deciding whether he wanted to relocate from California reconciling with his wife with firm comittments to return to his managerial position in San Jose, .”
6. “He said he would like to invest if the opportunity arose in the TORTOLLA partnership Thomas had formed with Redwood and Boudreaux in which shares were sold for $6,500.00 per percent. It did.”
7. “Revere did little independent investigation had known Copelands for 15 years, that Thomas and Boudreaux had built two Copelands, and recruited Managers from Copelands…”
8. “Thomas told Revere that Boudreaux had remarked that “there’s no way you can loose, which given that Thomas received his 43.75% for no investment, Thomas could not lose. However Revere took the you to be Plural and not geared just to Thomas.…”
9. “Revere estimated was told by Thomas that woit would cost $600,000 to open a Copelands….”
10. “Thomas had told him that Boudreaux would receive $100,000 in sweat equity in SYB in return for developing the restaurant site and overseeing construction. Similar as to what Thomas and Boudreaux’ other company, TORTOLLA, had compensated Jerry Gaston and what Thomas’s other company Garden District Investments (GDI) had compensated Bill French.
11. “Presumably because of the relationship between the three, which has been called Affinity Fraud, and Boudreaux knew he could leave a paper trail of the frauds and omissions there was only one written communication between Boudreaux and Revere before Revere invested…A document drafted by Boudreaux titled the Jay and Jerry Businees Plan was never shown to Revere. The document explained the SYB plan for Thomas and Boudreaux not to invest any capital and retain 70-87% ownership of their business. The admission of this omission would likely chased away any investor.”
12. “Jerry, this is the same operating agreement we used for TORTOLLA, expect that I deleted the Capitalization clause so neither you nor I have to contribute any money to SYB for our 43.75% equity, hopefully because of Revere’s trust in us he will not take this to an attorney and catch us in Security Fraud Rule 10b-5 or Theft by Deception or Partnership or Equity code violations”
13. “By June, 1998, Boudreaux apparently had loaned transferred the $200,000, that Thomas Revere paid in, to B&C RecoveryBoudreaux and Thomas’s other company TORTOLLA which Revere had wantd to invest in to begin with committing Larceny and Theft by Conversation …”
14. “Boudreaux temporarily managed to premium return on SYB’s cash but he did not tell the court he then transferred the return to Boudreaux and Thomas resulting in Boudreaux needing to lend $60,000.00 to SYB at11% causing a lost to SYB
15. “In October 1998, Revere was provided with a SYB business plan…3.By the end of the first year of operation of the sixth restaurant, investment partners should receive at least 100% of their initial investment as a distribution…(emphasis added) showing returns of 100% starting in year six titled “Investor expectations” below the spreadsheet was the line “Investor Expectations must be met” This type of hype is typical of Affinity Fruad Ponzi Schemes and several states are now offering courses to protect investors.
16. “This time, Thomas forfeited transferred his position for $70,000 to be applied to a real estate venture with Boudreaux of membership thus showing Revere had been either sold stock which only had a value ot $2,000.00 per percent for $16,000.00 and that Thomas had received a commission so high that it violates security law and committed Larceny by using Revere funds for his own purpose twice. A document with Boudreaux handwriting on it lists how to remove Thomas’s assets prior to Thomas’s filing bankrupty…”
17. “On May 10, 2001…the handout from the meeting alerted Revere that the financial expectations were not being met, but Boudreaux does reference or point to a specific place, verbally Boudreaux declared that SYB was doing well enough for Boudreaux to repaid his loans. A check on April 8, 2001 for $16,418.12 and checks $328,000.00 in 2002 were found …”
18. “To try to deal with the financial distress, Boudreaux negotiated $700,000 bail-out loan from SYBs Landlord, Second Line, however this was the first step in a Fraudulent Transfer to avoid creditors GE Capital and Revere, …”
19. “By June 2003, SYB was, by admission in default under the loan agreement, Second Line took over the Jacksonville and Winston-Salem stores as Jacksonville Dining Concepts, to later transfer Jacksonville Dining Concepts to Jerry Gaston who had acquired 32% of SYB in August 2003 without Revere’s knowledge…. Violating several codes on Partnerships, and creditors…”
20. “In September 2003, Boudreaux told Revere that he would buy him out… in July, Boudreaux had recommended Revere simply sign over his shares to a new entity Boudreaux was forming with Second Line and Gaston, such a process is called a “Squeeze-out” of a minority shareholder”
21. “to date, Second Line has not released Boudreaux from the guarantee…or the $700,000 loan, this appears to be a smoke screen as three years have passed, Second Line has rented out the Tampa and Winston-Salem stores, and Boudreaux has written his accountant that the loan was forgiven….”
22. VI “Claim under Promissory Note SYB Counters that it repaid Revere…”
23. “SYB insists that its own records “show that the note has been paid, but not completely. SYB records and tax returns show a Due to Funds of $12,000.00 to Revere for unpaid interest”
24. “Because the parties do not dispute what has been paid to the plaintiff on the note, and because the parties agree that Revere is owed $12,000 Summary Judgment is denied…”
25. Revere has been very reluctant to accept the fact that his long time friends, fraternity brothers, and adventure buddies would take $200,000 from him to use in their own business, then squeeze him out before the investment became profitable and leave him to pay for the Furniture Fixture & Equipment by claiming their $20,000,000.00 had disappeared.
26. Obviously numerous frauds were committed and Summary Judgment is not appropriate. In fact given that Revere has uncovered documents that show perjury by Boudreaux and Thomas in their depositions, Boudreaux and Thomas are required to cover the cost to have their depositions taken a second time.
Revere had no interest in investing in SYB with Thomas and Boudreaux to receive $700,000 in Sweat Equity. At the time Thomas’s plate was full and Thomas was adding more. Thomas had no time for Sweat Equity. Thomas had D&B franchises from Hawaii to Maine (17 states), was developing Universal Solutions, had two other Thibodeauxs Franchises, lived in New Jersey, and took a position as Senior VP at MCI/Worldcom.
Revere was firm that he would only invest if the GP (s) had skin in the game, advise from the early investor to Steve Jobs at Apple.” Jobs had to sell his VW to prove his commitment.
Bailey and Long again claim without evidence that Boudreaux was to receive $700,000.00 in “Sweat Equity” without putting that in writing to Revere and despite having in writing that Boudreaux and Thomas would sell shares of their stock to fund SYB.
The theme of Bailey and Long is to clear for not being responsible to Revere, yet the operating agreement puts responsibility on the Managing Partners.
Long and Bailey claim the Merger clause relieves Thomas and Boudreaux for any verbal commitments made to Revere. Georgia’s Equity Codes, Criminal codes for Theft, Partnership Codes, Financial reporting Codes, and Securities Code prohibit Omitting a Material fact to steal $200,000 from an investor.
Long and Bailey move on to the Section 4. The Operation of SYB
This is another section where Section 3.3 of Candor towards the Tribunal needs to be enforced:
Long and Bailey present a false story to the TRIBUNAL to cover up numerous Frauds and crimes by Boudreaux and Thomas.
This section deals with the Transfer of Revere’s funds to TORTOLLA and the coverup.
Q&K write: “Revere now alleges that SYB’s loan to B&C Recovery was self dealing by Boudreaux because the loan proceeds were used by TORTOLLA, an entity in which Boudreaux has a 5% ownership interest. While Boudreaux did have a small interest in TORTOLLA, it still remains that the loan benefits SYB.”
Q&K and Boudreaux and Judge XXX all accept that the loan benefited SYB. It did not, it benefitted Boudreaux and Thomas and to some degree Redwood and Gaston.
Boudreaux original story was that the funds had been sitting in SYBs account for some time. Later after Revere secured Promissory Notes showing the money was “loaned” immediately Lanner changed that story.
The 4 of them needed funds for TORTOLLA and they needed them by May8th for a Thibodeauxs Franchise conference. They wanted to secure the entire Atlanta Market. Rather than bring Revere in TORTOLLA they formed SYB.
The Transfer of Revere’s funds to TORTOLLA is
16-8-2. Theft by taking
A person commits the offense of theft by taking when he unlawfully takes or, being in lawful possession thereof, unlawfully appropriates any property of another with the intention of depriving him of the property, regardless of the manner in which the property is taken or appropriated
16-8-3. Theft by deception
(a) A person commits the offense of theft by deception when he obtains property by any deceitful means or artful practice with the intention of depriving the owner of the property.
(b) A person deceives if he intentionally:
(1) Creates or confirms another’s impression of an existing fact or past event which is false and which the accused knows or believes to be false;
(2) Fails to correct a false impression of an existing fact or past event which he has previously created or confirmed;
• 16-8-4Theft by conversion Larceny using someone’s funds for your own purpose. 16-8-4. Theft by conversion
(a) A person commits the offense of theft by conversion when, having lawfully obtained funds or other property of another including, but not limited to, leased or rented personal property, under an agreement or other known legal obligation to make a specified application of such funds or a specified disposition of such property, he knowingly converts the funds or property to his own use in violation of the agreement or legal obligation. This Code section applies whether the application or disposition is to be made from the funds or property of another or from the accused’s own funds or property in equivalent amount when the agreement contemplates that the accused may deal with the funds or property of another as his own.
What the evidence supports that happened:
1. Revere’s funds were transferred to TORTOLLA violating coded 16-8-2,3,4 for theft
2. B&C a separate company, which Revere claims in a Thomas/Redwood partnership but the Redwood’s in deposition claim otherwise wrote checks to SYB totaling approximately that amount plus interest of 10%
3. Boudreaux and Q&K and Feldman claimed the interest was a benefit to SYB
4. However Boudreaux distributed those funds to Thomas and Boudreaux. Thomas’s 1998 tax return shows a dividend of $3,005.00 matching 43.75% of the interest earned per the Financial statement
5. Boudreaux then loaned $60,000.00 to SYB at 11% interest.
6. Boudreaux was paid per checks cashed and the financial report $197.00 in interest in 1998.
7. Thus the whole process was a net loss to SYB
8. Thus Long & Bailey have presented false evidence to the court and need to advise the court per 3.3 A.4
Later in their Motion Section 4 Q&K state: “Revere now complains that Boudreaux wrongfully induced him to sign this guaranty by telling him that the investors would make a 100% return on investment, but the document that Boudreaux actually gave Revere referring to a 100% return plainly stated that this was only an “objective”.
Again Q&K leave out the full details. A sentence right below the “objective” stated “Investor expectations must be met.”
By April 2000 Revere decided to stop signing personal guarantees. Boudreaux did not notice this until 2003.
Q&K then discuss the events of the Summer of 2001.
This starts with a Franchise meeting in New Orleans in May.
Boudreaux claims he gave Revere a report that stated that Financial Expectations were not being met. While a report was given that no chart comparing Financial Expectations and actual expectations was given.
SYB was ahead in number of stores open with five.
Boudreaux indicated that he was going to use some of the profits to repay his loans, which he did in the amount of $325,000.00 during 2000- May 2001.
Boudreaux Q&K then make an off the wall statement: “Revere did not go back to his room and analyze it and come back with questions.” Revere was with Boudreaux for 2-3 days and discussed many Copeland issues with Boudreaux. Several related that report.
At the May meeting the Jacksonville restaurant was recognized for its success.
In August 2001 when Revere loaned SYB $250,000.00 at 10% it was in increments and due to some unknown reason Boudreaux at one time repaid Revere, but asked Revere to repay the repayment. Thus Revere wrote checks to SYB for $350,000.00.
Revere does not accept that the loan was made because he was aware that SYB was in “Poor Financial Condition”. Rather the acquisition to five stores ahead of schedule had caused a need for extra capital.
SYB’s records show a DTF due to funds of $12,000.00 to Revere. Q&K write that SYB’s records show that it had paid Revere $254,600 by March 2003. Ten percent of$250,000 would be $25,000.00 per year in interest. The repayment to Revere was set at $10,000.00 per month.
Boudreaux, Q&K state that “As planned, Boudreaux through his company, Boudreaux Development and other companies he owns, loaned approximately $1.8M million to SYB…” Boudreaux states in his declaration he was repaid very little of this.
However checks discovered show Boudreaux was repaid approximately $1,4M million.
At this point Q&K skip to August 2003: “ Thus is August, 2003, Boudreaux as a last resort negotiated a $700,000 loan from SYB’s Landlord Second Line….None of it was used to repay money to Boudreaux.”
“Second Line asked Boudreaux and Revere to personally guarantee the loan, which Boudreaux did but Revere did not.”
Revere position is that Boudreaux and Q&K have left out major parts of these events and falsely told others, which they need to correct to the Tribunal.
The following checks were discovered payable to Boudreaux Development after the loan:
Date: Amount Reason
12/14/2003 $2,884.61 BiWeekly loan pymt
12/23/2003 3,000.00 Partial repymt of $11,532.68 on 11/19
1/11/2004 2,884.61 BiWeekly loan pymt
1/25/2004 2,884.61 BiWeekly loan pymt
2/8/2004 2,884.61 BiWeekly loan pymt
2/22/2004 2,884.61 BiWeekly loan pymt
3/7/2004 2,884.61 BiWeekly loan pymt
3/15/2004 4,252.02 Prodining LLC
3/21/2004 2,884.61 BiWeekly loan pymt
3/29/2004 24,999.88 loan repayment
4/4/2004 2,884.61 BiWeekly loan pymt
4/9/2004 1,128.95 postage
4/18/2004 2,884.61 BiWeekly loan pymt
5/2/2004 2,884.61 BiWeekly loan pymt
5/16/ 2004 2,884.61 BiWeekly loan pymt
5/30/2004 2,884.61 BiWeekly loan pymt
6/13/2004 2,884.61 BiWeekly loan pymt
6/27/2002 2,884.61 BiWeekly loan pymt
7/11/2004 2,884.61 BiWeekly loan pymt
7/25/2004 2,884.61 BiWeekly loan pymt
7/7/2004 1,134.76
8/8/2004 2,884.61 BiWeekly loan pymt
What was found is that from Dec 2003- Aug 2004 $77,000.00 was paid to Xxx Boudreaux labeled as “Loan Repayment”
Going back through files discovered and emails that were sent to Revere, the evidence validates that Boudreaux wanted to “Squeeze-Out” Revere and reform the company without Revere’s debt, the GE Debt, and repaying Revere’s his annual dividend, and return of Revere’s capital contribution, and if Boudreaux could get Revere to have personal responsibility for the leases and $700,000 loan even better.
What other omissions to Boudreaux and Q&K fail to disclose:
1. They fail to disclose that in December 2000, Boudreaux drafted a plan to remove Thomas’s assets to avert bankruptcy.
2. In January 2001, Boudreaux had SYB take over Thibodeauxs’ Pineville which was losing money and a tenant to Boudreaux Dining-In costing SYB $160,00.00, and benefiting Boudreaux Dining-In by getting the FF&E for free.
3. In March 2003 Boudreaux began drafting plans for a merger of SYB which would allow Lanner to stay on as a manager and buy back the company and for the new owner to default to GE Capital.
4. In August 2003 Boudreaux agreed to sell 32% of SYB to Zzz Gaston.
5. In July 2003 Boudreaux informed Revere that Second Line would squeeze –out Revere via conditions in the Buy/Sell that Revere could not meet.
6. In September 2003 Boudreaux did “Squeeze-out” Revere with conditions in the Buy/Sell that Revere could not meet.
7. Request of Second Line for a deposition were met with resistance and that depostion never happened. Why didn’t SECOND LINE ever attempt to collect against Xxx Boudreaux?
8. Reason, When Revere would not agree to walk away, Boudreaux devised a plan to force him out, starting with the Second Line loan.
Back to the Motion by Long and Bailey:
Q&K wrote: “Boudreaux realized that his personal guaranty of the Second Line loan could eventually cause him to file bankruptcy. In an effort to save Revere from this same fate, Boudreaux put an additional $203,333.01 into the company in exchange for SECOND LINE forgiving Revere’s personal guarantee of the Tampa Lease (Boudreaux Dec). The Tampa lease obligations has exposed Revere to a potential obligation of several million dollars, but Boudreaux relieved Revere of that potential liability. (Boudreaux DECL 27)
This paragraph is full of false statements. First the Tampa lease option had a cap of $1.5M, second that would first have been due from SYB, third Thomas and Boudreaux both signed that Personal Guarantee as well as Revere, and fourth Boudreaux did not have to the loan from Second Line, and fifth Revere had found a qualified Restaurant real estate broker in Tampa in July but Boudreaux had refused to corporate with information to lease the facility.
Boudreaux actions were to “Squeeze-Out” Revere and do a fraudulent transfer to avoid creditors and acquire the business back less the debts.
Q&K then state: “Second Line asked Boudreaux and Revere to personally guarantee the loan, which Boudreaux did but Revere did not.”
How foolish it would have been for Revere to personally guarantee that loan for $700,000.00 given that Boudreaux is claiming he has no money and the SYB is failing. Why would Second Line even consider Personal Guarantees given that Boudreaux says he is broke?
The only reason is that Second Line had no intention of using the Personal Guarantees. The transfer was a convient way to allow the transfer without Thibodeauxs getting hold of Jacksonville per their first right of refusal.
Here Q&K paint a confusing picture: First they state Boudreaux wanted to save Revere by getting a release of Tampa, then they say Boudreaux exercised his Buy/Sell rights because Revere would not execute documents promptly, and eventually he explained to Boudreaux that he was too busy decorating his house.
Revere actually flew to Atlanta to meet with Boudreaux to reach some type of agreement and Boudreaux did not show. Boudreaux sent the documents to Revere wanting an signature in 48 hours and Revere decided to show them to an attorney. The time it took to find one and the concerns raised consumed less than two weeks.
Boudreaux could have advised Revere what he was working on weeks prior and asked for Revere’s input.
Q&K write: “By contrast, Boudreaux lost almost all of the money he had invested, paid $70,000.00 in his personal guaranty to GE Capital, and has never been released from any personal guaranty of any store lease. (Boudreaux Decl 15, 27-28)
Response: Boudreaux emailed his accountant and GE he was being forgiven of the loans, checks have been discovered totaling almost $1.8M to Boudreaux companies, Boudreaux has developed restaurant skills and possibly has some method to receive payments from Zzz Gaston.
On Page 15 Q&K argue that under Georgia Law the state in which a corporation is incorporate in governs the nature and scope of fiduciary duties. They cite: Diedrich v. Miller and Phoenix Airlines v. Metro Airline however researching these cases does not give any support to that statement.
Diedrich v. Miller is a case where a Wisconsin firm opened an office in Georgia. SYB is a case where the partners agreed to Georgia Law, headquarters were always in Georgia, and once legal action started the General Partners sought the reduced fiduciary accountability the Delaware Law offers. There is a big difference.
Diedrich v. Miller
1. In our view the Court of Appeals, in Division 2 of its opinion, failed to give proper consideration to OCGA § 14-2-310. This section of the Business Corporations Code requires a foreign corporation to obtain a certificate of authority before it has the right to transact business in Georgia. However, the section provides that “. . . nothing contained in this Chapter (Chapter 2 of Title 14 – Business Corporations) shall be construed to authorize this state to regulate the organization or the internal affairs of such corporation. (A foreign corporation with a certificate of authority.)” This is a recognition of the internal affairs doctrine which has been described as “. . . involved whenever the issue concerns the relations inter se of the corporation, its shareholders, directors, officers or agents. . ..” Restatement 2d Conflict of Laws, § 313 a.3 We hold that the wrongful appropriation of [ 254 Ga. 736 ]
a business opportunity of a foreign corporation by its officer or director is an internal affair not to be regulated by Georgia law. Instead, the local law of the state of incorporation applies, which is Wisconsin in this case. Restatement 2d Conflict of
PHOENIX AIRLINE v. METRO AIRLINES
260 Ga. 584 (1990)
Pages 17-21 Q&K seek to clear Boudreaux of Fiduciary responsibility with misrepresentations.
Q&K state: “Prior to the execution of the Operating Agreement, Boudreaux owed no fiduciary duty at all.” While no fiduciary duty might be owed, numerous other laws protect investors from Boudreaux and Thomas’s conduct.
• 10-5-51 Fraud in the sale of a security 10-5-51. Fraud or deceit unlawful; adoption of rule
(a) It is unlawful for a person that advises others for compensation, either directly or indirectly, or through publications or writings, as to the value of securities or the advisability of investing in, purchasing, or selling securities
(1) To employ a device, scheme, or artifice to defraud another person; or
(2) To engage in an act, practice, or course of business that operates or would operate as a fraud or deceit upon another person.
This parallels SEC Rule 10b-5
Rule 10b-5: Employment of Manipulative and Deceptive Practices”:
It shall be unlawful for any person, directly or indirectly, by the use of any means or instrumentality of interstate commerce, or of the mails or of any facility of any national securities exchange,
(a) To employ any device, scheme, or artifice to defraud,
(b) To make any untrue statement of a material fact or to omit to state a material fact necessary in order to make the statements made, in the light of the circumstances under which they were made, not misleading, or
(c) To engage in any act, practice, or course of business which operates or would operate as a fraud or deceit upon any person,in connection with the purchase or sale of any security.”
This omissions of Thomas and Boudreaux in recruiting Revere not only violate the above laws. They also violate at least the following:
• 16-4-8. Conspiracy to commit a crime
16-14-4. Prohibited activities
16-14-5. Criminal penalties for violation of Code Section 16-14-4
16-8-3 Theft by deception- omission of facts to induce investment -Partnership Agreement w/o Cap
• 16-8-4Theft by conversion Larceny using someone’s funds for your own purpose. 16-8-4. Theft by conversion
16-8-2 Theft by taking- being in lawful possession thereof, unlawfully
• 16-8-2. Theft by taking
16-8-16 Theft by Extortion
• 14-9A-130. Penalty for fraud
14-2-621. Issuance of shares– the consideration received or to be received for shares to be issued is adequate
Q&K (p18) write: “Revere lamely asserts that that Boudreaux owed him a fiduciary duty because they were fraternity brothers.” Revere Depo Pages 262-263.
When Bailey began his question of Revere, Claude Objected saying “you’re taking it out of context.” Revere position is that there was an Affinity between him and Boudreaux through the Delt Brotherhood had travelled together and been in the same circle for 15 years. Had a Xxx Boudreaux from Atlanta barely known to Charles Revere called with a recommendation that 100% annual returns on an investment must be met, Revere would not have invested.
Boudreaux and Thomas were required by state and federal not to omit material facts when procuring Revere’s $200,000.00
Delaware and Georgia Law require a fiduciary to not knowingly mislead and to speak up if he learns that his earlier statement was false or misleading.
Q&K write: “Failing to tell Revere the commonly known fact that landlords often require personal guarantees of leases can hardly be a breach of fiduciary duty.”
Revere and the Facts disagree: Limited Partners in LLCs do not sign Personal Guarantees, that why they are called Limited Partners. Revere would not have invested in a Personal Guarantee situation. Boudreaux drafted in his business plan that Revere would be required to sign, but still did not tell Revere.
P19
Q&K write: “Revere complains that Boudreaux did not adequately capitalize the company, thus necessitating personal guarantees. However Boudreaux put in over $1.8M in the company, and when he asked Revere to guaranty the Tampa lease, Revere voluntarily agreed to do so.”
Revere and the Facts disagree: Boudreaux took out approximately $1.8M from SYB by August 2003. Boudreaux also received substantial tax losses to offset other income.($208,000 in 1999). Boudreaux may be receiving income from the restaurant skills he learned or some type of by back from Gaston who now owns Jacksonville because of Boudreaux.
Revere never volunteered agreed to sign the personal guarantees for Tampa. Revere was told his $200,000 was already spent on Franchise fees and there was no way to move forward without personal guarantees on the leases and FF&E.
Q&K write p19- “Boudreaux’ apparent misstatement was that is was the “objective” to obtain a 100% return investment. That was true. Moreover, a generalized objective hardly rises to the level of a misstatement or omission of material facts.”
Revere and the facts disagree: Boudreaux did not just say it was the “Objective” Boudreaux stated the 100% return on investment was the “investor expectation” and that “Investor expectations MUST be met”. Must is defined as “b: be required by law, custom, or moral conscience to ”
P20
Q&K write: “Neither is the loan Boudreaux orchestrated to B&C recovery a breach of fiduciary duty. That loan benefited SYB.”
Revere and the Facts disagree: “the transfer was to TORTOLLA Boudreaux and Thomas’s other company. Over time it was repaid to Prodining and then those revenues were distributed to Boudreaux and Thomas. Because Revere funds were missing, SYB had to borrow money at 11%. A lost to SYB.
P20
Q&K write: “Nor is it problematic that Boudreaux loaned money, upon which he could collect interest to SYB…”
Revere and the facts disagree: Thomas first advised Revere that $200,000 would be for a 25% stake in a LLC partnership fully capitalized, per the GDI and TORTOLLA agreements. This is what Revere agreed to. Then Boudreaux and Thomas began reducing Revere’s payout. First it was reduced to a 12.5% stating in was due to the successful track records having improved profitability. It was not until months later, Boudreaux and Thomas informed Revere that they would be making loans instead of placing capital and at the same time informing Revere that Boudreaux would be paid $25,000 per open store.
Checks were discovering that Boudreaux repaid himself:
1998 $50,000.00 W-2 Other expenses-rent
1999 $ 702,000.00
2000 $321,000.00 $44,230.00
2001 $ 16,400.00 $79,607.00
2002 $ 20,000.00
2003 $ 6,000.00
2004 $77,000.00
Total found $1.3M
However Boudreaux violated Georgia financial reporting laws for Partnerships, by not filing reports to Revere.
The reality is that had Revere would have received 25% of the $1.3M+ that Boudreaux pulled out of SYB per the GDI and TORTOLLA operating agreements and ongoing dividends.
Standard Partnership agreements have payouts in the following manner:
1. Secured Creditors 2. Unsecured Creditors 3. Limited Partners 4. General Partners
P20
Q&K state: “Boudreaux breached no fiduciary duty by obtaining the Second Line loan or later “letting” it default. Boudreaux would not have “let” the loan default if SYB could have paid it.”
Revere and the facts disagree: Boudreaux hid from Revere the fact that Boudreaux had admitted Zzz Gaston to the partnership for a total of 32%. The Loan default was part of the “Squeeze-out” of Revere and having Revere cover the GE FF&E loan default.
Notes and emails show that Boudreaux had wanted to restructure SYB without Revere which would allow Boudreaux to clear the GE Debt at the same time. Georgia Law called this Transfer Fraud.
Boudreaux had numerous other options that would have benefited Revere and took the one that financially hurt Revere the most.
Boudreaux could have sold shares in SYB to properly capitalize it.
Boudreaux could have leased the Tampa store or let Revere lease it.
Boudreaux could have left his “loans” in SYB
A Fiduciary looks out for the best interests of those he is responsible for.
P21
Q&K state: “Boudreaux buy out is not a Breach of Fiduciary duty the way the Operating Agreement’s buy out provision works and Revere signed the agreement.
Since standard Operating Agreement contain a capitalization statement and require more than one limited Liability Partner to capitalize a company. Standard Operating agreements do not have such One-sided Buy/Sell Agreements.
The operating agreement was Theft by deception to Revere. Boudreaux sold him “nothing” for $200,000.00 and later executed a Buy/Sell to complete the Theft by returning $36,750.00 and leaving Revere responsible for unpaid secured debt of $400,000.00.
P22
Q&K write: “In sum, despite the fact that Boudreaux did the best he could, SYB failed.”
Revere and the Facts disagree: SYB did not fail. The Jacksonville store never closed, at the time of transfer only GE and Revere were not being paid.
Numerous Laws and terms have been developed prevent what happened to Revere.
“Squeeze-out” or “Freeze-out” is the term used to describe when a majority shareholder seeks to remove a minority shareholder before he restructures the company.
Transfer Fraud is used to describe Transfer the assets of the company to avoid creditors and back to an insider of the company.
PXXXX
Breaches of Fiduciary not mentioned by Q&K:
Boudreaux not validating Thomas’s Bankruptcy Claim and leaving Revere to cover
Freeze-Out or Squeeze Out Merger of Revere by Boudreaux and Gaston
Boudreaux claiming to be bankrupt to GE and leaving Revere to cover
Boudreaux never answering why he omitted to put in writing or explain to Revere his sudden claim of “Sweat Equity”
Freeze-out merger
From Wikipedia, the free encyclopedia
It has been suggested that this article or section be merged into squeeze out. (Discuss) Proposed since September 2010.
A freeze-out merger is a technique by which one or more shareholders who collectively hold a majority of shares in a corporation gain ownership of remaining shares in that corporation.
The majority shareholders incorporate a second corporation, which initiates a merger with the original corporation. The shareholders using this technique are then in a position to dictate the plan of merger. They force the minority stockholders in the original corporation to accept a cash payment for their shares, effectively “freezing them out” of the resulting company.
The legal community has criticised the present rules with regard to freeze-out mergers as being biased against the interests of the minority shareholders. For example, if a gain in stock value is anticipated by the majority, they can deprive the frozen-out minority of its share of those gains.[1][2]
Although a LBO is an effective tool for a group of investors to use to purchase a company, it is less well suited to the case of one company acquiring another. An alternative is the freeze-out merger: The Laws on tender offers allow the acquiring company to freeze existing shareholders out of the gains from merging by forcing non-tendering shareholders to sell their shares for the tender offer price.
To complete freeze-out merger, the acquiring company first creates a new corporation, which it owns and controls. The acquiring corporation then makes a tender offer at an amount slightly higher than the current target corporation’ stock price. If the tender offer succeeds, the acquirer gains control of the target and merges its assets into the new subsidiary corporation. In effect, the non-tendering shareholders lose their shares because the target corporation no longer exists. In compensation, non tendering shareholders get their right to receive the tender offer price for their shares. The bidder, in essence, gets complete ownership of the target for the tender offer price. Because the value the non-tendering shareholders receive for their shares is equal to the tender price (which is more than the premerger stock price), the law recognizes it as fair value and non-tendering shareholders have no legal recourse. Under these circumstances, existing shareholders will tender their stock, reasoning that there is no benefit to holding out: if the tender offer succeeds, they get the tender price anyway; if they hold out, they risk jeopardizing the deal and forgoing the small gain. Hence the acquirer is able to capture almost all the value added from the merger and, as in the leveraged buyout, is able to effectively eliminate the free rider problem. This freeze-out tender offer has a significant advantage over an LBO because an acquiring corporation need not make an all-cash tender offer. Instead, it can use shares of its own stock to pay for the acquisition. In this case, the bidder offers to exchange each shareholder’s stock in the target for stock in the acquiring company. As long as the exchange rate is set so that the value in the acquirer’s stock exceeds the pre-merger market value of the target-company stock, the non-tendering shareholders will receive fair value for their shares and will have no legal recourse.
Majority Shareholders Who Take Part in “Squeeze-Outs” Can No Longer Count Pennsylvania as the Sanctuary It Once Was Thought to Be
8/13/2012
Standard learning has long held that a minority shareholder of a Pennsylvania corporation who was deprived of his stock by a “cash-out” or “squeeze-out” merger had no remedy after the merger was completed other than to take what the merger gave or demand statutory appraisal and be paid the “fair value” for his shares. No other post-merger remedy, whether based in statute or common law, was thought to be available to a minority shareholder to address the actions of the majority in a “squeeze-out.” Now, after the Pennsylvania Supreme Court’s holding in Mitchell Partners, L.P. v. Irex Corporation, minority shareholders may pursue common law claims on the basis of fraud or fundamental unfairness against the majority shareholders that squeezed them out.
Prior to the Pennsylvania Supreme Court’s decision, the Third Circuit turned this long-standing view of Pennsylvania law on end with its Mitchell Partners, L.P. v. Irex Corporation opinion of late 2011. In that case, the Court held that Pennsylvania’s Business Corporation Law does not bar recovery based on common law claims following a cash-out merger. The Court reasoned that “barring [post-merger suits] would do little more than insulate alleged tortfeasors from responsibility for their conduct.” After a motion for rehearing from the defendants, and some added pressure from the Governor of Pennsylvania in the form of an amicus brief, the Third Circuit granted rehearing and certified the question at hand to the Pennsylvania Supreme Court. The specific inquiry was “Does 15 Pa. [C. S.] §1105, providing for appraisal of the value of the shares of minority shareholders who are “squeezed out” in a cashout merger[,] preclude all other post-merger remedies including claims of fraud, breach of fiduciary duty, and other common law claims?”
The Supreme Court held that there are remedies available to a minority shareholder in Pennsylvania after the merger in the event of fraud or fundamental unfairness. The
opinion, along with the concurrence, was careful to point out that this exception to the rule of
exclusivity should not be invoked lightly. The exception does not allow a minority shareholder
to pursue a common law claim based solely on the nature of the squeeze-out or on an allegation
that the majority inadequately compensated the minority for its shares.
This change moves the law of the Commonwealth of Pennsylvania closer to that of the Stateof Delaware which, like many other jurisdictions across the United States, allows for post-merger
remedies other than appraisal rights. Those considering pursuing a cash-out merger must now
address the potential of post-merger claims in every stage of planning.
False Statements with Boudreaux, Thomas’s, and Gaston’s story on Loaning Revere’s money to B&C, which was communicated to the Tribunal as a Statement of Uncontested Fact and accepted by Judge XXX.
What happened by evidence discovered in evidence turned over after Motion for Summary Judgment had been filed:
1. March 1998, Revere advises Thomas he would like to invest in TORTOLLA and is told TORTOLLA is adequately funded and closed to new investors.
2. April 1998, Boudreaux devised Xxx and Zzz business plan for Thibodeauxs in Central Florida
3. April 1998, Boudreaux and Thomas solicit Revere to invest in SYB stating same Operating Agreement as TORTOLLA
4. Boudreaux deletes Capitalization Statement from SYB Agreement in Section 4 and Section 9.
5. May 6, 1998 $170,000.00 of Revere’s funds deposited into SYB Checking account.
6. May 7, $70,000.00 of Revere’s money transferred into TORTOLLA business owned by Redwood, Thomas, Boudreaux, and Gaston, as TORTOLLA is short Capital.
7. Revere is not told
8. May 8th, Copeland’s Franchise meeting starts and it it announced that TORTOLLA has purchased the rights to four Thibodeauxs in Atlanta to prevent others from coming into the Atlanta market.
9. May 9, 1998 A $100,000 Promissory note is drafted.
10. May 14, 1998 Claire Redwood signs a $100,000 Promissory Note from B&C Recovery to SYB at 10% to repay in one payment $100,000 plus 10% interest by either the earlier of 10 days from call date or Payment due to SYB by Dec 1, 1998. No monthly plan is offered.
11. B&C Recovery does not make any payments on note until 12/31/1998 of $5,000.00
12. B&C makes 12 unequal payments back to SYB, the last one being $50,000.00 on August 18, 1999.
13. B&C was never charged interest on this note, and B&C never fully repaid the note.
14. $50,000 for 15 months at 10% would be $6,250.00.
15. Other payments:
16. 12/31/1998 $5,000.00 2/2/1999 $2,742.88
17. 2/22/1998 $4,114.32 (needing to apply $3,655.00 to $60,000.00 loan leaves $459.00)
18. 3/22/1999 $1,371.44 4/1/1999 $13,085.86
19. 4/20/1999 $1,371.44 5/11/1999 $12,000.00
20. 5/19/1999 $1,371.44 6/21/1999 $1,371.44
21. 7/27/1999 $11,371.44
22. Total collected per spreadsheet $100,145.00
23. It appears only $145.00 in interest was charged to B&C for this loan.
24. Subpoenas requests to Glenn Redwood and B&C for documents to TORTOLLA and B&C were denied. His attorney wrote: “…any involvement Mr. Redwood has had with any other Copeland’s restaurants are simply none of Mr. Revere’s business.”….”in the event you fail or refuse to stop harassing and annoying TORTOLLA, B&C, or the Redwood’s it will be necessary to bring you inappropriate conduct to the attention of the subpeona issueing court….”
25. Other notes of interest from the spread sheet: a check from Zzz Thomas for $12,000.00 on 5/11/1999 and repaid to Thomas on 8/18/1999 for $12,099.82
26. A check from Zzz Gaston on 5/1999 for $1,371.44
27. The cashed checks from SYB to TORTOLLA were signed by Zzz Gaston, who when asked in Dec 2012 if he knew anything stated he could not remember how the money came only that Thomas was responsible for obtaining the money to open TORTOLLA’s restaurants.
28. On June 8, 1998 a second note was issued to B&C and signed by …….(Signature not recognizable) for $60,000.00 from B&C Recovery to SYB at 10% to repay in one payment $100,000 plus 10% interest by either the earlier of 10 days from call date or Payment due to SYB by Dec 1, 1998. No monthly plan is offered.
29. This note is repaid on February 17, 1999 with $4,114,32 paid on February 22, 1999. Interest due would be @$3,655.00 no penalty for late payment was assigned.
30. The SYB Spreadsheet shows only two interest charges of $3,065.86 and $589.62 totaling $3,655.48.
31. An extra $30,000.00 was shown to B&C from SYB on June 30, 1998 repaid Sept 30,1998. No interest was earned for this “loan” assignment. 10% would have generated $750.00
32. Zzz Thomas’s 1998 tax return shows a dividend from SYB of $3,005.00
33. The 1998 compilation report of SYB shows $6869.00 in interest earned for 1998.
34. $6,869.00 x 43.75% (Thomas’s % ownership) = $3,005.19
35. $100,000.00 at 10% interest for @ 7.7 months = $6,427.00
36. $60,000 at 10% interest for 6 months =$3,000.00
37. SYB should have made @ $10,180.00 in 1998 from B&C on Revere’s funds
38. SYB should have made at least $5,000.00 in 1999 on Revere’s funds from B&C.
39. Or SYB could have earned 4.56% per year per the checking statement or $5,320.00 in 1998.
40. Instead Boudreaux charged SYB interest on his loans to SYB at 11% on $280,000 starting on Oct 30, 1998.
41. Net result: Revere’s funds left in SYB earn $5,000 in 1998 instead Boudreaux transfer to TORTOLLA is cover to pay Thomas (and maybe Boudreaux) $3,005.00 each. And for Boudreaux to charge SYB 11% on $280,000.00 (@$6,000 for 2 months).
42. Thus a loss to SYB of $5,000.00 + $6,010 + $6,000 of $17,000.00 for 1998. And probably $20,000.00 for 1999 for a total of $34,000.00
43. Neither Boudreaux, Thomas, Redwood, or Gaston informed Revere that his funds had been transferred to TORTOLLA for their use violating Georgia Code 16-8-4 Theft by conversion, 16-4-8 Conspiracy to commit a crime, 16-10-20 Perjury, 16-10-72 Subordination of perjury, 16-8-3 Theft by deception, 10-5-51 Fraud in the sale of securities, 14-2-1620 False reporting on financial statement, 9-11-37 Failure to make discovery, 16-10-93, 23-2-51, 23-2-52, 16-2-22
44. In September 2003 Revere became aware something was up, at that same time Boudreaux removed Revere from the partnership.
45. In August 2004 Boudreaux and Gaston defaulted to GE and Revere was required to pay on the debt owed GE, while Gaston continued to manage Jacksonville and eventually buy Jacksonville.
46. In 2005 Revere asked Boudreaux about checks to B&C. At that point efforts to deter Revere began Tolling Code 9-3-96.
47. Boudreaux first said B&C Recovery was a collection agency that was trying to collect a past due debt on a phone bill.
48. Revere point out B&C was Thomas and Redwood.
49. Boudreaux then claimed: SYB did not need to use Revere’s funds right away and Thomas informed Boudreaux that B&C needed funds so he did a short term loan at 10% to earn a premium.
50. Boudreaux stuck to this story in his deposition and declaration.
51. Thomas claimed the funds were to B&C to repay a loan Thomas made to B&C to loan money to GDI at 31% interest.
52. Redwood stated the funds were for TORTOLLA capital, but did not disclose the check was written to TORTOLLA.
53. Gaston cashed the checks but claims not to know where the money came from.
54. Boudreaux withheld 45 boxes of documents from Revere until late September as he was filing a motion for Summary Judgment.
55. Judge XXX accepted Boudreaux’,Bailey’s, and Long’s evidence and dismissed the fraud claim. Stating Revere did not dispute that Boudreaux had benefited SYB.
56. Judge XXX’s was misled and wrong in his ruling.
57. Although aware of the deception Bailey and Long have not informed the court or Tribunal of the fact that false evidence was presented per Bar Code of Conduct Rules 3.3 and 3.4.
58. Like the court Revere accepted Boudreaux sworn statement that Boudreaux benefited SYB with the loan.
59. Only recently did Revere realize to validate the checking statement would show interest rate being paid of 4.5% instead of the 2% Boudreaux quoted and
60. The B&C/ TORTOLLA Spread sheet might have an omission of the 10% interest charge to B&C.
61. This research was based on trying to determine the $3,005.00 declared to on Zzz Thomas’s 1998 tax return.
62. Thus B&C/ Glenn Redwood and Zzz Thomas still owe $13,250 in interest from 1998-1999 and interest on the interest.
63. Sweat Equity
64. Boudreaux and Thomas claimed they were to receive $700,000 each for Sweat Equity in their Depositions and Declarations.
65. Yet neither could produce evidence to support this claims.
66. Evidence of emails supports that Revere sought to clarify this issue and that Boudreaux denies receiving any payout or payback of funds from SYB although checks discovered show he received over $1.3M.
67. Evidence shows that Thomas and Boudreaux were evasive and deterred Revere especially after Judge XXX’s ruling.
68. However evidence also shows that Boudreaux and Thomas were not entitled to “Sweat Equity” and thus stole Revere’s $200,000 in an intricate Ponzi Scheme. $200,000 was the initial contribution, plus interest on a loan, plus payments to GE, plus lost opportunity or dividends from Jacksonville, less $36,750.00 returned.
69. The actions by Boudreaux and Thomas to obtain Revere’s $200,00 violate numerous Georgia Codes. Their efforts to cover-up the “sweat equity” scam also violate numerous GA codes:
70. Georgia Code 16-8-4 Theft by conversion, 16-4-8 Conspiracy to commit a crime, 16-10-20 Perjury, 16-10-72 Subordination of perjury, 16-8-3 Theft by deception, 10-5-51 Fraud in the sale of securities, 14-2-1620 False reporting on financial statement, 9-11-37 Failure to make discovery, etc ..
71. 14-2-621 share price, 14-9-502 promise to contribute
72. 14-9-105 records to be kept
73. $12,000 due to Revere on Promissory Note
74. Although Long and Bailey argued to Judge XXX that Revere had been paid on his Promissory Note.
75. The 2004 tax show that Gaston converted the $12,000 DTF (Due to Funds) as Paid in Capital and
76. The accountant reported Revere was still due $12,000.00
77. SYB violated laws by not providing Financial reports after 1999 for Revere to monitor his loans and Boudreaux loans.
78. Judge XXX ruled in Boudreaux favor and dismissed Revere’s claim based on Long and Bailey claiming that SYB had paid the loans.
79. Theft by taking 16-8-2
80. The next acts against Revere by Thomas, Boudreaux, and Gaston included:
81. Refusing to properly disolve SYB to allow Revere to recoup his $200,000.00 investment
82. Leaving Revere with $400,000 in GE Debt to pay 14-2-1202
83. Squeezing-out Revere to avoid paying him is annual 12.5% dividend on $300,000 to $500,000 in profit. and Codes 16-9-53, Destruction, removal, concealment or transfer of property to security interest, Codes 16-9-51 secreting property, 16-14-4 RICO unlawful to retain property, 16-8-2 taking, 14-2-1202 Sale of Assets requires Shareholder approval
84. Failure to make discovery 9-11-37
85. Extortion 16-8-4
86. To achieve this Fraudulent Transfer to avoid Creditors, Conspiracy 16-14-8, 16-8-2, 14-9A-130, 14-2-1621,