As expected, the layers continue to unfold in the CIS bankruptcy case and today’s 174 page motion was a doozie! If you’re not up to speed on what’s transpired thus far or just need a refresher, read the initial article here.
Panthers Capital, LLC (Panthers) has filed a Motion to reconsider alleging multiple breaches of contract, fraudulent misrepresentation, negligent misrepresentation, breach of operating in good faith and fair dealing, and violation of the Connecticut Unfair Trade Practices Act (CUPTA). While I knew things were going to heat up, certain alleged fraudulent acts were not on my bingo card!
Who is Panthers and why are they making these claims? Panthers is a factoring company. Factoring companies are financial services that offer fast working capital by purchasing a company’s accounts receivables (A/R) at a discount. This gives the factoring company exclusive rights to that invoice (they own it as if it was their own invoice) and any monies paid must be paid to them. In most normal business operations, vendors extend payment terms to certain clients. Factoring companies step in and pay the vendor a discounted amount on an invoice and then collect payment from the client when the bill is due.
In a simplified example, I sell you an item for $100 and give you 60 days to pay me. If I don’t want to wait 60 days, I can sell this invoice to Panthers for $90. Panthers will pay me the $90 now and I can put those funds to use immediately. In 90 days, when the bill is due, you will now pay the $100 to Panthers directly instead of me.
CIS entered into a factoring agreement with Panthers for their Petco account. CIS supplies a large amount of fish to Petco stores, but wanted quicker access to funds. Panthers would fund CIS based on the Petco invoices submitted to them by CIS (this is important later). When Petco settled those invoices, Panthers would recover their funds. To solidify their agreement, Panthers filed a UCC-1, giving them first position on the debt, meaning that any other claimants would get paid only after Panthers has been paid.
As you can see from the UUC-1 filing, Panthers secured a personal guarantee from Sam (CIS CEO) and his other companies, including Live Aquaria Holdings Corp, the entity that owns the Liveaquaria.com website. The Cross Collateral Addendum below shows the legal filing giving them the right to these corporations should any default occur.
Initially, it appears that Panthers was getting paid as agreed upon. So much so they even entered into an agreement increasing the the funding they would advance. Panthers states that Petco asked them to stabilize CIS as they are a key supplier. Panthers was asked to purchase additional CIS receivables and pay off other UCC lienholders so that Petco could continue to receive fish from CIS. Panthers, Petco, and CIS entered into a Three-Party Agreement that allowed CIS to continue supplying Petco and giving Panthers the exclusive right to all Petco A/R owed to CIS.
So, what do you do when the factoring money isn’t enough? This is the later I was talking about earlier. According to Panthers, CIS submitted old invoices as new that were previously already sold to them, sold invoices owned by Panthers to other finance companies, and lied about the status of invoices submitted to Panthers. That would be like my selling the $100 invoice to Panthers today, then again tomorrow but as a “new” invoice, while also selling it to a few other companies!
In April, Panthers found a UCC-1 claim by another company. When they approached CIS about it, Sam provided them with proof that the debt was cleared and a claim termination had been filed (see below). Upon discussion with the third party company, it was revealed that the debt was not cleared and the claim termination was filed fraudulently. This led to Panthers ultimately filing suit against CIS in August.
With all of Sam’s other entities named in the Panthers’ suit, what does that mean for Live Aquaria? As we reported previously, the website has been turned back on. An unnamed representative reached out stating technical difficulties, but business has resumed and there are no staffing or any other issues with the operation. I’ve asked for more information, but I have yet to receive a response.
Panthers calls CIS’s actions unethical, unscrupulous, and offensive. If true, I’d have to agree.
I will continue monitoring the case and reading the motions, so check back often for updates. If you’re an attorney and would love to lend a hand with this, reach out to me.
