USA v. Walnut Private Equity Fund, L.P.

Filing 1

Consent ORDER of Receivership by USDC - District of Ohio Chief Judge Susan J. Dlott on 11/12/2014. (Attachments: # 1 Complaint for Receivership and Injunctive Relief, # 2 Civil Cover Sheet) (jofox )

Case: 1:14-cv-00865-SJD Doc #: 1 Filed: 11/07/14 Page: 1 of 5 PAGEID #: 1

IN THE UNITED STATES DISTRICT COURT
FOR THE SOUTHERN DISTRICT OF OHIO
CINCINNATI DIVISION
__________________________________________
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Plaintiff
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v.
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WALNUT PRIVATE EQUITY FUND, L.P.
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Defendant
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__________________________________________)
UNITED STATES OF AMERICA,
on behalf of its agency, the United States
Small Business Administration

Civ. Action No. 1:14-cv-865

COMPLAINT FOR RECEIVERSHIP AND INJUNCTIVE RELIEF
COMES NOW Plaintiff, the United States of America, on behalf of its agency,
the United States Small Business Administration, and for its cause of action states as
follows:
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, Walnut Private Equity Fund, L.P. (hereinafter, “Walnut” or

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“Defendant”) is a Delaware limited partnership that was formed on February 6, 2004.
Walnut was licensed on April 24, 2002 as a small business investment company
(“SBIC”) under license number 05/75-0283.
4.

Walnut maintains its principal office and/or principal place of business at

312 Walnut Street, Suite 1151, Cincinnati, Ohio 45202. 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
5.

On or about September 3, 2014, Walnut 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) as SBA License 02/72-0606, solely to do business under the provisions of the
Act and the Regulations.
6.

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”).
7.

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

financing to licensed SBICs. Pursuant to Section 303 of the Act, 15 U.S.C. §683, SBA
provided funds to Walnut through the purchase and/or guaranty of Participating
Securities, a form of leverage, as those terms are defined under the Regulations.
8.

Currently, there remains $40,755,000.00 in outstanding Participating

Securities leverage.

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9.

The Participating Security instruments described in paragraphs 7-8, above,

are expressly subject to the Regulations, including but not limited to 13 C.F.R.
§§107.1820 and 1830-1850.
10.

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 Walnut, may
be forfeited and the company may be declared dissolved.
11.

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

determination by SBA that a licensee, such as Walnut, 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.
12.

By letter dated February 17, 2010, SBA notified Walnut that, upon review

of Walnut’s SBA Form 468, Statement of Financial Condition, for the period December
31, 2009, Walnut had a condition of capital impairment, as that term is defined in the
Regulations, of 85.23%, although the maximum percentage allowed under the
Regulations for licensees such as Walnut was 60%. The February 17, 2010 letter directed
Walnut to cure its condition of capital impairment within fifteen (15) days of the letter or

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SBA would impose restricted operations in accordance with the Regulations found at 13
C.F.R. §§107.1820(e)(3), and (f).
COUNT ONE
CAPITAL IMPAIRMENT
13.

Paragraphs 1 through 12 are incorporated herein by reference.

14.

Walnut has been unable to cure its condition of capital impairment as that

term is defined at 13 C.F.R. §107.1830.
15.

Walnut

remains

capitally impaired

in

violation

of

13

C.F.R.

§107.1820(e)(3) and 13 C.F.R. §107.1830.
16.

As a consequence of Walnut’s condition of capital impairment, SBA is

entitled to entry of the Consent Order of Receivership executed by Walnut.

Respectfully submitted,
CARTER M. STEWART
United States Attorney

s/William B. King II
WILLIAM B. KING II (W.Va. 10528)
Assistant United States Attorney
Attorney for Plaintiff
221 East Fourth Street
Suite 400
Cincinnati, Ohio 45202
[phone]
Fax: [phone]
[e-mail]

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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. 20416
Federal Bar No. CT 20022
Telephone: [phone]
Facsimile:
[phone]
[e-mail]

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