NanoViricides Lab Building in Foreclosure Litigation

A biotech stock that recently raised $20 million in registered direct offerings came under pressure this month by a short sellers research report published at Seeking Alpha. Connecticut-based NanoVircidies has been the subject of multiple stories I reported for Growth Capitalist over the last six months detailing alleged miss-use of company assets and inaccurate statements made in SEC filings. New information shows the research facility $NNVC has touted in press releases is currently subject to foreclosure litigation in Milford, Conn state court by a former architecture firm named Svigls Partner LLP.

NanoViricides medial test facility at 1 Controls Drive in Shelton, Conn is owned by its CEO Anil R. Diwan through another company called Inno-Haven. The biotech firm has said in previous SEC filings that Inno-Haven, founded in 2011, will own their research lab but they plan to sign a lease on the building. Although no lease details or contracts have been published. CT State case ANN-CV13-6014531 was filed in August 2013 which list a mechanics lien against Inno-Haven and NanoViricides (as a relief defendant) for $17,659.85. A Milford court clerk confirmed for me today the litigation is asking for ‘possession of the lien premises’ at 1 Controls Dr. The 18,000 square-foot building has a $1.35 million mortgage on it according to a Shelton, Conn town clerk but no official lien’s have been filed against the property yet in Shelton.

The biotech firm said last week it now wants to buy the building, instead of lease, from Anil Diwan and his holding company Inno-Haven, but if the architecture firm that is suing for unpaid building supplies, labor, and material is able to secure a court ordered lien it might make it difficult to transfer the property to NanoViricides if a sale went through. Another option, according to real estate attorney Mark Schartz, is Inno-Haven could sell the building to NanoViricides and the public company would use their funds to pay off the $17k bill.

I was hung up on when I called Inno and Nano’s attorney Harry Schochat to ask about how the unpaid bill would be settled. Stewart Margolis, the attorney for the architecture firm Svigls Partners, chose not to comment on the current litigation. CT court records show their next pre-trial hearing is March is March 26th 2013.

If NanoViricides says it’s near completion of the building renovation and it just boosted it’s balance sheet with near $20 million in cash from discounted equity sales to institutional investors why doesn’t it just pay off the $17k bill. It would avoid costly legal fees and any lien’s against the research lab they keep touting in press releases will help advance the company’s goals and finish developing their drugs.

The company is also facing another problem today. Shaquoia Garo, from Columbia University-College of Physician and Surgeons, confirms in an email NanoViricides cofounder Eugene Seymour did not receive a medical degree from the University. Seymour stated in his bio’s he had medical training at Columbia. When the news first showed up as a possible allegation on Seeking Alpha today the company took down it’s website at the 3pm hour while trading in the stock was still going on. The company bio was edited today and the NanoVircides website was back online after the market closed. Where Seymour got his medical training is now a vague line on his bio.

The Seeking Alpha research report, which raised a lot of the questions I brought to light last year in my reporting at Growth Capitalist, led to a New York based law firm issuing a press release they want to start an investor class action suit against the biotech stock and its founders. When I reach the attorney on the suit, Benjamin Sachs-Michaels of Harwood Feffer, he said he could not talk about the case but enjoyed reading my reporting on the company. It’s unclear if any $NNVC investors have signed on to the suit yet.

NanoViricides is continuing to promote its company at investor conferences and is registered to present in April at a small-cap stock conference in Las Vegas run by Market Nexus Media.

Regulators Investigating Firms Sub-Account Use in Shorting Stocks

Government regulators are investigating investment firms that set up sub-accounts with their broker dealers to mask illegal short selling schemes. I reported for Growth Capitalist this week that FINRA and the SEC are currently doing a sweep of hedge funds and their brokers dealers for the use of sub-account under the hedge funds master account to essentially naked short a stock.

The regulatory investigation is on top of the short selling fines the SEC imposed on 22 firms last month. The government is focused on how firms short a stock within a five day rule before a new issue for the stock – which is basically naked shorting.

The use of sub-accounts, sometimes set up in names of people who are not actually the investor in the funds, is similar to the ‘rathole’ game Jordan Belfort used in the mid-90’s at his illustrious Long Island firm Stratton Oakmont. You might remember Belfort from his tell-all novel ‘The Wolf of Wall Street’ – which is now going to be a lucid and greedy portrayal of what can happen behind the scenes with stock trading in a major motion picture this year.

But regulators aren’t just looking at bucket shops trying to use straw buyers. Even if a real investor’s money is being used to short a stock in the subaccount, while the Master account is long the stock, say five days before a new issue (illegal practice Rule 105), FINRA or the SEC is likely to come after the firm. And they’ll fine the broker-dealers for not inspecting what the hedge funds are doing via compliance violations even if the broker-dealer had little or no intent on allowing the hedgie to do illegal trading.

Last year the poster child for this kind of scheme, William Yeh of Genesis Securities, was banned from nearly every stock exchange for what he did with master and subaccounts. You can read all about Yeh’s scheme in the FINRA lawsuit here.

I am now seeing Wall Street securities lawyers warning their clients to be on guard for this kind of thing:

Master/sub-account relationships raise a host of regulatory issues for firms and carry the risk that the firm does not know the identity of its “customer” as required by federal securities laws, including the Customer Identification Program (CIP) provisions of the Bank Secrecy Act, and FINRA Rule 3310. In some situations, despite the fact that there is an intermediary master account, a firm may be required to recognize a sub-account as a separate customer of the firm. FINRA examiners closely review firms’ procedures for determining the beneficial ownership of each account within a master/sub-account structure in accordance with the guidance published in Regulatory Notice 10-18. FINRA examiners will review firms’ systems for monitoring, detecting and reporting suspicious activity in master/sub-account structures, whether or not the sub-account should be considered the firm’s customer for CIP purposes.

And FINRA says it’s using 16 examiners to figure out if a hedgie/traders master account is basically being allowed to operate as an unregistered broker-dealer:

FINRA examiners also will focus on whether the firm is properly monitoring transactions in master/sub-account structures for potentially manipulative activity and reporting that activity, as appropriate, on a Suspicious Activity Report (SAR). In a recent enforcement action, FINRA sanctioned a firm for failing to adopt risk-based procedures to verify the identity of sub-account holders, even though these customers lived overseas in high-risk jurisdictions and could freely execute trades for their own profit, and also for failing to adopt effective procedures for detecting suspicious activity.

The problem with these regulator inspections is master/sub-account relationships have now also raised issues under other FINRA and SEC rules, such as margin rules and books and records requirements. Meaning firms could get hit with a ‘net-capital charge’ if the regulator thinks there is prop trading in the sub account and the real owner who reaps the dollars is different than the master account.

This is seen as a ‘Johnny Come Lately’ action by the SEC and FINRA by some small cap stock CEO’s who have been made to look like lunatics for complaining about naked shorting over the last decade and our Chris Cox/ Mary Shapiro style of leadership at the SEC did nothing about it. Others think it’s a witch hunt by the SEC because Main Street is frustrated at their total lack of getting BIG fines out of traders who break securities laws and keep making millions of dollars.

Casino Investors claim Hedgie Plainfield designed Equity Grab Scheme

Plainfield Asset Management is back in the news for their role in an alleged predatory lending scheme with a Colorado casino. I reported for Growth Capitalist this week investors in American Gaming Group sued the manager of Wildwood Casino for getting a sweet deal from hedge fund Plainfield to buy the millions in debt the fund held for a deep discounted price.

A breach of fiduciary duty claim was made because, Joe Canfora the casino manager hired by investors, allegedly bought the debt with equity warrants for himself with out telling the investors the opportunity was available. Canfora runs Merit Management and allegedly has a history of working with Plainfield and Innovation in the past. PFAM sale to Canfora put him in the lead as the top equity investor because of the warrants in the deal that enabled him to buy company stock for cheap. A move that shocked initial investors in the deal.

Growth Capitalist also highlighted the role of LA-Based Innovation Capital, run by Matt Sodl, who helped American Gaming Group raise over $50 million during the casino build out phase. One investor called the relationship between Innovation, Plainfield, and Canfora ‘the axis of evil’ because they felt the financial firms forced investors to put Canfora into the job who loaded it up with unnecessary debt and expenses. A move designed to make it a distressed company rip for a take over if you can buy the discount debt.

Plainfield, a once $5 billion fund run by Max Holmes, was forced to shut down and liquidate its investments early in the financial crisis. I previously reported for Greenwich Time and Dealflow Media that regulators and the Manhattan D.A. were investigating the fund for predatory lending along with securities violations. The fund managers have yet be charged with any wrong doing but did fight a bucket of civil lawsuits filed by small cap companies who borrowed money from them.

Canfora is believed to have not even put up the funds to buy the Plainfield debt. It’s difficult to pass the Colorado gaming board ownership standards and some investors have speculated if the true owner of Canfora’s equity stake is a member of one of the financial firms who did the original casino financing. PFAM had tried to make an equity investment in the casino during the build out phase but didn’t get pass the Colorado gaming board review.

The investor suit is currently in arbitration but Canfora hasn’t taken their claims lightly. He sued investor John Schaffer for defamation in Colorado state court after Schaffer spoke out during a public gaming board hearing last summer on Canfora’s questionable actions. The defamation suit was tossed out in December but Canfora still denies he has done anything to harm investors in his role as casino manager.

A wealthy Philly businessman recently hired Canfora to manage a new casino he won bidding rights on in the city of brotherly love. Canfora also up and quit the Colorado casino management job around the time the investor lawsuit was filed.

Retail Broker John Carris Investments Accused of Massive Fraud by Regulators

A New York City based retail broker is accused of running his firm rampant with stock manipulation and fraud. I reported today for Growth Capitalist that FINRA wants to shut down and impose hefty fines on George Carris, founder of John Carris Investments, along with executives with in his broker-dealer for a bucket list of nearly everything illegal a broker-deal could do to cheat main street investors and his staff.

John Carris Investments made headlines last year after former New Jersey Governor and failed MF Global CEO, John Corzine, was seen looking for office space to sublet in the firm’s office in the downtown Trump building. Corzine’s connection to the firm began when his investment manager in his family office, Nancy Dunlap, got involved in a private placement deal for an electric car. Dunlap was on the board of directors of AMP Holdings who hired George Carris’ firm to raise funds through a debt security called a PIPE. It’s unclear how much money was ever raised on the deal.

Carris stands accused of selling PIPE deals to mom and pop retail investors who are not accredited. If true, it’s a blatant violation of securities laws to sell debt instruments like this to non-sophisticated investors. On top that, his top lieutenants used the firm’s retail clients to make large buy orders in penny stocks in an effort to prop up the stock even though the clients had not ordered the stock buys.

Former staff says there were days they couldn’t trade because net capital limits were violated and bills were overdue with their clearing agent. Meanwhile, Carris would spend thousands on personal entertainment with the firm’s cash, according to the regulator’s complaint.

When retail brokers were fighting to keep their jobs after the financial crisis Carris got some bucks from his Dad to start the broker dealer firm in 2009 promising big bonuses and robust salaries to retail brokers who could bring in clients. When George decided the firm needed more cash, instead of natural revenue growth, they set up Invictus Capital and sold investor subscriptions into the fund through their retail brokers promising annual dividends off the revenue of John Carris Investments. Millions were raised but the first dividend payments were from new clients investing in Invictus. John Carris Investments was operating at millions in loss that year so it would have been impossible to pay real dividends as the offering documents said they would.

Growth Capitalist wrote, “In 2011, John Carris Investments operated at a net loss of $3,090,148 yet $39,342 of dividends were paid out during that year.” FINRA called those moves a Ponzi scheme.

Carris plans to fight the FINRA suit and is still running his firm at 40 Wall St. He would not comment about the litigation. It’s unclear how much capital is left within the broker dealer. The regulator said he also choose not to pay payroll taxes for his staff and owes the IRS around $600k.

FINRA quotes from mounds of internal firm documents it gathered and clearly did their home work building the complaint but this is not the first time Carris or others at the firm have had FINRA violations. Which begs to question how affective FINRA sanctions can be to protect retail clients. If all the evidence in their case is true I’d expect the justice department to come knocking on George Carris’ door sometime real soon.

The Other Side of Stevie Cohen’s Market Manipulation

The DOJ showed us they want to turn the world’s most famous hedge fund, SAC Capital, into the most notorious hedge fund when it filed criminal charges against the 1,000 person firm last week. SAC, which stands for Steven A. Cohen its founder, is accused of creating a culture where inside trading was encouraged for over a decade. This means traders who worked under Cohen got non-public material info about a public company and then went long or short the stock–while the rest of main street was clueless. The DOJ filed a long complaint detailing dates and time they think this happen at SAC but the Justice Department missed an element of seediness that happens within the outside hedge funds Stevie Cohen has invested his personal money in.

According to people who have worked within these seeded Cohen funds the alleged scheme works like this. The non-SAC fund hirs young traders anxious to get into a hedge fund and tells them what names to trade in and out of based on fund research. They are given long or short large buy orders and a day or two after the trade is made they watch it fall apart. That’s because according to traders who’ve been part of the transaction Stevie’s just moved into a sizable position against their trade and the edge he has with inside info proves to be the winning trade.

“We were just there providing liquidity for him. But I had to take the loss on my P&L,” said a trader on condition of he’d never get another job if Stevie Cohen knew he talked to me.

The non-SAC fund, which usually has additional outside investors, figures if the sucker rookie trader is any good they can make up the loss on another trade. This way they make their whale investor (Stevie Cohen), who usually own half the assets under management in the fund, really really happy. It’s kind of like the entry fee for getting Stevie to give you any money at all.

One such fund that’s allegedly done this in the past decade is Scout Capital out of New York. I know this from speaking with people involved in the fund at one time or another. When Scout was just starting out in the early 2000’s they had less than $1 billion of aum and half of it came from Cohen. The Scout founders, Adam Weiss and James Crichton, never worked for SAC Capital (according to their company bios).

“If the intent is to wash trades or manipulate the market, then “NO” it’s not okay,” says Bill Singer former FINRA enforcement lawyer when asked if the scheme was legal. “If he (Cohen) is merely segregating short trades in one subset of accounts and longs in the other, it’s not that an uncommon use of subaccounts albeit via a hedge fund platform.”

Except in the above example this isn’t a ‘subaccount’ of SAC that is being used. It’s a totally separate fund that Stevie doesn’t have a investment advisor role in. So for the DOJ to use this ‘wash trades’ behavior to charge Cohen personally they’d have to get someone at one of these non-SAC funds to flip on the mafia-like hedgie fund titan. And while that might be the DOJ’s teenage fantasy it’s been as impossible as getting Kate Upton to do a full Penthouse spread.

The DOJ stopped short of sending Stevie Cohen through a perp walk himself when they charged his firm on July 25th. When I was on the scene last Thursday there weren’t FBI agents handcuffing the two-story water-side building on the edge of Old Greenwich, Conn. The justice department, who says it wants to seize any and all money SAC made with inside trades, didn’t even ask a court to freeze the funds assets. A call around to broker dealers who trade with SAC shows they are sticking by the firm. Just think if the hedge fund giant beats the DOJ or SEC case then the broker dealers would have given up millions in fees from SAC and likely be put on Cohen’s blackball list. So if the governments plan it to totally scare the rest of The Street from enabling SAC to stay in business it isn’t working.

I’ve written before the DOJ has had a hard on for Cohen for some time now. But to make it a really good humpty dumpty (see explanation number 2), the DOJ’s top dog Preet Bharara will need a lot more dirty evidence (like Stevie doing wash trades) to put Cohen in serious pain.

EDITOR NOTE: I didn’t bother calling SAC’s overpaid outside press Jonathan Gashalter for comment because he’ll just deny it’s even thinkable for Stevie to do this. But I think it’s totally possible so I reported it.

China Stock ZST Planned “Go Dark” Scheme to Cheat U.S. Investors

UPDATE 6-3-13: I reported for Growth Capitalist today that the firms who ZST went to for their ‘go dark’ plan in 2011 were Scorpion Capital and Global Hunter Securities.

Original Text
A wealthy businessman from New Canaan, CT is single handedly taking on a China company, ZST Digital, that gutted U.S. investors who bought into its NASDAQ-exchange traded stock. Peter Duetsch, who owns a New York-based wine distribution company, has watched U.S. regulators stand by and do nothing to go after the China reverse-merger companies and the boiler-room American investment firms that promoted their now worthless stocks. So after he saw ZST simply stop filing financial statements in a move to ‘go dark’ he asked his long time business lawyer David Graff to use the Delaware Courts to inspect what really happen. What he found made his blood boil.

I reported for Growth Capitalist on Thursday, the court appointed receiver, Rob Seiden of Confidential Security and Investigations, pulled off a move no one has witnessed yet in the aftermath of Chinese reverse-merger frauds. Seiden got control of ZST’s parent company assets and bank accounts in China. He found this company is sitting on tons of money and not in dire straights. So why did it stop filing financial statements with U.S. regulators and make its company seem to have gone out of business?

I reported messages recovered on ZST’s CFO cell phone during a raid of his home show the company was allegedly working with a few U.S. investment firms in a scheme to depress the stock and then buy it back for cheap and take it private. Apparently we now have Wall Street types helping the Chinese raise money from main street investors and then say screw you to U.S. securities laws because they think the long arm of the American law can’t reach them in China. But Deutsch said, “I can’t let them do that to us” and used a bulldog private eye, Seiden, to attempt a global take down of these alleged foreign cheaters.

Deutsch, who has gotten the Delaware court to say he’s owed $32 million by ZST for his 3,431,370 shares in the company hasn’t gotten his money back yet but my report at shows how close he is. Last week Seiden even found the ZST owner in China was so bold, he moved cash out of the company into his personal bank account in the last 30 days while litigation was ongoing. That’s fraudulent conveyance, which could be litigated against the CEO personally in a China court. And you bet Deutsch is going to try to use that info to get the company to pay up on the U.S. court ordered claim.

Attorney David Graff told Growth Capitalist, “Based on a review of assets we seized, and our own investigation in China, we think we’ll be able to show ZST has $75 million to $100 million in cash.”

This wasn’t the only China reverse merger stock Deutsch invested millions in. Financial journalist Roddy Boyd questioned why a small time investment advisor firm in New Hampshire, run by Carol and David O’Leary, was putting Deutsch’s millions into these China stocks after research reports came out advising investors of problems in their SEC filings. Boyd’s story questioned why Deutsch was going long in barley collapsed companies–it’s not like Deutsch was a professional investor. Deutsch’s attorney, David Graff, says his client just trusted the audited financials statements filed with the SEC. But I haven’t been give an on record reason from Deutsch on why he spent so much money in these risky China stocks.

What I do know is if Deutsch, Graff, and Seiden pull off this international take back expect more U.S. high net worth investors to use private eyes and civil litigation to hit the wallets of China company CEO’s who screwed them over on reserve merger stocks and not wait for the likes of the SEC to fight for their investor rights.

To follow the outcome of the case check out my reporting at

Hedgie T.Boone Pickens Son Fights Back: Counter Suit Says Dad Stole Money From Him

This story has been updated with the results of the anti-SLAAP hearing. See bottom of Story.

The Texas oilman who sued his son for invasion of privacy after he wrote a tell-all blog about T.Boone Pickens parenting problems is now facing a counterclaim suit for millions. Michael Pickens filed a lengthy and detailed list of claims against his famous millionaire Dad for allegedly taking control of assets and funds that Michael owned. Michael’s attorney Collin Porterfield also filed an amended motion to dismiss Boone’s suit claiming their new ‘extortion’ claim is utter nonsense and not even legal for Boone’s attorneys to try to claim because of some legal reason about the negotiations being private and not allowed to be litigated.

Michael’s counterclaim suit alleges Boone and another unnamed person forged Michael’s name on a U.S. Treasury tax refund check of $138,000 in 1988 and Boone took the money. Michael writes he sued the bank that cashed the check and they wanted to settle for $450,000. The lawsuit says Michael’s oldest sister, Deborah (who is not currently suing Mike with the rest of his siblings and dad), talked him out of taking the settlement because it would hurt Boone who had indemnified the bank against any losses. The tax return was from a cattle feeding operation Michael had run that appears to be set up by his Dad’s attorneys. And that’s only one of the explosive financial shenanigans in the suit that Michael and his Dad allegedly went through.

To back up Boone libel/defamation suit he has to show some kind of motive that his son had intent to defame him or maliciously lie about him in his blog. The second legal team Boone hired came up with an extortion claim because Michael and attorney Porterfield had private settlement negotiations about taking down the blog and giving up book and TV rights to the tell-all family story in exchange for a $20 million payment from Boone. Porterfield told me Mike estimated his dad at taken about $17 million with interest from him over his lifetime and Porterfield rounded up the number to $20 million adding in possible book/tv revenue. The problem is the extortion claim could be hard to prove on Boone’s part because as I reported earlier Michael had written his addiction ‘recovery story’ a few years back and never asked his Dad for money to take it down. Boone didn’t even notice it for a long time and it was Boone’s divorce attorney, McShane, who approached Michael for a settlement. The whole case reads like a season of the popular 80’s TV show DALLAS.

Tomorrow at 2pm in Dallas, in Texas state court attorney Porterfield and Boone’s attorney will argue if this case should be certified an anti-slap suit. Which means the suit would be considered frivolous if Boone can’t prove his defamation, libel, and extortion claim and Boone would have to pay his son’s attorney fees. Right now Porterfield isn’t getting paid by Michael because Michael can’t afford to pay Boone’s costly legal attack. Apparently Boone’s thought he’d win this whole case early because he knew his son couldn’t pay a lawyer and was taken off guard when Porterfield showed up to fight for Michael’s first amendment rights.

Instead of silencing his son, T.Boone has open a can of worms as Michael filed even more public documents about their sordid family past including a Christmas letter from Boone begging his adult kids forgiveness for kind of being a screwed up Dad. The letter written to his five kids, and signed by Boone on December 23rd 1999, was filed yesterday as exhibit 8 in Michael’s affidavit.

Boone writes, “You should know I’m taking responsibility for my part in the dysfunction of this family….This letter is to ask for your forgiveness. I am sorry for any hateful and angry words, the lack of patience, and the message of unacceptance you often felt. I know there times I left you down and I am sorry.”

Michael also stated in his affidavit that he never wrote Boone sexually abused him like Boone claimed in his suit. He does stick by his physical abuse claim because he was punished with a belt and whipped in his childhood. As far as Boone being an addict, Michael clarifies he’s talking about his father’s addiction to trade equities and commodities but also believes his Dad does drink a lot. There’s a lot more juicy family history in the counterclaim, which you can read below.

Stay tuned as we’ll see if the court rules in favor of Michael tomorrow and if Boone starts to talk real money settlement as a result. Personally I think it would be a disservice to the public if Michael’s blog was taken down as it’s a voice to addiction recovery success and also some really entertaining reading.

UPDATE 5-18-2013: Boone’s attorneys were able to convince Judge Parker that most of their claims should survive. The judge did throw out the ‘violations through harmful access by a computer’ claim. This claim related to Michael using social media and twitter to send out links to his story. His sister Pam was also trying to use it to hold Michael accountable for the group email sent to her friends and bosses at Morgan Stanley saying she was using her mother’s illness to drum up business; sent by a person calling themselves Robert Barris. What that means is Boone or Pam will have to pay Michael’s attorney fees for litigating that claim.

Boone’s suit now centers on accusations of invasion of privacy by disclosing private facts publicly, common law defamation, libel and intent to inflict emotional distress through extortion.

Judge Parker questioned if Michael speaking about what happen to his siblings at the hand of Boone can link to Michael telling a story about his addiction being a result of abuse that happen to him by his dad. Parker said in court, “If Mike Pickens wants to say his childhood experiences caused his addiction , what right does he have to tell the world private things that might have happened to his siblings? I am trying to figure out how those are not a gratuitous pile-on.”

Attorney Porterfield told Judge Parker, “To the extent the family is insulted, that’s not necessarily actionable.” Then Boone’s attorney Leland de la Garza argued just because a family controversy is interesting to the public that doesn’t make it a public issue.

It sounds like Parker wants to hear the plaintiffs, Boone and three of his kids, prove Michael’s statements about the family are not true before she throws out any more claims.

But continuing this suit in court isn’t necessarily a negative for Michael since he filed a counterclaim Boone can’t dismiss that and has to litigate all the claims his son made about this Dad taking money from him through stock transactions and other means. Boone could end up having to pay his son for those claims if the court finds them valid which is not anywhere near Boone’s goal to silence his son’s speech.

Attorney Porterfield said he will appeal Judge Parker’s decision to allow the other claims and not apply the anti-slaap law to them. So right now Boone will be throwing more big money to try to stop his son writing about the family on the blog, Michael gets to keep writing it and isn’t spending any money on legal fees to defend the suit. And if they get through the whole family’s depositions more embarrassing history will be recorded in the public record. Sounds like Boone is about to indirectly pay for all the research if someone wants to write a T.V. movie or book about the dirty details of his family.
External resource for help with addictions

Declaration of Mike Pickens

New Canaan’s The Tuscan: Cash Crunch & Sex Den Rumors Led to Rich Chef Failure

UPDATE 1-14-14: Marc is apparently still having money troubles. This time he was arrested for credit card fraud. The Darien Times is reporting he gave the local cops a digital road map to find who was responsible for withdrawing cash from a women’s account when she left her card transaction unfinished at the Darien Stop and Shop. Oh Marc….

UPDATE 6-19-13:The state of Connecticut has caught up with Marc Minella’s bad check writing and he’s been charged with a low level class D felony because he wrote a $5,000 check for gas for his New Canaan restaurant in December and it bounced. Then he blew off his court date and this week was arrested again for failure to appear. What’s odd is Marc’s father, who is an investor in his restaurant, is a millionaire and could have paid the gas bill. Instead it appears he’s letting Marc have to deal with the mess left behind when The Tuscan shut down.

Original Text
A restaurant closing in New Canaan has led to drug and sex rumors, backstabbing, and high finance types in a dirty fight over money – a story that has one of the country’s wealthiest suburbs questioning what really happen. The Tuscan, run by chef co-owner Marc Minella suddenly shut its doors last month after a wild ride of opening success which included a top New York Times review. Residents have been speculating it was a drug raid or asset seizure that shut it down and are dumbfounded how this hot spot funded by Wall St financier David Minella couldn’t survive.

Through court records, business filings, conversations with restaurant staff and sit down interviews with Chef Marc Minella (age 35) and his former partner James Dadio (age 43) I’ve untangled a story of a chef’s dream gone horribly bad; squashed by local politics, his own hubris, and a father who never instilled fiscal responsibility.

The Tuscan opened in the fall of 2010 and was instantly packed with monied patrons thrilled to have a new place in town with great food and a lively scene. Its after dinner night life via live bands, big ticket wines, and $40 creative fusion food made you feel decadent. A 4,000 square foot former furniture store had been turned in to a sexy swingers den; according to court records $1.7 million was spent building the space out. Chef Marc, who has a trust fund, became a 7.5% owner and the master butcher he teamed up with, James Dadio, owned a little over 11%. Dadio says he put $154,00 into the restaurant’s capital; Marc says it was $111,000. This left Marc’s father and Darien resident David A. Minella with 80% ownership. Minella senior has owned a few asset management firms dealing in corporate buyouts and restructurings leaving him a double-digit millionaire in his early 60’s. Buying companies and getting the most out of moving around assets to increase a stock price he’s good at – helping his son understand how to not overspend and run a profitable restaurant not so much.

Marc, who had spent a few years with his new wife working in restaurants around Florence Italy, was allowed to build his dream kitchen spending at least $300,000 and it took up more space than the dining room. His sous-chef was paid $75,000 a year (more than average for Fairfield County restaurants) and Marc and James agreed to pay themself $1,500 a week. James ran the butcher and meat shop upfront helping to sell customers on pricey aged beef during the dinner rush. Marc hired interns and a full staff to get his NYT rated ‘worth it’ food ready for his Wall Street customers. While the small dining room was often packed at the start covering the hefty rent was hard. Recent court records filed by the landlord show for the 1st two years The Tuscan would pay New Canaan Republican operative Wadia $14,500 a month plus utilities and taxes that added on another $3,000 per month. After two years the rent went up to $14,935 with a cap of $18,000 towards the end of the 10 year lease. Dadio said payroll was around $10,000 a week but in all practically purpose he and Marc never issued paychecks to themselves. Wait staff was paid their nightly tips only every two weeks basically giving the restaurant a bridge loan.

A theme of heavy drinking happen while on the job as you’d see bartenders drinking on the dance floor with patrons. Their first thanksgiving weekend college students in New Canaan took over the place leading to a smashed high-def TV and girls throwing up on the dance the floor – but Marc told James ‘Hey at least we brought in $5,000 in liquor sales for the night’.

Rumors started to spread earlier that the town’s drug sniffing dog, Zira, was making visits into the place at night and you’d see New Canaan PD parked across from the restaurant just hanging out. Marc had a known drinking problem with some cocaine use on the job and had been to rehab a few times, according to multiple restaurant staff, but substance programs were also court recommended for his partner James Dadio.

The co-owners along with multiple staff interviewed for this story say drugs were never trafficked/sold from the place and a check of Stamford’s DEA records show no such raids. Minella says he actually hired the New Canaan cops to hang outside the restaurant after the first thanksgiving madhouse to make older patrons feel comfortable. Unfortunately it just fueled more rumors.

Word had gotten out that there was a secret sex room downstairs. Two bartenders I interviewed said couples in there 30’s and 40’s or married men in town would come in asking to get into ‘the room’ thinking there were escorts on the premise ready for paid action. One bartender who was there from the start said she’d see men coming in alone trying to tip her hundred dollar bills to get into the room saying ‘they were having trouble at home and really really just needed it for the night’. The bartender said some customers just couldn’t believe it wasn’t real.

“Customers might have had sex in the bathrooms but there were never prostitutes on call for customers nor was there a room with a bed hidden on the premise,” said Chef Marc shaking his head with a laugh during our interview at Sushi 25.

Still the restaurant couldn’t stop the rumors or the town’s politicians from reacting. Staff have confirmed one ex-employee even called the New Canaan Fire Marshall to report people were sleeping at the restaurant but when the Marshal came at 3am they found no one.

James and Marc business relationship didn’t last long. James had been arrested for harassment and threatening with his former business partner at Greenwich Prime Meats-a case that’s still on going were he plead not guilty. Within three months of the opening James was signing documents to end his partnership. Marc says they fired James, James says he quit after Marc was on a cocaine bender and came after him with a knife one night. But James says his core reason for getting out was watching his investment get wasted on poor restaurant management.

Marc’s father David wasn’t a silent investor when James was there. Every Thursday night David would make them have meetings trying to figure out how to cut cost. The Minella’s even suggest taking 10 percent off the top of the employees paychecks, hoping they wouldn’t notice, but James and the restaurant manager stepped in to warn that would be illegal. Mario Batali’s New York restaurant was sued for doing something similar and had to pay $5.2 million to staff he’d siphoned tips off.

The Minella’s ended up offering James only $36,000 as a return to capital three months after the opening. He took it with hope to open up his own butcher shop in town. But even though Marc’s father had millions of his own he waited nearly a year to get James his cash, which was used to open Manero’s Gourmet Ally around the corner on Elm St (it’s now closed).

In the meantime James extracted a bit of his own revenge. According to a text message he sent Marc – James made an anonymous call the town’s heath inspector squealing that Marc had a busted hot water heater yet was still serving. A. Briggs Geddis, the town’s Director of Environmental Health, showed up in mid-March 2012 and told Minella he had to shut down till he got it fixed. Marc had already ordered a backup and had it working the next day but somehow town politics took over. Mr. Geddis didn’t come back the next day, a Friday, to see how it was working. Instead he claimed red tape and wouldn’t be available till after the holiday weekend – forcing wait staff and bartenders to lose out on good tips during March Madness. Marc admitted in our interview Mr. Geddis kind of had it out for him since the beginning because he’d mouthed off to him during the opening inspection. Geddis and the town have refused to comment over the incident.

The shutdown made headline news in the local Patch – a gossip rag who focuses on page views. It was enough to scare off patrons for a bit. Meanwhile Marc was faced with a nasty divorce. His pretty blond wife from Mass. of over five years had taken off with their 1 year old daughter and a c-class Mercedes bought for Marc via a loan from his Dad just days before his birthday. She got a protective order against Marc in Mass. by claiming residence with her parents in Duxbury, Mass. In March 2012 a financial statement filed by Marc in Stamford family court claims he is only making $500 a week and has $672 in weekly expense. He starts to pay barely $100 a week in child support but then a judge stepped in with a different view. Court transcripts show the judge has questions about cash that isn’t booked in the business and ordered Marc to pay $300 of the $500 he says he’s making a week. (Former bartenders who worked with Marc say his personal bar bill a week is $500)

Minella's Happy Years Before The Tuscan

Minella’s Happy Years Before The Tuscan

The $35,000 car his wife, Kinsley McGrath-Minella, basically stole, was ordered by the court to be parked and not driven as the judge said this was one of the only financial assets the couple had. The judge also made reference that it didn’t make sense to put $1.7 million into a risky restaurant business when you could invest it and make 4% on a mutual fund. (The judge clearly hasn’t seen recent returns in the market) The couple had been living in the maid’s quarter of David Minella’s mansion on Hollow Tree Ridge Road in Darien which borders New Canaan. The 8-bedroom, 7.5-bath, 10,000 sq ft home is estimated to be worth around $6-7 million.

Marc had another problem in March 2012 when he was at his Dad’s $2 million Naples Fla. home. He was arrested for high speed driving and a DUI. His mug shot shows a black eye so it looks like there was an accident. Marc was due for his criminal trial on January 3, 2013 but didn’t show up. A bench warrant was issued by Colliers County, Fla. along with a D6 suspension of his drivers license. Florida isn’t likely to spend the money to extradite him so it’s doubtful he’d be jailed when he shows up in Stamford civil court for his divorce trial on February 27th. Although a Florida criminal lawyer I interviewed said Florida’s real recourse is if he gets pulled over while driving in Conn. and a cop takes him to jail after seeing the out-of-state bench warrant. Of course Marc could fly down to Florida and make a plea deal- but at press time that hadn’t happen.

DUI Arrest 2012 - Florida

DUI Arrest 2012 – Florida

Cash flow at The Tuscan wasn’t great in 2012. They shut down for a month building out a brick oven pizza bar where parts of the high-end butcher shop had been; but customers were not packing it out when they reopened in September. After that Daddy wasn’t willing to put any more money in. Meanwhile the landlord started to get stiffed– in October rent wasn’t paid. One of the guys in the butcher shop had health insurance taken out of his pay check but when he went to the doctor he was told the premiums hadn’t been paid for months. For at least the last month The Tuscan was open, staff confirmed their pay checks were bouncing. They’ve told me they’ve consulted a lawyer now to see if they can file an employment lawsuit.

With three months of unpaid rent The Tuescan’s landlord Wadia filed suit in Norwalk housing court and was award a lien on their expense restaurant equipment for damages of $57,663. A copy of the lien was filed with New Canaan’s town clerk. Wadia had a marshal serve lien notices to the restaurant for a cost of around $600. Marc says the marshal came in and placed stickers on the equipment the court had ordered a lien against. The chef also said he was still allowed to use the equipment and nothing was taken out of the restaurant by the marshal. Not having enough cash in the business to pay his staff was the real reason Marc claims they finally closed for good in January.

Chef Marc called an employee meeting in January to explain the closing but when he didn’t show up the staff took out their frustrations from having their paychecks bounced. According to people at the meeting expensive bottles of alcohol and other items in the restaurant were taken.

The landlord’s lien is likely not going to hold water because David Minella was one step ahead of the restaurant’s landlord. UCC filings with the state of Connecticut show he had already placed a lien against the restaurant assets in April 2012 via MDM Investors Group. The Minella’s plan is to fight Wadia’s lien in housing court because their UCC lien is in a first position. MDM are Marc’s initials and the Investor Group is a separate LLC from the restaurant LLC called MDM Restaurant Group; although both list a business address of 814 Hollow Tree Ridge Rd Darien CT – Minella senior’s home.

Marc appeared concerned about his staff not getting paid and explained in our interview they’d be first to get cash after a bankruptcy is finalized. The staffers who know the restaurant’s largest investor, David Minella, has deep pockets don’t want to wait for lengthy bankruptcy. Wadia is trying to ask even more for rent now, (around $20,000 a month according to Marc) to fill the space with a new restaurant but if the Minella’s drag out a bankruptcy we could be seeing another vacant space in town for quite a while.

Chef Minella says he plans to stay with cooking and is trying to find chef jobs in New York. New Canaan never got their underground sex den hangout and there is still no live music in town; but a bunch of restaurant vendors and staff are left with empty pockets while Marc Minella hangs in his Dad’s McMansion without the wife and kid.

Landlord Lien

Landlord Lien