Rhode Island: ​​​​​​​Benrus receiver seeks $6.2 million from lawyer Michael F. Sweeney, alleges RICO violation

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It is amazing the amount of money that a crooked attorney is able to steal - and easily.

Rhode Island: Benrus receiver seeks $6.2 million from lawyer Michael F. Sweeney, alleges RICO violation

PROVIDENCE, R.I. — The receiver for Giovanni Feroce’s failed company Benrus is seeking more than $6.2 million from Feroce’s former lawyer — accusing the lawyer, Michael F. Sweeney, of violating Rhode Island’s RICO law, and usury and loansharking laws in Florida and Rhode Island.

Sweeney, his law firm — Duffy and Sweeney of Providence, and PalmLake Group — a limited-liability company with an address at a vacation home owned by Sweeney and his wife in Palm Beach Gardens, Florida, are named in the complaint brought by receiver Richard Gemma.

Sweeney is also the manager of Benrus Holdings LLC, which bought the trademark of the military-style watch brand shortly after Feroce lost it last fall. The two men are battling in Superior Court over the trademark.

Feroce, a Republican candidate for governor, said Monday that he is happy with the receiver’s complaint.

“I am in support of it as both a creditor and investor,” Feroce said in an email to The Providence Journal. “I am hopeful he will be successful in the first of what I hope are many steps in recovering all that Michael Sweeney has taking [sic] from us. Our attorney stole our company, it is outrageous.”

Feroce said he has also filed a complaint against Sweeney with the Rhode Island Supreme Court’s disciplinary board “for all the damage he has done to our business and to me personally.”

Sweeney, who was served a court summons last week, responded to The Journal through a spokeswoman late Monday afternoon.

“We recognize that the receiver’s role is to attempt to recover money from the wreckage of Mr. Feroce’s serial business failures for the benefit of the unpaid creditors,” Sarah Kennedy said in an email. “Unfortunately, this new action by the receiver is a clear attempt to reframe a valid and beneficial 2016 purchase order agreement as ‘a usurious loan’ and then add frivolous and unsupported allegations against Mr. Sweeney and his law firm. Ironically, the funding in question actually saved old Benrus at the time and allowed it to make enough profit to survive another year.”

She added: “We will vigorously contest this attempt to revise the facts of the case and expect to prevail. Further, the targets of these actions by the Receiver intend to seek sanctions and their attorney’s fees.”

The receiver’s complaint, filed in Superior Court late last month, centers on a financial agreement in 2016 between Sweeney and Feroce, when Benrus was seeking funding for watch prototypes and backpacks with anticipated sales of $1 million.

Benrus was out of money, and Feroce, who was CEO, couldn’t raise any funds.

So, days before payment was due to a manufacturer in Vietnam, Feroce turned to Sweeney, who had been Benrus’ legal counsel and its registered agent since Feroce first sought to buy the trademark in 2014.

Sweeney and another unnamed investor organized PalmLake Group LLC to advance a total of $599,674 to manufacture and ship backpacks and pay for prototype watches. PalmLake also charged Benrus a fee of 15 percent for the advances, roughly $89,900.

The terms of that agreement caught the attention of lawyer Max Wistow, whom Gemma hired last month to investigate.

Wistow alleges that Sweeney and PalmLake charged excessive interest and used the Florida location to evade Rhode Island usury law. Wistow also accuses Sweeney of not complying with the rules of professional conduct governing how lawyers should handle conflicts of interest, because he didn’t advise Feroce’s company in writing to seek advice of independent legal counsel.

Under the agreement, Benrus had to pay PalmLake the full amount of $689,625 within 90 days. That would be an interest rate in excess of 60 percent a year, the complaint says. (The maximum interest rate per year is 21 percent in Rhode Island; a violation is criminal. In Florida, charging more than 25 percent interest a year is a misdemeanor, and more than 45 percent is a third-degree felony.)

If Benrus defaulted, it would owe PalmLake another 3.5-percent interest for each 30-day period on the outstanding debt. That would be an additional interest rate of more than 42 percent a year, the complaint says.

Benrus paid $689,625 by Nov. 15, 2016, two months late. Benrus collapsed less than a year later, when Feroce couldn’t come up with the money to keep the agreement with the trademark’s owner, M.Z. Berger in New York City.

A week later, Sweeney formed a new company, Benrus Holdings LLC, and bought the trademark outright — without Feroce. Sweeney offered to let Feroce license the trademark, provided he first take care of the creditors and come up with funding.

In a confidential mediation statement, the receiver says both men double-crossed each other while setting up new companies, in an effort to skirt Benrus’ numerous creditors.

The complaint seeks $689,625 from Sweeney, his law firm, PalmLake and two unnamed investors for violating Rhode Island’s usury law, and $869,527 for violating Florida’s usury law. The complaint also seeks $2.068 million — triple the amount from the financial agreement — from Sweeney and the others under Rhode Island’s Racketeer Influenced and Corrupt Organizations act, known as RICO. The complaint seeks $2.608 million in a charge accusing Sweeney of criminal intent in collecting unlawful debts.

The receiver is seeking a jury trial.

Sweeney has argued that the financing was a factoring agreement — a short-term financing arrangement giving funds based on future income — and that without his aid, Benrus wouldn’t have been able to keep going. Feroce had spent money on everything except trying to buy the trademark, he said in court records and past testimony.

With PalmLake’s help, “Old Benrus was able to stay in business, save its 2016 Back-to-School Backpack Sales Initiative, and realize approximately $302,612 in gross profit from that Initiative,” W. Mark Russo, lawyer for PalmLake, argued in court papers. Russo was until recently also representing the landlord of Benrus’ former Nantucket store, to whom Feroce owes rent.

PalmLake also offered to refund $82,511 for a “possible usurious overcharge” under Florida law, plus interest. The offer was rejected.

PalmLake took aim at Wistow and the receiver on Monday.

“Over the past seven months the receiver has discovered that there remains nothing of value to be salvaged from the debris of Feroce’ s company,” Kennedy said in her statement to The Journal. “With many creditors and no assets, the receiver has engaged a well-known contingency fee lawyer who charges no fee but takes 40% off the top of any recovery.”

The receiver wants the court to stop Sweeney and his lawyers from calling the arrangement a “factoring agreement” — pointing out that Sweeney called it a loan in emails during negotiations in 2016. A factoring agreement does not charge interest.

“Such behavior by a lawyer dealing with an otherwise unrepresented client is a gross violation of ethical standards binding on lawyers who enter into business transactions with their own clients,” Wistow wrote in the receiver’s complaint.

Source: Providence Journal