MARK L. WOLF, District Judge.
Before this Court is the Stipulation for Entry of Consent Order for Receivership and Consent Order of Receivership executed by and between the United States of America, on behalf of the United States Small Business Administration ("SBA), and Velocity Equity Partners I SBIC, L.P. ("Velocity"). The Court, being fully advised as to the merits, and based upon the consent of the parties, orders that the following relief be granted:
1. Pursuant to them of provisions of 15 U.S.C. § 687c, this Court Shall take exclusive jurisdiction of Velocity and all of its assets, wherever located, and the United States Small Business Administration ("SBA"), is hereby appointed receiver ("the Receiver") of Velocity to serve without bond until further order of this Court. The Receiver is appointed for the purpose of administering, marshalling and, if necessary, liquidating all of Velocity's assets to satisfy the claims of creditors therefrom in the order of priority as determined by this Court.
2. The Receiver shell have all powers authorities, rights and privileges heretofore possessed by the general partners, managers, officers, and directors of Velocity under applicable state and federal law and by the Certificate of Limited Partnership and Partnership Agreement of said partnership, in addition to all powers and authority conferred upon the Receiver by the provisions of 15 U.S.C. § 687c and 28 U.S.C. § 754. The general partners, managers, directors, employees and agents of Velocity are hereby dismissed. Such persons shall have no authority with respect to Velocity's operations or assets, except as may hereafter be expressly granted by the Receiver. The Receiver shall assume and control the operation of Velocity and shall pursue and preserve all of its claims.
3. The past and/or present officers, directors, agents, managers, general partners, accountants, attorneys and employees of Velocity, as well as all those acting in their place, are hereby ordered and directed to turn over to the Receiver forthwith all books, records, documents, accounts and all other instruments and papers of said partnership and all other assets and property of the partnership, whether real or personal. Velocity shall furnish a written statement within five (5) days after the entry of this Order, listing the identity, location and estimated value of all assets of Velocity as well as the names, addresses and amounts of claims of all known creditors of Velocity. All persons having control, custody or possession of any assets or property of Velocity including its former General Partners, are hereby directed to turn such property over to the Receiver.
4. The Receiver shall promptly give notice of its appointment to all known officers, directors, agents, managers, general partners, employees, limited partners, creditors, debtors and agents of Velocity. All persons and entities owing any obligations or debts to Velocity shall, until further order of this Court, pay all such obligations in accordance with the terms thereof to the Receiver, and its receipt for such payments shall have the same force and effect as if Velocity had receiver such payments.
5. The Receiver is hereby authorized to open such Receiver's bank accounts, at banking or other financial institutions, to extend credit on behalf of Velocity, to utilize SBA personnel, and to employ such other personnel as necessary to effectuate the operation of the receivership including, but not limited to, attorneys and accountants, and is further authorized to expend receivership funds to compensate such personnel in such amounts and upon such terms as the Receiver shall deem reasonable in light of the usual fees and billing practices and procedures of such personnel. The Receiver is not required to obtain Court approval prior to the disbursement of receivership funds for payments to personnel employed by the Receiver or payments for expenses incidental to administration of the Receivership. In addition, the Receiver is authorized to reimburse the SBA or its employees for travel expenses incurred by SBA personnel in the establishment and administration of the receivership. The Receiver may, without further order of this Court, transfer, compromise, or otherwise dispose of any claim or asset, other than real estate, which would result in net proceeds to the Receiver and the receivership estate.
6. Velocity's past and/or present officers, directors, agents, managers, general partners, limited partners, employees, and other appropriate persons (including, without limitation, the defendant's portfolio of small business concerns and banks or other financial institutions doing business with defendant and/or defendant's portfolio of small business concerns) shall answer under oath, pursuant to a Receiver's Notice or Subpoena, to the Receiver, all questions which it may put to them regarding the business of said partnership, or any other matter relevant to the operation or administration of the receivership or the collection of funds due to Velocity. In the event that the Receiver deems it necessary to require the appearance of the aforementioned persons, the production of documents, information, or any other form of discovery concerning the assets, property or business assets of Velocity or any other matter relevant to the operation or administration of the Receivership or the collection of funds due to Velocity, the Receiver shall direct notice for any such appearance by certified mail, and said persons shall appear and give answer to the Receiver, produce documents or submit to any other form of discovery in accordance with the Federal Rules of Civil Procedure.
7. The parties or prospective parties to any and all civil legal proceedings wherever located, including, but not limited to arbitration proceedings, bankruptcy or foreclosure actions, default proceedings, or any other proceedings involving (a) Velocity, (b) any assets of Velocity, (c) Velocity's past directors, managers, or general partners (and its general partner if acting in such legal capacity) or (d) the Receiver are enjoined from taking any action, including discovery, commencing or continuing any legal proceeding of any nature in connection with any proceeding.
8. All civil legal proceedings wherever located, including arbitration proceedings, foreclosure activities, bankruptcy actions, or default proceedings, but excluding the instant proceeding, involving (a) Velocity, (b) any assets of Velocity, (c) Velocity's past directors, managers, or general partners (and its general partner if acting in such legal capacity) or (d) the Receiver are stayed in their entirety, and all Courts having any jurisdiction thereof are enjoined from taking or permitting any action until further Order of this Court.
9. Further, as to a cause of action accrued or accruing in favor of Velocity against a third person or party, any applicable statute of limitation is tolled to the extent allowed by applicable law during the period in which this injunction against commencement of legal proceedings is in effect as to that cause of action.
10. Velocity and its past and/or present directors, officers, managers, general partners, agents, employees and other persons acting in concert or participation therewith be, and they hereby are, enjoined from either directly or indirectly taking any actions or causing any such action to be taken which would dissipate the assets and property of Velocity to the detriment of the Receiver appointed in this cause, including but not limited to destruction of partnership records, or which would violate the Small Business Investment Act of 1958, as amended, (the "SBIA"), 15 U.S.C. Section 661
11. The Receiver is authorized to borrow on behalf of Velocity, from the SBA, up to $1,000,000, and is authorized to cause Velocity to issue Receiver's Certificates of Indebtedness in the principal amounts of the sums borrowed, which certificates will bear interest at or about 10 percent per annum and will have a maturity date no later than eighteen (18) months after the date of issue. Said Receiver's Certificates of Indebtedness shall have priority over all other debts and obligations of Velocity, excluding administrative expenses of the Receivership, whether presently existing or hereinafter incurred, including without limitation any claims of partners of Velocity.
12. This Court determines and adjudicates that Velocity has violated 13 C.F.R. § 107.1830(b) and 13 C.F.R. § 107.507(a) of the Regulations as alleged in the Complaint filed in this matter. After completing its activities in accordance with this Order, the Receiver may recommend that Velocity's license as an SBIC be revoked.
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:
1. 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.
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)(1); and 28 U.S.C. § 1345.
3. Defendant, Velocity Equity Partners I SBIC, L.P. (hereinafter "Velocity" or "Licensee"), is a Delaware limited partnership that maintains its principal place of business at 10 Liberty Square, Boston, MA 02109. Venue is therefore proper under 15 U.S.C. §§ 687(d), 687h and 28 U.S.C. § 1391(b).
4. Velocity's general partner is Velocity Equity Partners I G.P., LLC.
5. On or about September 18, 2002, Velocity 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 01/71-0395, solely to do business under the provisions of the Act and the Regulations.
6. In its Licensing Application, at Section 8(a), Velocity certified through its general partner that the Licensee would at all times be operated in full conformity with the Act and the regulations promulgated thereunder at 13 C.F.R. § 107.1 et. seq ("the Regulations").
7. 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").
8. 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 Velocity through the purchase and/or guaranty of Participating Securities, a form of Leverage, as those terms are defined under the Regulations.
9. Currently, there remains $13,195,930.00 outstanding in Participating Securities Leverage.
10. The Participating Securities described in paragraphs 8-9, above, are expressly subject to and incorporated by reference in the Regulations, including but not limited to the provision of 13 C.F.R. §§ 107.1820-1850 and § 107.507.
11. 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 Velocity, may be forfeited and the company may be declared dissolved.
12. Section 311 of the Act, 15 U.S.C. § 687c, provides that upon a determination by SBA that if a Licensee, such as Velocity, 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.
13. Paragraphs 1 through 12 are incorporated herein by reference.
14. Among other requirements, the Regulations at 13 C.F.R. § 107.1830(a) governing Participating Securities Leverage require that an SBIC such as Velocity maintain a Capital Impairment Ratio, as that term is defined in the Regulations, of no greater than 60%.
15. As of March 31, 2013, SBA determined that Velocity had a condition of Capital Impairment Ratio above that allowable under Section 107.1830 of the Regulations.
16. By letter dated May 7, 2013, SBA notified Velocity that its condition of capital impairment had to be cured within fifteen (15) days of the date of the letter or SBA would place Velocity into Restricted Operations pursuant to 13 C.F.R. § 107.1820 (e)(10), and would impose Restricted Operation Remedies pursuant to 13 C.F.R. § 107.1820(f).
17. Velocity failed to cure its condition of capital impairment within the prescribed time. Consequently, SBA placed Velocity into Restricted Operations and imposed Restricted Operation Remedies pursuant to 13 C.F.R. § 107.1820(f).
18. Subsequently, SBA transferred Velocity to liquidation status on or about July 17, 2013.
19. Via letter dated July 24, 2013, SBA notified Velocity of its transfer to liquidation status.
20. To date, Velocity continues to have a condition of capital impairment in excess of that allowed under the Regulations.
21. Velocity's failure to cure its condition of capital impairment is a violation of §§ 107.1820-107.1830 of the Regulations, which violations have not been cured to date.
22. As a consequence of Velocity's continuing violation of 13 C.F.R. §§ 107.1820-107.1830 of the Regulations, SBA is entitled to the injunctive relief provided under the Act, 15 U.S.C. § 687(d).
A. That this Court enter the Consent Order filed simultaneously herewith and grant injunctive relief, both preliminary and permanent in nature, restraining and enjoining Velocity, its past or present general partner(s), managers, management company, directors, officers, agents, employees, and other persons acting in concert or participation therewith from: (1) making any disbursements of Velocity's funds; (2) using, investing, conveying, disposing, executing or encumbering in any fashion any funds or assets of Velocity, wherever located; and (3) further violating the Act or the Regulations promulgated thereunder.
B. That this Court determine and adjudicate Velocity'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 Velocity and all of its assets, wherever located, appoint SBA as receiver of Velocity for the purpose of marshaling and liquidating the assets of Velocity and satisfying the claims of creditors as approved by this Court, and such other relief as contained in the Consent Order filed herewith.
D. That this Court grant such other relief as may be deemed just and proper.
