Litigation Release No. 24811 / May 5, 2020
Securities and Exchange Commission v. CAN Capital, Inc., No. 1:20-cv-03463 (S.D.N.Y. filed May 4, 2020)
On May 4, 2020, the Securities and Exchange Commission filed charges against small business lender CAN Capital, Inc. for misleading investors in an offering that raised $191 million.
According to the SEC’s complaint, CAN Capital’s offering involved the securitization of a revolving pool of merchant cash advances and small business loans. The complaint alleges that CAN Capital disclosed to investors that it was required to maintain a minimum amount of receivables in the revolving pool, which included writing off delinquent accounts and replacing them with performing assets. According to the complaint, however, CAN Capital failed to disclose its practice of granting forbearance, known as grace days, to certain accounts unable to make loan payments. The complaint alleges that these accounts often remained as collateral for the securitization, even as they became non-performing. By November 2016, CAN Capital’s collateral for the securitization allegedly contained millions of dollars of non-performing assets that should have been removed from the securitization, which resulted in losses to investors.
The SEC’s complaint, filed in the U.S. District Court for the Southern District of New York, charges CAN Capital with violating the antifraud provisions of Sections 17(a)(2) and (3) of the Securities Act of 1933. Without admitting or denying the SEC’s allegations, CAN Capital has consented to permanent injunctive relief. The settlement is subject to approval by the court.
The SEC’s investigation was conducted by William Finkel, Joshua Brodsky, and Daniel Nigro, and supervised by Osman Nawaz and Daniel Michael, all of the Complex Financial Instruments Unit, with assistance from Alistaire Bambach.