Case 2:22-cv-03524 Document 1 Filed 06/15/22 Page 1 of 31 PageID #: 1
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`UNITED STATES DISTRICT COURT
`EASTERN DISTRICT OF NEW YORK
`
`VNUE, INC.,
`
`Plaintiff,
`
`v.
`
`LG CAPITAL FUNDING, LLC, JOSEPH
`LERMAN, BORUCH GREENBERG, and
`DANIEL GELLMAN,
`
`Defendants.
`
`CIVIL ACTION NO. ______________
`
`COMPLAINT
`
`JURY TRIAL DEMANDED
`
`Plaintiff VNUE, Inc., through counsel, states for its Complaint against Defendants LG
`
`Capital Funding, LLC, Joseph Lerman, Boruch Greenberg, and Daniel Gellman1 as follows.
`
`NATURE OF THE ACTION
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`1.
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`LG is a “death spiral” or “toxic” lender,2 an unregistered securities dealer that
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`engages
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`in
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`convertible market
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`adjustable
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`securities
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`transactions with small public
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`companies—businesses that are often struggling to raise capital. Toxic lenders like LG are not
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`the saviors of microcaps that they purport to be, nor is their business model legal; they are
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`unregistered dealers and, often, as in this case, criminal usurers.
`
`2.
`
`LG’s business model is illegal and unlawful under both state usury statutes3 as
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`well as federal securities laws4 by contracting to purchase convertible notes, a security, that
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`1 The following terms are used herein: VNUE, Inc. (“Plaintiff” or “VNUE”); Defendant LG Capital Funding, LLC
`(“Defendant” or “LG”); Defendant Joseph Lerman (“Lerman”); Defendant Boruch Greenberg (“Greenberg”); and
`Daniel Gellman (“Gellman”); Lerman, Greenberg, and Gellman, collectively,
`the “LG Managers;” and all
`Defendants, collectively, the “Defendants.”
`2 See https://www.investor.gov/introduction-investing/investing-basics/glossary/convertible-securities (last accessed
`April 11, 2022); https://en.wikipedia.org/wiki/Death_spiral_financing (last accessed April 11, 2022).
`3 See Adar Bays, LLC v. GeneSYS ID, Inc., 179 N.E.3d 612 (N.Y. 2021).
`4 On June 7, 2022, the SEC filed a lawsuit against LG in this Court for violations of Section 15(a) under the
`Securities Exchange Act of 1934. See SEC v LG Capital Funding LLC, No. 1:22-cv-03353 (S.D.N.Y. Jun. 7, 2022).
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`

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`Case 2:22-cv-03524 Document 1 Filed 06/15/22 Page 2 of 31 PageID #: 2
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`charge small public companies criminally usurious rates of interest through hidden interest
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`charges.
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`3.
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`LG is operating as a securities dealer but is not registered as such with the
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`Securities and Exchange Commission (“SEC”). As reflected in recent SEC prosecutions,5
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`lenders like LG avoid registration so they can evade regulatory oversight, using a business model
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`that not only violates dealer-profit rules, but also constitutes a business of predatory lending that
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`charges more than twice the permissible rate of interest under New York.
`
`4.
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`LG’s business model is simple: unlike an investor or trader, LG uses the loan
`
`transaction to acquire the company’s stock at a steep discount6 (in addition to formal loan
`
`interest), which it then dumps into the public markets as soon as possible in order to reap the
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`spread between the discount and the market price. Invariably, this causes a catastrophic plunge in
`
`stock price.
`
`5.
`
`LG’s business model is illegal.
`
`In recent civil actions, the SEC has sued toxic
`
`lenders that use LG’s precise business model for unlawfully operating as unregistered securities
`
`dealers in violation of § 15(a) of the Securities Exchange Act of 1934 (the “Act”) (15 U.S.C. §
`
`78o). Every court to address this issue has agreed with the SEC.7 The SEC has recently
`
`commenced an enforcement action against LG and its control persons for the exact violation
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`claimed herein.
`
`5 See, e.g., SEC v. Almagarby, 479 F. Supp. 3d 1266 (S.D. Fla. 2020); SEC v. Keener, No. 20-cv-21254, 2022 U.S.
`Dist. LEXIS 11692 (S.D. Fla. Jan. 21, 2022); SEC v. Fierro, No. 20-2104, 2020 U.S. Dist. LEXIS 238936 (D.N.J.
`Dec. 18, 2020).
`6 The stock is generally obtained via one or more market-adjustable convertible debt products required by the lender
`for making the loan; this may be the convertible promissory note itself or a warrant.
`7 See, e.g., SEC v. Big Apple Consulting USA, Inc., 783 F.3d 786 (11th Cir. 2015); SEC v. Almagarby, 479 F. Supp.
`3d 1266 (S.D. Fla. 2020); SEC v. Keener, No. 20-cv-21254 (S.D. Fla. Jan. 21., 2022); SEC v. Fierro, No. 20-2104,
`U.S. Dist. LEXIS 238936 (D.N.J. Dec. 18, 2020); SEC v. River N. Equity LLC, 415 F. Supp. 3d 853 (N.D. Ill. 2019);
`SEC v. Fife, 2021 U.S. Dist. LEXIS 242126 (N.D. Ill. Dec. 20, 2021) (the “SEC cases”). For private civil actions
`seeking rescission based on failure to register, see Edgepoint Capital Holdings, LLC v. Apothecare Pharmacy, 6
`F.4th 50 (1st Cir. 2021), and Auctus Fund, LLC v. Players Network, Inc., 20-cv-10766 (D. Mass. Dec. 10, 2021).
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`6.
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`As with recent SEC prosecutions, the Agreements in this case8 are unlawful as
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`they were made and required to be performed in violation of Section 15(a) of the Act. Plaintiff
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`seeks rescission of
`
`the Agreements,
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`rescissionary damages equal
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`to the gross proceeds
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`Defendants received from the sale of Plaintiff’s stock (less the amounts advanced by Defendants
`
`to Plaintiff), attorneys’ fees, and any and all other relief that the Court deems just, proper, and in
`
`the interest of justice.
`
`7.
`
`LG is an “enterprise” under the Racketeer Influenced and Corrupt Organization
`
`Act (“RICO”), 18 U.S.C. § 1962, et seq., which engages in the collection of unlawful debts at the
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`direction and control of the LG Managers.
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`8.
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`The loans created pursuant
`
`to the Agreements (the “Loans”) are criminally
`
`usurious because they reserved and imposed charges in excess of the maximum enforceable rate
`
`of interest—25% per annum—allowed by New York state law. See N.Y. Penal Law § 190.40.
`
`9.
`
`The Agreements charged a stated interest rate of 8% per annum and gave LG a
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`42% discount at conversion, resulting in a total annual interest rate of more than double the
`
`legal 25% rate permitted under New York usury law.
`
`10.
`
`LG collected from VNUE full repayment of the loan plus usurious interest, which
`
`was unlawful under New York law.
`
`11.
`
`Accordingly, among other relief, VNUE is entitled to treble damages under RICO
`
`because the amount of interest charged by LG is more than double the maximum enforceable rate
`
`of interest allowed by New York law.
`
`12.
`
`Further, the equitable remedy of voiding and rescinding the Agreements provided
`
`8 “Agreements'' are defined as the documents executed by Plaintiff in favor of LG. Specifically: on October 23,
`2018, LG and VNUE entered into a Convertible Promissory Note (“October 2018 Note”), under which LG
`purchased from VNUE a note in the amount of $52,500.00 bearing an 8% stated interest rate, and a Securities
`Purchase Agreement (“October 2018 SPA”). A true and correct copy of the Note and SPA are attached as Exhibit
`1.
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`Case 2:22-cv-03524 Document 1 Filed 06/15/22 Page 4 of 31 PageID #: 4
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`under § 29(b) of the Act should be effectuated by, among other things, ordering LG to return to
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`VNUE every share of stock it acquired under the Agreements, or its cash equivalent, less the
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`cash value of the net sum provided to VNUE for the purchase of the October 2018 Note.
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`JURISDICTION AND VENUE
`
`13.
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`This Court has subject matter jurisdiction over this case pursuant to 28 U.S.C. §
`
`1331 because Plaintiff is asserting a claim under the Securities Act.
`
`14.
`
`This Court has diversity jurisdiction over this case pursuant to 28 U.S.C. §
`
`1332(a)(2). Plaintiff is a citizen of Nevada, Defendant LG is a citizen of New York, upon
`
`information and belief Defendants Lerman, Greenberg, and Gellman are citizens of New York,
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`and the amount in controversy exceeds $75,000.00.
`
`15.
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`The Court also has supplemental jurisdiction over the state law claims pursuant to
`
`28 U.S.C. § 1367.
`
`16.
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`Venue is proper in this Court under 28 U.S.C. § 1391(b)(1) and (2) because
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`Defendant’s principal place of business is located in this District and because a substantial part of
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`the events giving rise to this action occurred in this District.
`
`17.
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`Venue is also proper in this Court because the Agreements each expressly state
`
`that any action brought by either party concerning the transactions contemplated by the
`
`Agreements must be brought in New York state courts or in federal courts located in the State of
`
`New York.
`
`PARTIES
`
`18.
`
`Plaintiff VNUE is a Nevada corporation with its principal place of business at 104
`
`W. 29th Street, 11th Floor, New York, New York 10001.
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`19.
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`VNUE stock trades on the over-the-counter (“OTC”) market, where the stocks of
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`early-stage, developing companies—too small for the major exchanges—are traded.
`
`20.
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`Defendant LG is a New York limited liability company that maintains its principal
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`place of business at 1218 Union Street, Suite 2, Brooklyn, New York 11225.
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`21.
`
`Defendant Lerman is a manager of LG and was the signatory to the SPA. Upon
`
`information and belief, Lerman is a resident of the State of New York and resides at 1124 East
`
`32nd Street, Brooklyn, NY 11210.
`
`22.
`
`According to the FINRA Broker-Check database, Lerman has never been licensed
`
`as a broker.
`
`23.
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`Defendant Greenberg is a manager of LG. Upon information and belief,
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`Greenberg is a resident of the State of New York and resides at 2060 East 22nd Street, Brooklyn,
`
`NY 11229.
`
`24.
`
`According to the FINRA Broker-Check database, Greenberg has never been
`
`licensed as a broker.
`
`25.
`
`Defendant Gellman is a manager of LG. Upon information and belief, Gellman is
`
`a resident of the State of New York and resides at 99 Overlook Road, Pomona, NY 10970.
`
`26.
`
`According to the FINRA Broker-Check database, Gellman has never been
`
`licensed as a broker.
`
`27.
`
`The SEC’s website9 confirms that neither “LG Capital Funding, LLC,” nor
`
`Lerman, Greenberg, or Gellman were registered as a securities dealer with the SEC (or a
`
`self-regulatory organization, such as FINRA) at all relevant times herein.
`
`See SEC.gov, Company Information About Active Broker-Dealers, March 2007 - October 2021, available at
`9
`https://www.sec.gov/help/foiadocsbdfoiahtm.html.
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`Case 2:22-cv-03524 Document 1 Filed 06/15/22 Page 6 of 31 PageID #: 6
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`FACTUAL ALLEGATIONS
`
`I.
`
`LG CAPITAL FUNDING, LLC.
`
`28.
`
`Through Lerman, Greenberg, and Gellman, LG exists for the purpose of lending
`
`money using the business model described herein.
`
`29.
`
`Upon information and belief, Lerman, Greenberg, and Gellman have authorized
`
`and directed LG to enter into numerous convertible promissory notes and other alternative
`
`securities transactions with numerous public companies subject to New York law.
`
`30.
`
`Upon information and belief, the interest rate LG charges in these transactions is
`
`(similar to the rate LG charged in this case) more than double the rate permitted under New York
`
`law,
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`the collection of which results in an ongoing business of unlawful debt collection in
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`violation of RICO, 28 U.S.C. § 1962(c).
`
`II.
`
`THE LG GENERAL BUSINESS MODEL
`
`The Defendants Target Financially-
`Strapped Issuers in Need of Capital
`
`31.
`
`Upon information and belief, Defendants position themselves to take advantage of
`
`issuers’ vulnerable financial conditions to purchase from these issuers convertible notes with
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`substantial conversion discounts and other terms highly favorable to Defendants.
`
`32.
`
`Defendants acquire stock directly from the public companies through note
`
`conversions and/or warrant exercise, as opposed to purchasing shares in the open market (i.e.,
`
`like a “trader”).
`
`33.
`
`Because the shares that Defendants obtain are newly-issued, the subsequent
`
`dumping of the shares into the market significantly increases both the amount of shares in the
`
`hands of the public and the issuers’ outstanding share totals. Selling large quantities of
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`newly-issued shares directly obtained from issuers is a common hallmark of a securities dealer.
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`34.
`
`In addition to reaping gains from the spread between the discount and the market
`
`price, the Defendants negotiate to add consideration such as up-front stock, stock purchase
`
`warrants, and compensation for fees and costs.
`
`The Defendants Purchase Convertible
`Promissory Notes with Favorable Terms
`For the Purpose of Obtaining Shares of Stock
`
`35.
`
`Upon information and belief, all of the stock Defendants sold as part of their
`
`business was obtained directly from the issuer through note conversions as opposed to purchases
`
`of stock in the open market.
`
`36.
`
`The Stock Purchase Agreements (SPA”s) used by defendants in their transactions
`
`contracturally required the defendants to purchase securities.
`
`37.
`
`The billions of shares that Defendants acquired through their transactions with
`
`public companies were newly-issued, and their later sales of those shares in the market
`
`significantly increased both the amount of shares in the hands of the public and the issuers’
`
`outstanding share totals. Selling into the public market large quantities of newly-issued shares
`
`obtained directly from issuers is a common hallmark of a securities dealer.
`
`38.
`
`In addition to profiting from the spread made available by the conversion discount
`
`(and Defendants’ prompt sales following a conversion) the Defendants add to their financial
`
`gains through additional negotiated terms, such as charging fees for negotiation, preparation,
`
`execution, delivery and performance of the Agreement. See, Exhibit 1, October 2018 SPA at §
`
`4a.
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`Case 2:22-cv-03524 Document 1 Filed 06/15/22 Page 8 of 31 PageID #: 8
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`Defendants Converted Promissory
`Note Debt Into Newly Issued Shares of
`Common Stock at a Substantial Discount
`
`39.
`
`The Defendants’ business model exploits the tacking provision of the Rule 14410
`
`exemption for unregistered stock by holding only the convertible promissory notes (which are
`
`payable absolutely) for the six-month holding period, thereby avoiding investment risk. Upon
`
`conversion, Defendants obtain freely-trading stock without ever having to assume any economic
`
`risks of stock ownership. Instead, they immediately sell the stock to reap the spread between the
`
`discount and the market price. The value of the conversion discount is considered interest under
`
`New York law.
`
`40.
`
`Upon information and belief, Defendants time their conversions and sales in an
`
`effort to comply with the holding period under Rule 144. For that reason, Defendants generally
`
`wait either six months (the minimum Rule 144 holding period for securities issued by
`
`SEC-reporting companies) or one year (the minimum Rule 144 holding period for securities
`
`issued by non-SEC-reporting companies) after purchasing a convertible note, before they began
`
`to convert the notes into newly-issued stock and then sell that stock into the public market.
`
`41.
`
`The convertible notes that Defendants purchased and/or solicited from public
`
`companies have allowed defendants to acquire no fewer than 13,427,658,440 shares of
`
`newly-issued stock at a substantial discount—typically 45-60 percent below the lowest trading
`
`price for the issuer’s common stock during a “valuation period” preceding the date of the
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`10 SEC Rule 144, was adopted to establish criteria for determining whether a person was engaged in the distribution
`of securities. One condition under Rule 144 is that the selling security holder must have held the security for a
`specified period of time (six months in this case) prior to resale into the market. This condition helps ensure that the
`holder who claims an exemption has assumed the full economic risks of ownership, and is therefore not acting as an
`underwriter. Rule 144 also permits “tacking” of the six-month holding period; if a security holder simply exchanges
`a previously-purchased security for a different security of the same issuer (such as with conversion), the
`newly-acquired security is deemed to have the same purchase date as the original security. If the holding period has
`expired, the new security may be sold immediately.
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`

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`conversion request.
`
`42.
`
`After holding the convertible debt acquired through convertible note transactions
`
`for the applicable holding period required by Rule 144, Defendants send conversion notices to
`
`the issuers and their
`
`transfer agents,
`
`identifying the amount
`
`to be converted and the
`
`corresponding shares to be issued to Defendants.
`
`43.
`
`Typically, instead of converting all of the debt into stock all at once, Defendants
`
`usually utilize multiple conversion notices for each convertible note. Upon information and
`
`belief, among other reasons, Defendants incrementally convert debt into stock and sell said stock
`
`over a period of time to purposefully avoid owning more than five percent of any class of an
`
`issuer’s publicly traded stock at any one time. Far from an investment strategy, such incremental
`
`conversions and sales are timed for the purpose of evading the requirement to file a “beneficial
`
`ownership report” with the SEC (i.e., Schedule 13D and Schedule 13G).
`
`See 17 CFR
`
`§ 240.13d-1.
`
`44.
`
`Once a conversion notice is submitted to the issuer or its transfer agent,
`
`Defendants arrange for the converted stock to be transferred to their brokerage accounts as
`
`quickly as possible to ensure maximum profits and to capitalize on the conversion discount,
`
`often paying expediting fees to further reduce the time for this to occur.
`
`45.
`
`As part of their business model, Defendants obtain attorney opinion letters that, at
`
`minimum, provide false assurances to brokerage firms that the converted stock is not restricted
`
`and may be resold to the public.
`
`Defendants Sell the Converted
`Stock Into the Public Market
`
`46.
`
`Upon information and belief, once brokers deposit the converted shares from the
`
`issuers into the Defendants’ brokerage accounts, the Defendants generally begin selling the
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`shares into the public marketplace immediately to lock in their profits.
`
`47.
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`Upon information and belief, the Individual Defendants personally, or through an
`
`affiliated person, entity, or independent contractor acting at their direction, use the telephone and
`
`the internet to place sell orders. Sales are made through brokers.
`
`48.
`
`Upon information and belief, Defendants generally sell only as much as the
`
`market will bear, often staggering sales over a short period of time instead of all at once.
`
`49.
`
`Upon information and belief, Defendants’ practice is to sell the shares they have
`
`acquired in a conversion continuously on a daily or near-daily basis until they have sold all of
`
`their shares into the market.
`
`Defendants Earn the Majority of Their Profits From
`Selling Discounted Shares of Newly-Issued Stock
`
`50.
`
`Upon information and belief, Defendants reap large profits from their unregistered
`
`dealer activity, the majority of which results from reaping the difference between the market
`
`prices they receive when they sell the stock to the public, and the deeply-discounted prices at
`
`which they acquire shares from the issuers, rather than from any appreciation in the stock’s price.
`
`This mechanism, which provides Defendants with a spread or markup on the stock that they sell,
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`is a common practice among securities dealers.
`
`51.
`
`Since 2013, Defendants have purchased numerous convertible promissory notes
`
`(securities) from multiple public companies (at least 160) and converted the same into no fewer
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`than 13,427,658,440 shares of newly-issued stock which, upon information and belief,
`
`Defendants have subsequently sold into the public market for millions of dollars.
`
`52.
`
`Upon information and belief, Defendants have generated millions of dollars in
`
`gross stock sale proceeds, with many other securities transactions still outstanding. The majority
`
`of the net profits are from the spread between Defendants’ discounted purchase price (per the
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`terms of the applicable note) and the prevailing market pricing.
`
`Defendants Violate the Federal Securities
`Laws by Engaging in Securities Transactions as Unregistered Dealers
`
`53.
`
`Upon information and belief, Defendants are not now, and have never been
`
`registered as securities dealers with the Financial Industry Regulatory Authority (“FINRA”).
`
`54.
`
`55.
`
`Defendants’ purchases of convertible notes are transactions in securities.
`
`Defendants’ conversions of debt under the convertible notes into stock are
`
`transactions in securities.
`
`56.
`
`Defendants’ subsequent sales of the conversion stock into the public markets are
`
`transactions in securities.
`
`57.
`
`The securities transactions described in Paragraphs 54-56 are effectuated by
`
`Defendants as a part of its ongoing business, and are done for its own account.
`
`58.
`
`As part of its regular business, Defendants acquire large amounts of shares
`
`directly from public companies at a substantial discount to market, sell large volumes of shares
`
`back into the open market for a substantial profit due to the conversion discount, and do so for its
`
`own account absent
`
`investment
`
`intent. Accordingly, Defendants buy securities, convert
`
`securities, and sell securities as part of its regular business for its own account.
`
`59.
`
`Defendants use mail, email, wire transfers and other instrumentalities of interstate
`
`commerce to effect
`
`the Agreements and subsequent securities transactions. For example,
`
`Defendants
`
`transferred cash through wire transfers, and used email and telephone
`
`communications to negotiate and effect purchases and sales of securities.
`
`60.
`
`Any person engaged in the business of buying and selling securities for such
`
`person’s own account (through a broker or otherwise) as part of a regular business must register
`
`as a dealer with the SEC, or, in the case of a natural person, associate with a registered dealer.
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`See 15 U.S.C. § 78o(a)(1).
`
`61.
`
`By failing to comply with the dealer registration requirements mandated by
`
`federal law, Defendants purposefully operate “under the radar” to avoid important legal and
`
`regulatory oversight by the SEC and FINRA.
`
`62.
`
`The dealer
`
`registration requirements provide important safeguards for
`
`the
`
`investing public, shareholders and public companies. The excessive compensation and patently
`
`unfair terms in the Agreements (and upon information and belief, in Defendants’ transactions
`
`with other issuers) would violate FINRA Rules 5110(b) and 5110(c)(2)(A) (and likely several
`
`others), and no securities dealer registered with the SEC would be permitted to use such terms.
`
`63.
`
`Defendants’ outrageous profits from the Agreements result from the market prices
`
`it received when they sold the stock into the public market, and the steep discounted price at
`
`which it acquired the stock from VNUE. This practice—through which Defendants reap the
`
`profits on the spread or markup of the stock they sold—is a common behavior of a securities
`
`dealer or underwriter.
`
`64.
`
`Registration as a securities dealer and accompanying SEC oversight would further
`
`prevent Defendants from utilizing the Rule 144 tacking provision (17 C.F.R. 230.144(d)(3)(ii))
`
`because Defendants’ business operations constitute underwriting activity, or sales with a view to
`
`distribution.
`
`65.
`
`66.
`
`Operating as an underwriter requires dealer registration.
`
`As a part of its regular business, Defendants contract to purchase securities, and
`
`obtain newly-issued stock directly from microcap issuers through note conversions -- as opposed
`
`to purchasing stock in the open market.
`
`67.
`
`The convertible securities that Defendants purchase enable it to acquire millions
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`of shares of newly-issued stock at a significant discount—typically about 45-60 percent of the
`
`trading price. As a regular part of its business, Defendants sell large blocks of such newly-issued
`
`shares into the public market—a common hallmark of a securities dealer.
`
`68.
`
`Upon information and belief, Defendants have used its business model to extract
`
`billions of shares of stock from Plaintiff and other unwitting issuers.
`
`III.
`
`DEFENDANTS’ BUSINESS MODEL AS APPLIED TO PLAINTIFF
`
`Defendants Entered Into
`Agreements That are Usurious and
`Unenforceable Under New York Law
`
`69.
`
`The Agreements state and require that the transaction(s) are governed by New
`
`York law.
`
`70.
`
`Pursuant
`
`to its typical business model,
`
`the Agreements provide LG with a
`
`conversion option, that is, an option to take repayment by exchanging the debt for shares of
`
`company stock.
`
`71.
`
`Consistent with its usual practice, LG would not exchange the debt on a
`
`dollar-for-dollar basis, but at a substantial discount
`
`to the market price at
`
`the time of
`
`conversion—in this case a 42% discount to the market price on the date of the conversion.
`
`72.
`
`The New York Court of Appeals has recently held that for securities of this type,
`
`the value conveyed by the conversion discount must be included in the interest calculation for
`
`purposes of assessing compliance with the state’s usury laws.11
`
`73. With the value of the conversion discount included, the LG Agreement charged an
`
`effective interest rate of at least 80% APR, well in excess of the 25% maximum legal rate under
`
`New York law.
`
`74.
`
`Defendants intended to charge usurious interest demonstrated by, inter alia, the
`
`11 Adar Bays, LLC v GeneSYS ID, Inc., 179 N.E.3d 612, 614-15 (N.Y. 2021).
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`Case 2:22-cv-03524 Document 1 Filed 06/15/22 Page 14 of 31 PageID #: 14
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`fact that Defendants collected on the loan an amount of stock valued well in excess of even the
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`80% rate.
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`75.
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`Defendants collected on the loan with an interest of over 80% APR, thereby
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`engaging in the collection of an unlawful debt as defined under RICO Statute 18 U.S.C. §
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`1961(6). pursuant to the October 2018 Note, the Defendants collected/charged at least 80%12
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`A.P.R. interest based on the Loan of $52,500.00.
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`76.
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`As consideration for the loan of $52,500.00, VNUE relinquished $156,256.93
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`worth of cash and stock in less than a year. This is tantamount to a 197% gain for LG on an
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`annualized basis.
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`77.
`
`As demonstrated by the Agreements, and the additional transactions with other
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`issuers alleged above—which is a part of LG’s regular business—the Defendants are engaged in
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`the business of lending money at rates that exceed New York’s statutory usury limitations.
`
`78.
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`Pursuant to New York’s usury laws, the maximum enforceable rate for a loan to a
`
`corporation is 25% per annum. See N.Y. Penal Law § 190.40.
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`79.
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`The fixed conversion discount, such as the ones provided to the Defendants in the
`
`Agreements, is interest that must be considered when calculating the true interest rate for usury
`
`analysis.13
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`80.
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`The Agreements reserved and imposed a stated interest rate of 8% per annum and
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`a 42% discount floating conversion rate, resulting in a 80% APR total interest rate., which is
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`more than three times the maximum enforceable rate permitted by New York’s criminal usury
`
`law.
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`12 Calculated as follows: 42/58 = .72, or 72% (Conversion Discount) + 8% A.P.R (Stated Interest) = Total 80%
`A.P.R. Interest Rate.
`13 See Adar Bays, 179 N.E.3d at 612 .
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`Case 2:22-cv-03524 Document 1 Filed 06/15/22 Page 15 of 31 PageID #: 15
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`Defendants Converted the Debt into Stock Pursuant to The Agreements
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`81.
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`In this case, between May and July of 2019, LG submitted six separate
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`conversions under the Agreements whereby LG converted the entire $52,500.00 principal and
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`$2,506.33 in interest due under the Agreements (the “Related Transactions”). Those conversions
`
`yielded LG 71,067,485 newly-issued shares of VNUE common stock, with an estimated fair
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`market value of $156,256.93. Hence, in return for a $52,500 loan, LG acquired $156,256.93
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`worth of VNUE stock, yielding gains of $101,250.60– all in less than one year.
`
`82.
`
`83.
`
`84.
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`Each of the six conversions constitutes a separate securities transaction.
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`Therefore, LG’s gains from the conversions are approximately $101,250.60.
`
`Defendants timed their conversions and sales in an effort to comply with the
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`holding period under Rule 144 and thereby began converting almost immediately after the
`
`expiration of the holding period as follows:
`
`a. On May 2, 2019, a conversion notice was submitted requesting issuance of
`
`15,095,529 shares for the satisfaction of $11,770.00 of debt, and $487.57 of
`
`interest;
`
`b. On May 20, 2019, a conversion notice was submitted requesting issuance of
`
`16,889,188 shares for the satisfaction of $15,930.00 of debt, and $722.74 of
`
`interest;
`
`c. On June 6, 2019, a conversion notice was submitted requesting issuance of
`
`11,044,903 shares for the satisfaction of $9,770.00 of debt, and $479.67 of
`
`interest;
`
`d. On June 18, 2019, a conversion notice was submitted requesting issuance of
`
`8,046,671 shares for the satisfaction of $5,770.00 of debt, and $297.19 of interest;
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`

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`Case 2:22-cv-03524 Document 1 Filed 06/15/22 Page 16 of 31 PageID #: 16
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`e. On June 27, 2019, a conversion notice was submitted requesting issuance of
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`9,555,948 shares for the satisfaction of $5,260.00 of debt, and $282.45 of interest;
`
`and
`
`f. On July 22, 2019, a conversion notice was submitted requesting issuance of
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`10,435,246 shares for the satisfaction of $4,000.00 of debt, and $236.71 of
`
`interest.
`
`85.
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`Each conversion of debt to stock identified in Paragraph 84 above constitutes an
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`additional transaction in securities.
`
`Defendants Continue to Convert
`and Sell Shares of Stock
`
`86.
`
`Upon information and belief, Defendants continue to purchase new convertible
`
`notes, convert shares acquired in convertible debt transactions with counterparty penny stock
`
`issuers, and then sell those shares into the market.
`
`87.
`
`Upon information and belief, after waiting out the Rule 144 holding period,
`
`Defendants act in the same manner, converting and rapidly selling millions of newly-issued
`
`shares into the market for substantial profit.
`
`88.
`
`Defendants have sold stock that did not meet any of the exceptions from the
`
`definition of a “penny stock,” as defined by Section 3(a)(51) of the Act and Rule 3a51-1 under
`
`the Act. See 15 U.S.C. § 78c(a)(51); 17 C.F.R. § 240.3a51‒1.
`
`The LG Managers Control LG
`In its Convertible Debt Securities Business
`
`89.
`
`At all relevant times, Lerman, Greenberg, and Gellman, as LG’s sole managing
`
`members and dominant shareholders, directly possessed and exercised control over LG,
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`including the power to decide whether to enter into agreements (including the Agreements in this
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`Case 2:22-cv-03524 Document 1 Filed 06/15/22 Page 17 of 31 PageID #: 17
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`case), to negotiate and approve the final deal terms, and to direct its sales of stock.
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`90.
`
`Upon information and belief, Lerman, Greenberg, and Gellman negotiated the
`
`terms of the convertible notes that LG purchased from microcap companies (including VNUE),
`
`as well as any amendments to the original terms.
`
`91.
`
`Lerman, Greenberg, and Gellman used emails, phone calls, and wires in order to
`
`effectuate, continue, and maintain their scheme to provide the unlawful loans.
`
`92.
`
`Ultimately, Lerman, Greenberg, and Gellman, were and still remain as the sole
`
`persons holding the power to direct, authorize, and compel LG to enter into, convert, and
`
`subsequently sell securities through convertible notes with issuers, including the Agreements
`
`with VNUE.
`
`93.
`
`Lerman, Greenberg, and Gellman, were and currently are the “controlling
`
`persons” within the meaning of Section 20(a) of the Act, with the power to cause LG to engage
`
`in unlawful conduct described herein.
`
`VNUE was Harmed by LG’s
`Unlawful Debt Collections
`
`94.
`
`As a result of the unlawful debt collections, VNUE and its shareholders have been
`
`injured in its business and property.
`
`95.
`
`As a result of the unlawful debt collections, LG has obtained tens of millions of
`
`shares of free-trading VNUE common stock to which it was not entitled nor capable of lawfully
`
`receiving.
`
`96.
`
`The excessive conversions and resulting issuances have forced VNUE to increase
`
`its outstanding shares, thereby massively diluting VNUE’s stockholders.
`
`97.
`
`Once LG began converting under the Agreements in this case, its immediate and
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`massive selling of large blocks of newly-issued shares of VNUE’s common stock into the public
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`Case 2:22-cv-03524 Document 1 Filed 06/15/22 Page 18 of 31 PageID #: 18
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`market caused enormous depressions in VNUE’s market capitalization and stock price.
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`98.
`
`As a result of these actions, VNUE has become unable to privately raise money
`
`from other entities, w