Motion to Dismiss Denied by Court in DarkPulse Case Against EMA Financial LLC
On March 1, 2023, EMA Group, LLC (“EMA Group”) and Felicia Preston (“Preston”), the sole owner of EMA Group, lost a motion to dismiss RICO charges in a lawsuit filed against the lender by Darkpulse, Inc. (“Darkpulse”).
Darkpulse filed a civil action against EMA Financial LLC (“EMA”), EMA Group and Preston (collectively, the “Defendants”) in January 2022 in the United States District Court of the Southern District of New York, represented by The Basile Law Firm P.C.
In the suit, Darkpulse refers to EMA as a “death spiral” or “toxic” lender and unregistered securities dealer that purchases convertible debt securities from small public companies (that are often struggling to raise capital) in order to get their hands on heavily-discounted stock.
Referencing recent Securities and Exchange Commission (“SEC”) prosecutions against lenders like EMA (specifically, Ibrahaim Almagarby and Microcap Equity Group), Darkpulse accused EMA of avoiding registration so they could evade regulatory oversight and make predatory loans that generate outrageous profits.
Darkpulse brought six charges against the Defendants, with the judge ruling that Count 4 (Conducting the Affairs of the RICO Enterprise) can move forward against EMA Group and Preston and that Count 5 (Unjust Enrichment) can move forward against all the Defendants.
In denying the motion to dismiss the RICO and Unjust Enrichment claims, the judge followed a recent precedent from Adar Bays, LLC v. GeneSYS ID, Inc, in which Adar Bays appealed a lower court ruling. The Appeals Court, in that case, held that “a stock conversion option that permits a lender . . . to convert any outstanding balance to shares of stock at a fixed discount should be treated as interest” for purposes of New York criminal usury law. And thus, in the case of the EMA notes, after applying the discount to the market price used for the debt conversions, EMA was getting an annual interest rate of approximately 73%, well above the 25% limit considered just under the state’s criminal usury laws.
The case is now scheduled to move to mediation.
To speak with a Securities Attorney, please contact Brenda Hamilton at 200 E Palmetto Rd, Suite 103, Boca Raton, Florida, (561) 416-8956, or by email at [email protected]. This securities law blog post is provided as a general informational service to clients and friends of Hamilton & Associates Law Group and should not be construed as and does not constitute legal advice on any specific matter, nor does this message create an attorney-client relationship. Please note that the prior results discussed herein do not guarantee similar outcomes.
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