USA v. First New England Capital 2, L.P.
Consent ORDER by Charles S. Haight, Jr., United States District Judge, District of Connecticut on 09/26/2014. (Attachments: # 1 Exhibit, # 2 Civil Cover Sheet) (dbera, )
Case 3:14-cv-01033-CSH Document 6 Filed 07/23/14 Page 1 of 7
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF CONNECTICUT
UNITED STATES OF AMERICA,
FIRST NEW ENGLAND CAPITAL 2, L.P.
Civ. Action No. 3:14cv1033 (CSH)
AMENDED COMPLAINT FOR RECEIVERSHIP AND INJUNCTION
COMES NOW Plaintiff, the United States of America, on behalf of its agency, the Small
Business Administration, and for its cause of action states as follows:
PARTIES, JURISDICTION AND VENUE
This is a civil action brought by the United States on behalf of its agency, the
Small Business Administration (hereinafter, “SBA,” “Agency” or “Plaintiff”), whose central
office is located at 409 Third Street, S.W., Washington, DC 20416.
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)(1); and 28 U.S.C. §1345.
Defendant, First New England Capital 2, L.P. (hereinafter “First New England”
or “Licensee”), is a Delaware limited partnership that maintains its principal place of business
at 100 Pearl Street, Hartford, Connecticut 06103. Venue is therefore proper under 15 U.S.C. §§
687(d), 687h and 28 U.S.C. §1391(b).
Case 3:14-cv-01033-CSH Document 6 Filed 07/23/14 Page 2 of 7
Statutory and Regulatory Framework
First New England 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 March 25,
1988, SBA License No. 01/01-0344, solely to do business under the provisions of the Act and
the regulations promulgated thereunder.
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”).
First New England’s Agreement of Limited Partnership expressly provides
that First New England was organized for the sole purpose of operating under the Act and
that First New England is subject to the Regulations issued by SBA thereunder.
First New England’s general partner is FINEC Corp.
Section 303 of the Act, 15 U.S.C. §683, authorizes SBA to provide financing to
Pursuant to Section 303 of the Act, 15 U.S.C. §683, SBA provided funds to First
New England through the purchase and/or guaranty of Participating Securities, a form of
Leverage, as those terms are defined under the Regulations, of which $2,260,000 remains
Case 3:14-cv-01033-CSH Document 6 Filed 07/23/14 Page 3 of 7
The Participating Securities described in paragraph 9, above, are expressly
subject to and incorporated by reference in the Regulations, including but no limited to the
provision of 13 C.F.R. §§107.1820-1850 and §107.507.
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 First New
England may be forfeited and the company may be declared dissolved.
Section 311 of the Act, 15 U.S.C. §687c, provides that upon a determination
by SBA that a Licensee such as First New England, 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 such Licensee has engaged in or is about to
engage in any such acts or practices. The Court is authorized to appoint SBA to act as
receiver for such Licensee.
NONCOMPLIANCE WITH WRITTEN AGREEEMENT WITH SBA
Paragraphs 1 through 12 are incorporated herein by reference.
SBA determined that First New England had a condition of Capital Impairment
of 74.97% as of December 31, 2012.
Section §107.1830(c) of the Regulations requires that First New England not
have a condition of Capital Impairment of greater than 60%, as that term is defined under the
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By letter dated April 15, 2013, SBA afforded First New England an
opportunity to cure its condition of Capital Impairment within fifteen days of the date of the
letter, or by April 30, 2013.
First New England failed to cure its condition of Capital Impairment. By letter
dated May 7, 2013, First New England was informed it had been transferred to the Office of
SBIC Liquidation within SBA.
On or about August 21, 2013, SBA and First New England entered into a Wind
Down Agreement, whereby First New England would repay SBA the outstanding Leverage
within a set period of time.
As consideration for the Agreement, First New England executed a written
consent to receivership and SBA forbore from commencing a receivership action. Under the
terms of the Wind Down Agreement, SBA could proceed with a receivership action and the
filing the consent order after March 1, 2014 if SBA determined First New England was no
longer meeting the terms of the Wind Down Agreement.
On or about May 13, 2014, SBA informed First New England that it was not
meeting the terms of the Wind Down Agreement as the value of First New England’s assets
were not sufficient to repay the Leverage as set forth in the Wind Down Agreement. On or
about May 15, 2014, SBA agreed to commence the action no sooner than June 9, 2014.
Section 107.507 (a) of the Regulations, 13 C.F.R. §107.507(a) (2013), provides
that non-performance of any written agreement with SBA is a violation of the Regulations.
As a consequence of First New England’s violation of 13 C.F.R. §507(a) of the
Regulations, 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 First New England as set forth in
Case 3:14-cv-01033-CSH Document 6 Filed 07/23/14 Page 5 of 7
he consent order filed simultaneously herewith.
RELIEF WHEREFORE, Plaintiff prays as
That injunctive relief, both preliminary and permanent in nature, be granted
restraining First New England, its managers, general partners, agents, and other persons
acting in concert or participation therewith from: (1) making any disbursements of First New
England’s funds; (2) using, investing, conveying, disposing, executing or encumbering in
any fashion any funds or assets of First New England, wherever such assets are located; and
(3) further violating the Act or the Regulations promulgated thereunder;
That this Court determine and adjudicate First New England’s
noncompliance with and violation of the Act and the Regulations promulgated
That this Court, pursuant to 15 U.S.C. §687c, take exclusive jurisdiction of
First new England and all of its assets, wherever such assets are located, appoint SBA as
receiver of First New England for the purpose of marshaling and liquidating the assets of
First New England and satisfying the claims of creditors to be determined by the Court; and
That this Court grant such other relief as may be deemed just and equitable.
Case 3:14-cv-01033-CSH Document 6 Filed 07/23/14 Page 6 of 7
DEIRDRE M. DALY
UNITED STATES ATTORNEY
Dated: July 23, 2014
/s/ John B. Hughes
JOHN B. HUGHES
Assistant United States Attorney
Connecticut Financial Center
157 Church Street, 23rd Floor
New Haven, CT 06510
Tel. (203) 821-3700
Fax (203) 773-5373
U.S. SMALL BUSINESS ADMINISTRATION
Dated: July 23, 2014
/s/ Arlene Embrey
ARLENE M. EMBREY
Office of General Counsel
U.S. Small Business Administration
409 Third Street, S.W. Seventh Floor
Washington, D.C. 20416
Telephone: (202) 205-6976
Facsimile: (202) 481-0324
Case 3:14-cv-01033-CSH Document 6 Filed 07/23/14 Page 7 of 7
I hereby certify that on this 23rd day of July, 2014, I sent a copy of the above by first-class
mail, postage prepaid, to the following:
Michael Wyatt, Esq.
Foley Hoag, LLP
1717 K. Street, N.W.
Washington, DC 20006
JOHN B. HUGHES
CHIEF, CIVIL DIVISION
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