USA v. Adena Ventures, L.P.

Filing 1

Consent Judgment and ORDER by the Southern District of Ohio Columbus Division District Judge James L. Graham on 06/02/2014. (Attachments: # 1 Complaint for Receivership, Injunctive Relief and Money Judgment, # 2 Civil Cover Sheet) (jofox, )

Case: 2:14-cv-00461-JLG-NMK Doc #: 1 Filed: 05/16/14 Page: 1 of 8 PAGEID #: 1

IN THE UNITED STATES DISTRICT COURT
FOR THE SOUTHERN DISTRICT OF OHIO
COLUMBUS DIVISION
__________________________________________
)
)
)
Plaintiff
)
)
v.
) Civ. Action No. 2:14-cv-461
)
ADENA VENTURES, L.P.,
)
)
Defendant
)
__________________________________________)
UNITED STATES OF AMERICA,

COMPLAINT FOR RECEIVERSHIP, INJUNCTIVE RELIEF
AND MONEY JUDGMENT
The United States of America states the following cause of action on behalf of its
agency, the United States Small Business Administration:
PARTIES, JURISDICTION AND VENUE
1.

This is a civil action brought by the United States of America on behalf of

its agency, the United States Small Business Administration (hereinafter, “SBA,”
“Agency” or “Plaintiff”), whose central office is located at 409 Third Street, S.W.,
Washington, D.C., 20416.
2.

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

Investment Act of 1958, as amended (hereinafter, the “Act”), Sections 363 and 364; and
15 U.S.C. §§ 689l and 689m, and 28 U.S.C. § 1345.
3.

Defendant, Adena Ventures, L.P., (hereinafter, “Adena” or “Defendant”)

is a Delaware limited partnership that was formed on March 11, 2002. Adena was
designated with final approval by SBA as a New Markets Venture Capital Company

Case: 2:14-cv-00461-JLG-NMK Doc #: 1 Filed: 05/16/14 Page: 2 of 8 PAGEID #: 2

(hereinafter “NMVCC”) and entered into a participation agreement with SBA signed on
April 24, 2002. Adena was assigned NMVCC number 05/85-0001. Adena maintains its
principal office and/or principal place of business at 20 E. Circle Drive, Athens, Ohio
45701. Venue is therefore proper under Section 363 of the Act, 15 U.S.C. § 689, and 28
U.S.C. § 1391(b).
STATUTORY AND REGULATORY FRAMEWORK
4.

The purposes of the Act and the New Markets Venture Capital Program

are to improve and stimulate the national economy, and small business in particular, by
stimulating and supplementing the flow of private equity capital and long-term loan funds
which small businesses need for sound financing of their operations and growth, 15
U.S.C. § 661, and to further economic development and the creation of wealth and job
opportunities in low-income geographic areas and among individuals living in such areas
by encouraging developmental venture capital investments in smaller enterprises
primarily located in such areas. 15 U.S.C. § 689a.
5.

Congress authorized the SBA to carry out the provisions of the Act and to

prescribe regulations governing the operations of NMVCCs. SBA duly promulgated
such regulations which are set forth at Title 13 of the Code of Federal Regulations, Part
108 (hereinafter, the “Regulations”).
6.

Adena is a limited partnership organized solely for the purpose of

performing the functions and conducting the activities contemplated under the Act and
Regulations. SBA enters into participation agreements with NMVCCs and provides
financing for them to accomplish the purposes of the Act.
7.

SBA is authorized to provide Leverage to NMVCCs through the guarantee

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of debentures (hereinafter, “Debentures”) issued by NMVCCs. 15 U.S.C. § 689d.
8.

Leverage provided to an NMVCC in the form of Debentures is subject to

the Regulations, including but not limited to the provisions of 13 C.F.R. §§ 108.18101840. Section 108.1830 of the Regulations states that a condition of capital impairment
exists if the capital impairment percentage exceeds 70 percent.
9.

If an NMVCC violates, or fails to comply with, any of the provisions of

the Act or Regulations, all of its rights, privileges, and franchises may be forfeited and
the company may be declared dissolved. 15 U.S.C. § 689m.
10.

Section 363 of the Act and Section 108.1810(g)(ii) of the Regulations

provide that if SBA determines that an NMVCC has engaged, or is about to engage, in
any acts or practices which constitute, or will constitute, a violation of the Act or
Regulations, the SBA may seek, from the appropriate United States District Court, an
order enjoining such act or practices. Upon a showing by the SBA that such NMVCC has
engaged, or is about to engage, in any such act or practices, a permanent or temporary
injunction, restraining order, or other order shall be granted without bond. In addition, the
Court is authorized to appoint SBA to act as receiver for such NMVCC. 15 U.S.C. §
689l.
STATEMENT OF FACTS
11.

Adena was approved and designated by SBA as an NMVCC and entered

into a participation agreement with SBA signed on April 24, 2002. Adena was assigned
NMVCC number 05/85-0001, solely to do business under the provisions of the Act and
regulations promulgated thereunder.
12.

Adena Partners, L.L.C., is the general partner of Adena.

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13.

Adena’s Agreement of Limited Partnership, submitted to SBA by Adena,

expressly provides that Adena is being organized solely for the purpose of operating as an
NMVCC under the Act and that the operations of the partnership and the actions taken by
the partnership and the partners shall be conducted in compliance with the Act.
14.

In accordance with Section 355 of the Act, 15 U.S.C. § 689d, SBA

provided Leverage to Adena through the guarantee of the following Debentures totaling
$18,750,000:
Loan
Number
03000051-02
03000052-00
03000053-09
03000054-07
03000055-05
03000056-03
03000057-01
15.

Amount
$ 1,150,000.00
$ 1,180,000.00
$ 4,230,000.00
$ 3,000,000.00
$ 4,200,000.00
$ 2,495,000.00
$ 2,495,000.00

Date
9/23/02
1/10/03
2/09/04
12/27/05
12/29/06
6/12/07
6/22/07

Interest Rate
4.986%
5.1670%
5.090%
5.552%
5.635%
6.174%
6.174%

Compliance with the terms of the Leverage provided by SBA required that

Adena not have a condition of Capital Impairment, as that term is defined under the
Regulations, 13 C.F.R. § 108.1830, which provides that an NMVCC such as Defendant
has a condition of Capital Impairment if its Capital Impairment percentage exceeds
seventy percent (70%).
16.

SBA determined that Adena had a condition of Capital Impairment as its

Capital Impairment percentage exceeded 70%. By letter dated August 24, 2009 (the
“Notice of Violation”), SBA informed Adena that it had a condition of Capital
Impairment in violation of 13 C.F.R. §108.1830, and pursuant to Section 108.1810(f)(5)
of the Regulations, was in default with an opportunity to cure its impairment within 15
days of the date of that letter.

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17.

Adena continues to have and has failed to cure its condition of Capital

Impairment in a violation of the Regulations, 13 C.F.R. §§108.1830 and 108.1810(f)(5).
Further, Adena acknowledged that it had a condition of Capital Impairment and that it
was given an opportunity to cure and failed to do so.
18.

Adena’s condition of Capital Impairment constitutes non-compliance with

the terms of its Leverage under 13 C.F.R. §108.1830(a) and is a violation of and an event
of default under the Regulations, 13 C.F.R. §108.1810(f)(5). These continuing violations
of the Regulations and Act entitle SBA to the remedies thereunder.
19.

Section 364(b) of the Act, 15 U.S.C. § 689m, provides that upon

determination and adjudication of noncompliance or violation of the Act or the
Regulations, all of the rights, privileges and franchises of an NMVCC may be forfeited
and the NMVCC may be declared dissolved.
20.

Section 363 of the Act, 15 U.S.C. § 689l, provides that whenever in the

judgment of SBA, an NMVCC, 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 under this Act, or of any order issued under the Act, then SBA may
make application to the proper district court of the United States or a United State Court
of any place subject to the jurisdiction of the United States for an order enjoining such
acts or practices, or for an order enforcing compliance with such provision, rule,
regulation, or order, and such courts shall have jurisdiction of such actions. Upon a
showing that such NMVCC or other person has engaged or is about to engage in such
acts or practices, a permanent or temporary injunction, restraining order, or other order,
shall be granted without bond. The Court may also appoint SBA to act as receiver for

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such NMVCC.
COUNT ONE
Violation of SBA Regulations
Capital Impairment
13 C.F.R. §§ 108.1830(b) and 108.1818(f)(5)
21.

Paragraphs 1 through 20 are incorporated herein by reference.

22.

Adena has an uncured condition of Capital Impairment as that term is

defined under the Regulations, 13 C.F.R. § 108.1830(b), which provides that an NMVCC
such as Defendant has a condition of Capital Impairment if its Capital Impairment
percentage exceeds seventy percent (70%).
23.

SBA has determined and Adena does not dispute that its Capital

Impairment is in excess of 70%.
24.

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

Leverage due to its uncured condition of Capital Impairment.
25.

Adena has failed to cure it Capital Impairment and SBA has determined

that Adena is in violation and default of the Regulations, 13 C.F.R. § 108.1810(f)(5).
26.

As a consequence of Defendant’s continuing violation of the Regulations,

SBA is entitled to the injunctive relief provided under the Act, including the appointment
of SBA as Receiver of Adena, and Adena has signed a consent judgment and order
agreeing to the relief requested by SBA.
WHEREFORE, Plaintiff prays as follows:
A.

That injunctive relief, both preliminary and permanent in nature, be

granted restraining Adena, its partners, managers, officers, agents, employees, and other
persons acting in concert or participation therewith from: (1) making any disbursements

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of Adena’s funds; (2) using, investing, conveying, disposing, executing, or encumbering
in any fashion any or all funds or assets of Adena, wherever located; or (3) further
violating the Act or the Regulations promulgated thereunder;
B.

That this Court determines and adjudicates Adena’s noncompliance with

the requirements of the NMVCC participation agreement and Debentures and violation of
the Act and the Regulations promulgated thereunder;
C.

That this Court take exclusive jurisdiction of Adena, and all of its assets,

wherever located, and appoint SBA as permanent receiver of Adena for the purpose of
liquidating all of Adena’s assets and satisfying the claims of its legitimate creditors
therefrom in the order of priority as determined by this Court, and pursuing causes of
action available to Adena, as appropriate.
D.

That this Court orders that Adena shall no longer be able to operate

pursuant to the participation agreement with SBA as an NMVCC upon the wind-up and
conclusion of the receivership thereof.
E.

That this Court grants such other and further relief as may be deemed just

and proper.
F.

That this Court enter the Consent Judgment in the amount of

$20,825,230.24 and Order executed by Adena agreeing to the requested relief, including
the appointment of SBA as Receiver of Adena.

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Respectfully submitted,
CARTER M. STEWART
United States Attorney

s/John J. Stark
JOHN J. STARK (0076231)
Assistant United States Attorney
303 Marconi Boulevard, Suite 200
Columbus, Ohio 43215
[phone]
Fax: [phone]
[e-mail]

Of counsel:
U.S. SMALL BUSINESS ADMINISTRATION
Arlene P. Messinger
Assistant General Counsel for SBIC Enforcement
U.S. Small Business Administration
409 Third Street, S.W., Seventh Floor
Washington, D.C. 20416
Telephone: [phone]
Facsimile: [phone]
[e-mail]

Arlene M. Embrey
Trial Attorney
U.S. Small Business Administration
409 Third Street S.W., Seventh Floor
Washington, D.C. 20516
Telephone: [phone]
Facsimile: [phone]
[e-mail]

8

JS 44 (Rev. 12/12)

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CIVIL COVER SHEET

The JS 44 civil cover sheet and the information contained herein neither replace nor supplement the filing and service of pleadings or other papers as required by law, except as
provided by local rules of court. This form, approved by the Judicial Conference of the United States in September 1974, is required for the use of the Clerk of Court for the
purpose of initiating the civil docket sheet. (SEE INSTRUCTIONS ON NEXT PAGE OF THIS FORM.)

I. (a) PLAINTIFFS

DEFENDANTS

United States of America

Adena Ventures, LP

(b) County of Residence of First Listed Plaintiff

County of Residence of First Listed Defendant

(EXCEPT IN U.S. PLAINTIFF CASES)
NOTE:

Athens

(IN U.S. PLAINTIFF CASES ONLY)
IN LAND CONDEMNATION CASES, USE THE LOCATION OF
THE TRACT OF LAND INVOLVED.

Attorneys (If Known)

(c) Attorneys (Firm Name, Address, and Telephone Number)
John J. Stark, AUSA
Arlene P. Messinger, SBA Assistant General Counsel
Arlene M. Embrey, SBA Trial Attorney

II. BASIS OF JURISDICTION (Place an “X” in One Box Only)

III. CITIZENSHIP OF PRINCIPAL PARTIES (Place an “X” in One Box for Plaintiff

U.S. Government
Plaintiff

’ 3

U.S. Government
Defendant

’ 4

Diversity
(Indicate Citizenship of Parties in Item III)

DEF
’ 1

Citizen of Another State

Federal Question
(U.S. Government Not a Party)

’ 2

(For Diversity Cases Only)
PTF
Citizen of This State
’ 1
’ 2

’

2

Incorporated and Principal Place
of Business In Another State

’ 5

’ 5

Citizen or Subject of a
Foreign Country

’ 1

and One Box for Defendant)
PTF
DEF
Incorporated or Principal Place
’ 4
’ 4
of Business In This State

’ 3

’

3

Foreign Nation

’ 6

’ 6

IV. NATURE OF SUIT (Place an “X” in One Box Only)
CONTRACT
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’

TORTS

110 Insurance
120 Marine
130 Miller Act
140 Negotiable Instrument
150 Recovery of Overpayment
& Enforcement of Judgment
151 Medicare Act
152 Recovery of Defaulted
Student Loans
(Excludes Veterans)
153 Recovery of Overpayment
of Veteran’s Benefits
160 Stockholders’ Suits
190 Other Contract
195 Contract Product Liability
196 Franchise

’
’
’
’
’
’
’
’
’
’

’
’
’
’
’
’

REAL PROPERTY
210 Land Condemnation
220 Foreclosure
230 Rent Lease & Ejectment
240 Torts to Land
245 Tort Product Liability
290 All Other Real Property

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PERSONAL INJURY
310 Airplane
315 Airplane Product
Liability
320 Assault, Libel &
Slander
330 Federal Employers’
Liability
340 Marine
345 Marine Product
Liability
350 Motor Vehicle
355 Motor Vehicle
Product Liability
360 Other Personal
Injury
362 Personal Injury Medical Malpractice
CIVIL RIGHTS
440 Other Civil Rights
441 Voting
442 Employment
443 Housing/
Accommodations
445 Amer. w/Disabilities Employment
446 Amer. w/Disabilities Other
448 Education

FORFEITURE/PENALTY

PERSONAL INJURY
’ 365 Personal Injury Product Liability
’ 367 Health Care/
Pharmaceutical
Personal Injury
Product Liability
’ 368 Asbestos Personal
Injury Product
Liability
PERSONAL PROPERTY
’ 370 Other Fraud
’ 371 Truth in Lending
’ 380 Other Personal
Property Damage
’ 385 Property Damage
Product Liability
PRISONER PETITIONS
Habeas Corpus:
’ 463 Alien Detainee
’ 510 Motions to Vacate
Sentence
’ 530 General
’ 535 Death Penalty
Other:
’ 540 Mandamus & Other
’ 550 Civil Rights
’ 555 Prison Condition
’ 560 Civil Detainee Conditions of
Confinement

’ 625 Drug Related Seizure
of Property 21 USC 881
’ 690 Other

BANKRUPTCY
’ 422 Appeal 28 USC 158
’ 423 Withdrawal
28 USC 157
PROPERTY RIGHTS
’ 820 Copyrights
’ 830 Patent
’ 840 Trademark

’
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LABOR
710 Fair Labor Standards
Act
720 Labor/Management
Relations
740 Railway Labor Act
751 Family and Medical
Leave Act
790 Other Labor Litigation
791 Employee Retirement
Income Security Act

’
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’

SOCIAL SECURITY
861 HIA (1395ff)
862 Black Lung (923)
863 DIWC/DIWW (405(g))
864 SSID Title XVI
865 RSI (405(g))

FEDERAL TAX SUITS
’ 870 Taxes (U.S. Plaintiff
or Defendant)
’ 871 IRS—Third Party
26 USC 7609

OTHER STATUTES
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375 False Claims Act
400 State Reapportionment
410 Antitrust
430 Banks and Banking
450 Commerce
460 Deportation
470 Racketeer Influenced and
Corrupt Organizations
480 Consumer Credit
490 Cable/Sat TV
850 Securities/Commodities/
Exchange
890 Other Statutory Actions
891 Agricultural Acts
893 Environmental Matters
895 Freedom of Information
Act
896 Arbitration
899 Administrative Procedure
Act/Review or Appeal of
Agency Decision
950 Constitutionality of
State Statutes

IMMIGRATION
’ 462 Naturalization Application
’ 465 Other Immigration
Actions

V. ORIGIN (Place an “X” in One Box Only)
’ 1 Original
Proceeding

’ 2 Removed from
State Court

’ 3

Remanded from
Appellate Court

’ 4 Reinstated or
Reopened

’ 5 Transferred from
Another District

’ 6 Multidistrict
Litigation

(specify)

Cite the U.S. Civil Statute under which you are filing (Do not cite jurisdictional statutes unless diversity):

15 USC 689

VI. CAUSE OF ACTION Brief description of cause:

Appointment of federal receiver of a New Market Venture Capital company

’ CHECK IF THIS IS A CLASS ACTION
VII. REQUESTED IN
UNDER RULE 23, F.R.Cv.P.
COMPLAINT:
VIII. RELATED CASE(S)
(See instructions):
IF ANY
JUDGE
DATE

DEMAND $

20,825,230.24

CHECK YES only if demanded in complaint:
’ Yes
’ No
JURY DEMAND:
DOCKET NUMBER

SIGNATURE OF ATTORNEY OF RECORD

s/ John J. Stark

05/16/2014
FOR OFFICE USE ONLY
RECEIPT #

AMOUNT

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