USA v. Development Capital Ventures, L.P.

Filing 1

Consent ORDER and Judgment, by Judge Anthony J. Trenga on 7/21/10. (Attachments: # 1 Complaint, # 2 Civil Cover Sheet)(jak, )

USA v. Development Capital Ventures, L.P.

Doc. 1 Att. 1

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FILED
IN THE UNITED STATES DISTRICT COURT FOR THE EASTERN DISTRICT OF VIRGINIA
(Alexandria Division)

2010 JUL -q P |: 50
CLERK US DiSTRiCl COURT

UNITED STATES OF AMERICA
Plaintiff,

)
)

ALEXANDRIA. VIRGINIA

v.
VENTURES, L.P.,

)
)
) )
)

Civil No.

/.'/0dV

DEVELOPMENT CAPITAL
Defendant.

COMPLAINT FOR RECEIVERSHIP. JUDGMENT. AND INJUNCTION UNDER 15 U.S.C. S687c

Plaintiff, the United States of America, on behalf of its agency, the United States Small
Business Administration, for its cause of action states as follows:
PARTIES. JURISDICTION AND VENUE

1.

This is a civil action brought by the United States on behalf of its agency, the U.S.

Small Business Administration (hereinafter, "SBA"), whose central office is located at 409 Third
Street, S.W., Washington, DC 20416.

2.

Jurisdiction is conferred on this Court by virtue of the Small Business Investment

Act of 1958, as amended (hereinafter, the "Act"), Sections 308(d), 311, and 316; 15 U.S.C. §§ 687(d), 687c, 687h; the Small Business Act, 15 U.S.C. §634(b)(l); and 28 U.S.C. §1345.

3.

Defendant, Development Capital Ventures, L.P. (hereinafter, "DCV", "Licensee"

or "Defendant"), is a Delaware limited partnership formed on or about August 9, 1999 and
maintains its principal office at 5820 Fitzhugh Street, Burke, Virginia 22015. Venue is therefore

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proper under 15 U.S.C. §§687(d), 687h, and 28 U.S.C. §1391(b).
Statutory and Regulatory Framework

4.

DCV was licensed by SBA as a Small Business Investment Company ("SBIC")

pursuant to Section 301(c) of the Act, 15 U.S.C. §681(c), on November 17, 1999, SBA License No. 03/73-0216, solely to do business under the provisions of the Act and the regulations
promulgated thereunder. 5. Section 308(c) of the Act, 15 U.S.C. §687(c), empowers SBA to prescribe

regulations to carry out the provisions of the Act and to govern the operations of SBICs. SBA

has duly promulgated such regulations, which are codified at Title 13 of the Code of Federal
Regulations, Part 107 (the "Regulations").
6. DCV's Limited Partnership Agreement expressly provides that DCV was

organized for the purpose of operating under the Act and subject to the Regulations issued by
SBA thereunder.

7.

DCV's general partner is DCC Operating, Inc., a Delaware Corporation formed

on or about August 9,1999.

8.

Section 303 of the Act, 15 U.S.C. §683, authorizes SBA to provide financing to

licensed SBICs.

9.

Pursuant to Section 303 of the Act, 15 U.S.C. §683, SBA provided funds to DCV

through the purchase of Participating Securities, a form of Leverage, as those terms are defined

under the Regulations, in the total principal amount of $10,820,000, of which $10,488,340
remains outstanding, as follows:

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Loan Number 02031257-00 02031258-09 02031259-07 02031260-10 02031261-08 02031262-06 02031263-04 02052151-08 02052152-06 02052153-04 02052154-02 02052155-00 02052156-09

Principal O/S $318,340 $510,000 $1,235,000 $2,000,000 $360,000 $1,345,000 $300,000 $460,000 $1,540,000 $320,000 $665,000 $1,025,000 $410,000

Date Issued 11/09/2001 1/11/2002 7/24/2002 10/31/2002 11/29/2002 2/25/2003 7/11/2003 7/11/2003 8/14/2003 8/22/2003 12/19/2003 12/24/2003 3/12/2004

Total Principal Balance Due of Participating Securities: $10,488,340

10.

Pursuant to Section 303 of the Act, 15 U.S.C. §683, SBA also provided funds to

DCV through the purchase or guaranty of Debentures, another form of Leverage, as those terms are defined under the Regulations, in the total principal amount of $2,845,000, all of which
remains outstanding, as follows:

Loan Number 04666751-04 04666752-02 04666753-00 04666754-09

Principal O/S $1,285,000 $940,000 $310,000 $310,000

Date Issued 11/29/2002 3/14/2003 5/16/2003 12/12/2003

Total Principal Balance Due of Debentures: $2,845,000

11.

DCV has made interest payments on the Debentures through March 1,2010.

12.

SB A is owed accrued interest on the Debentures at the per diem rate of $43 3.47

from March 2,2010 through June 4,2010 in the amount of $41,179.33.
13. Therefore, DCV owes SBA on the Debentures the principal amount of

$2,845,000, plus interest and fees from March 2,2010 through June 4, 2010 of $41,179.33, for a

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total of $2,886,179.33, plus additional interest on the Debentures up until the date of entry of
judgment at the per diem rate of $433.47.

14.

Among other requirements, SBICs are subject to capital requirements under the

Regulations. Compliance with the terms of Leverage provided by SBA required that DCV not

have a condition of Capital Impairment, as that term is defined under the Regulations. 13 C.F.R.
§ 107.1830.

15.

According to audited financial information provided by DCV to SBA on SBA

Form 468 as required under the Regulations, 13 C.F.R. §107.630, DCV has a condition of
Capital Impairment.

16.

Based upon information provided by DCV to SBA, SBA determined that DCV

had exceeded its then maximum allowable Capital Impairment Percentage of 60%. SBA notified

DCV of that fact, and of "Restricted Operations Conditions" of 13 C.F.R. §107.1820(f), by letter
dated August 26,2005 and provided DCV fifteen (15) days to cure its condition of Capital
Impairment to SBA's satisfaction. In the Notice of Violation, SBA further informed DCV that it

would be placed in Restricted Operations and that SBA would implement the available remedies

if it failed to cure its condition of Capital Impairment in the period specified by SBA.
17. 18. DCV did not cure its condition of Capital Impairment as required by SBA. By letter dated December 1, 2008, SBA notified DCV that it was transferring

DCV from operating status to liquidation status at SBA due to its failure to cure its condition of Capital Impairment. SBA also notified DCV in the December 1,2008 letter that due to DCV's failure to cure, the Debentures were being accelerated and DCV was required to remit payment

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in full for the Debentures, including interest and fees, within fifteen (15) days, pursuant to 13
C.F.R. § 1810.

19. 20.

DCV failed to remit full payment to SBA on the accelerated Debentures. DCV's failure to pay SBA in full on the Debentures is a failure to make payment

under 13 C.F.R. §107.1810(e)(3) and nonperformance of its obligation to pay them when due in
violation of 13 C.F.R. §107.507(a).

21.

DCV's failure to cure its condition of Capital Impairment is a violation of the

Regulations, 13 C.F.R. § 107.1830(b).

22.

DCV's non-compliance with its terms of Leverage under 13 C.F.R. § 107.1830(b)

is a violation of the Regulations, 13 C.F.R. §107.507(a), for nonperformance of the terms of its
Participating Securities and Debentures.

23.

Section 308(d) of the Act, 15 U. S.C. §687(d), provides that upon determination

and adjudication of noncompliance or violation of the Act or the Regulations, all of the rights,

privileges and franchises of a Licensee such as DCV may be forfeited and the company may be
declared dissolved.

24.

Section 311 of the Act, 15 U.S.C. §687c, provides that upon a determination by

SBA that a Licensee such as DCV, or any other person, has engaged in or is about to engage in
any acts or practices which constitute or will constitute a violation of the Act or of any Rule or

Regulation promulgated pursuant to the Act, or of any order issued under the Act, then SBA may

make application for an injunction, and such Court shall have jurisdiction of such action and
grant a permanent or temporary injunction, or other relief without bond, upon a showing that

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such Licensee has engaged in or is about to engage in any such acts or practices. The Court is
authorized to appoint SB A to act as receiver for such Licensee.

25.

DCV first issued Participating Securities to SBA more than 8 years ago and has a

capital impairment percentage that remains in excess of 100%. 13 C.F.R. §107.1820. DCV

defaulted on its Debentures when DCV failed to cure its condition of Capital Impairment
pursuant to 13 C.F.R. 107.1810(f)(5) and failed to make payments on the accelerated

Debentures. DCV has already consented to the appointment of SBA as its receiver under 13
C.F.R. § 107.1820 and 13 C.F.R. § 107.1810.

26.

DCV has already consented to entry of judgment for the principal amount of the

debentures, plus interest and fees, and also to the appointment of SBA as its receiver to liquidate
DCV.

COUNT ONE

Violation of SBA Regulations

13 C.F.R. §§107.1830(b), 1810(e)(3) and 507(a)

27.

Paragraphs 1 through 26 are adopted herein by reference.

28.

DCV has an uncured condition of Capital Impairment as that term is defined

under the Regulations.

29.

DCV is in default of its obligation to pay its Debentures in full to SBA.

30.

SBA has determined that DCV is not in compliance with its terms of Leverage

due to its uncured condition of Capital Impairment and its failure to pay SBA in full on the
Debentures.

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31.

SBA has determined that DCV is in violation of the Regulations, 13 C.F.R.

§§107.1830(b), 1810(e)(3) and 507(a).

32.

SBA is entitled to the injunctive relief provided under the Act, 15 U.S.C.

§§687(d) and 687c, including the appointment of SBA as Receiver of DCV for the purpose of
liquidating DCV and all of its assets.

33.

SBA is entitled to judgment against DCV in the amount of the Debentures, plus

applicable accrued interest through entry of judgment and post-judgment interest allowed by law.
WHEREFORE, Plaintiff prays as follows:

A.

That injunctive relief under 15 U.S.C. §687c be granted restraining DCV, its

officers, directors, general partners, managers, agents, employees, and other persons acting in
concert or participation therewith from: (1) making any disbursements of Defendant's funds; (2)

using, investing, conveying, disposing, executing or encumbering in any fashion any funds or

assets of DCV, wherever located; and (3) violating the Act or the Regulations promulgated
thereunder.

B.

That this Court determine and adjudicate DCV's noncompliance with and

violation of the Act and the Regulations promulgated thereunder.

C.

That this Court, pursuant to 15 U.S.C. §687c, take exclusive jurisdiction of DCV

and all of its assets, wherever located, appoint SBA as receiver of DCV for the purpose of
marshaling and liquidating the assets of DCV and satisfying the claims of creditors as

determined by the Court, and such other relief as contained in the Proposed Order filed herewith.
D. That this Court enter Judgment in favor of Plaintiff, United States of America, on behalf

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of its agency, U.S. Small Business Administration against Defendant, Development Capital Ventures, L.P., in the principal sum of $2,845,000.00, plus interest and fees from March 2,2010 through June 4,2010 in the amount of $41,179.33, totaling $2,886,179.33 as of that date, plus
additional interest on the Debentures up until the date of entry of judgment at the per diem rate of

$433.46, together with post-judgment interest pursuant to 28 U.S.C. §1961 as of the date of entry
ofjudgment.

E.

That upon the liquidation of DCV and the completion of the receivership, DCV's

SBIC license may be revoked.

F.

That this Court grant such other relief as may be deemed just and equitable.
Respectfully submitted, NEIL H. MACBRIDE United States Attorney By:

MONIKA L. MOORE Assistant United States Attorney Justin W. Williams United States Attorney's
Building

2100 Jamieson Avenue Tel [phone] Fax [phone]

Alexandria, Virginia 22314

[e-mail]

By: <^1qKMK

U.S. SMALL BUSINESS ADMINISTRATION
THOMAS W. RIGB7" Va. Bar No. 34663

^U

U.S. Small Business Administration

Office of General Counsel

Chief Counsel for SBIC Liquidation

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409 Third Street, Seventh Floor Washington, D.C. 20416 Telephone: [phone] Facsimile: 202.481-5866

[e-mail]
Attorneys for Plaintiff

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