The Securities and Exchange Commission (SEC) has filed a lawsuit against Joshua Wander, Steven Pasko, Damien Alfalla, 777 Partners LLC, and 600 Partners LLC.

The SEC’s complaint, seen by FX News Group, alleges that between January 2021 and May 2024 (the “Relevant Period”), the defendants fraudulently solicited investments in a preferred equity offering that 777 Partners and 600 Partners jointly issued, and that raised approximately $237 million from 13 investors.

Wander and Pasko were the co-founders and managers of the Issuers; Alfalla was the chief financial officer (CFO) of both entities. Wander, Pasko, and Alfalla managed the Issuers as a unified business; the Issuers reported their financial statements on a consolidated and combined basis.

The SEC’s complaint alleges that during the Relevant Period, the defendants misled investors about the Issuers’ financial condition, and fraudulently induced investments in the offering, by falsely representing that the Issuers were earning, and would continue to earn, substantial positive net income sufficient to pay investors a 10% annual dividend.

In reality, Wander and Alfalla knew or recklessly disregarded, and Pasko knew or should have known, that the Issuers were in a severe and worsening liquidity crisis and had no realistic prospects of earning net income sufficient to pay the dividend.

At the heart of the Issuers’ dire financial situation was the misuse and resulting $300 million overdraw of a credit facility in breach of the credit facility’s terms.

The borrowers under the Credit Facility were certain limited liability companies that were subsidiaries of SuttonPark Capital LLC. SuttonPark was 600 Partners’ largest subsidiary and the largest operating company within the Issuers’ business.

Prior to the Relevant Period, SuttonPark’s profits made up a significant portion of the Issuers’ profits. By diverting cash and other collateral from the Credit Facility, the Issuers compromised SuttonPark’s ability to generate profits, and thus compromised the Issuers’ own financial health. Moreover, the Issuers concealed the misuse and overdraw from the Credit Facility lender.

The complaint alleges that Wander directed the misuse of the Credit Facility and the concealment of the overdraw from the lender. Alfalla helped carry out these activities. Pasko, who in addition too-founding and managing both 777 Partners and 600 Partners, was also the chief executive officer (“CEO”) of SuttonPark, knew or should have known of the overdraw, and yet signed Credit Facility compliance reports for transmission to the lender without verifying their accuracy or completeness. In fact, such reports were false and misleading.

Because of the overdraw of the Credit Facility, the Issuers would have had to generate $300 million to repay the Credit Facility lender before they could begin earning profits to pay dividends to investors in the Offering. By summer 2021, there was no realistic prospect that the Issuers could do so, and the Issuers’ financial outlook only worsened as time passed and the Issuers continued to raise money from additional investors using materially false and misleading information.

In marketing the Offering, Defendants Wander and Alfalla made false and misleading representations about the Issuers’ prospects and ability to pay dividends, while concealing the $300 million overdraw from investors, as well as its causes. Alfalla drafted slides used in an investor presentation, and related supporting diligence materials, which falsely represented that the Issuers anticipated they would continue to earn substantial positive net income. Wander reviewed and approved the Investor Presentation and Diligence Materials before they were sent to investors. Wander also participated in phone calls with prospective investors in which he reinforced the false and misleadingly positive picture of the Issuers’ prospects.

As a board member of 600 Partners and 777 Partners, Pasko signed board consents approving the form, terms, and provisions of the Subscription Agreement; Pasko also signed each investor’s Subscription Agreement on behalf of 600 Partners and 777 Partners. The SEC alleges that, though he knew or should have known of the overdraw of the Credit Facility and its serious effects on the Issuers’ prospects, Pasko did not take steps to ensure the accuracy or completeness of the Investor Presentation and Diligence Materials, or the term sheet embodying the terms of the Offering.

Wander also allegedly misled investors about how the Issuers would use the Offering proceeds. Wander falsely represented in the Investor Presentation and in the Term Sheet that the Issuers would use the Offering proceeds for general corporate purposes.

In fact, Wander intended to, and ultimately did, cause the Issuers to divert approximately $33 million of investor funds to Wander and Pasko personally. Specifically, in September 2021, after receiving Offering proceeds from investors, the Issuers (on Wander’s instructions) sent approximately $24.9 million to Wander’s personal bank account and approximately $8.03 million to Pasko’s personal brokerage account.

Further, the Issuers never remedied the overdraw of the Credit Facility, and the Issuers’ financial condition continued to worsen. The Credit Facility lender eventually discovered the misuse and overdraw, and commenced litigation.

In 2024, Wander, Pasko, and Alfalla resigned from their roles at 777 Partners and 600 Partners and their subsidiaries, and a restructuring adviser was engaged to manage the Issuers. The investors in the Offering have suffered substantial pecuniary harm as a result of Defendants’ actions.

The regulator seeks permanent injunctions against the defendants, disgorgement of ill-gotten gains and civil monetary penalties.