Investment firm 777 Partners and its co-founders including Josh Wander are facing fraud charges filed against them by the US Securities and Exchange Commission (SEC), in a lawsuit that alleges misuse of funds and collateral, while also highlighting the double-pledging of assets that should have backed a lending facility.
There are a raft of charges, starting with the fact that between January 2021 and May 2024, the defendants are accused as having “fraudulently solicited investments in a preferred equity offering (the “Offering”) that 777 Partners and 600 Partners (together, the “Issuers”) jointly issued, and that raised approximately $237 million from 13 investors.”
The lawsuit further states that, “During the Relevant Period, 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 truth, 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.”
But key to this was the alleged misuse of a credit facility, from where Wander et al are said to have diverted funds and collateral, but at the same time signed compliance reports that are said to have been false and misleading.
The court case also accuses the 777 Partners leadership of diverting funds, in the millions of dollars, to their own bank accounts and that the credit facility never saw its overdraw remedied, resulting in the lender starting litigation.
“The investors in the Offering have suffered substantial pecuniary harm as a result of Defendants’ actions,” the federal lawsuit states.
The lawsuit alleges “misuse of borrowed funds, misuse of cash collateral, and double pledging” which resulted in the credit facility becoming overdrawn by around $300 million, with 777 Partners co-founder Wander directly accused of having created this situation.
“Wander caused SuttonPark to pledge to other lenders annuities that served as collateral for the Credit Facility, thereby double pledging the collateral in violation of the Credit Facility’s prohibition on “Adverse Claims” and leaving multiple credit facilities under-secured. By September 2021, Wander had caused double pledging of annuities then valued at more than $146.6 million. Wander caused SuttonPark to double-pledge additional annuities throughout the Relevant Period,” the lawsuit further explains.
Compliance reports that were filed falsely listed annuities as having been pledged as collateral, and the lawsuit states that by concealing the misuse of the credit facility Wander et al were able to deceive and mislead investors in the preferred equity offering.
The federal lawsuit against Wander, his businesses, co-founder Steven Pasko and 777 CFO Damian Alfalla, highlights the damages suffered by unnamed “Lender A” in relation to the credit facility, while also underscoring the same fraudulent business practices the defendants have previously been accused of in civil court.
Recall that, back in 2024 Leadenhall Capital Partners LLP, the London-headquartered specialist insurance-linked securities (ILS) and reinsurance linked investment manager, filed a lawsuit accusing 777 Partners, its co-founders and related entities of fraud, a case that is ongoing.
Leadenhall Capital Partners’ civil case stated that collateral pledged for a lending agreement it provided was double-pledged or did not even exist.
Through its Life Insurance Linked Investments Fund, Leadenhall entered into a secured credit facility agreement with a group of limited liability companies owned by 777 Partners and other entities managed by its co-owners Josh Wander and Steven Pasko.
The borrowers (777 Partner entities) were meant to have pledged collateral to secure the debt notes, with that collateral supposed to be “free and clear” of any other security interest.
But Leadenhall accuses the entities of fraudulently misrepresenting that collateral was still supporting the facility and of double-pledging it at the same time, so a very similar scenario to the accusation of fraud that has now been made by the US SEC. We assume the unnamed “Lender A” in the SEC’s lawsuit is actually Leadenhall.
As a result, Leadenhall’s efforts to recover value through the civil courts, for the damages suffered by its funds and investors due to the alleged fraud, have seemingly been leant meaningful additional weight by this federal, criminal case against 777, Wander et al.
Luca Albertini, CEO, Leadenhall Capital Partners LLP said in a statement provided to us that, “The indictments unsealed today corroborate and reinforce the strength and seriousness of the extensive claims Leadenhall brought to light in May 2024 regarding the alleged years-long pattern of fraud by 777 and its affiliated companies.
“Our primary consideration continues to be maximising return for our investors, and we will continue to aggressively pursue our case in civil court in parallel to these criminal proceedings.”
