VNUE, Inc. (OTC: VNUE), a Microcap national music tech innovator, filed a lawsuit in the United States Federal District Court for the Eastern District of New York last week against Power Up Lending Group, LTD and founder Curt Kramer. VNUE accuses the plaintiffs of breaking Securities and Exchange Commission (SEC) laws, alleging they are a “death spiral” or “toxic lender,“ an unregistered securities dealer that sells convertible market adjustable securities products to small public companies—businesses that are often struggling to raise capital.

Over the past two years, there has been an uptick in SEC enforcement actions against unregistered dealers that provide toxic financing by purchasing toxic convertible notes from small public companies. The SEC has been stepping up its enforcement against entities and individuals who purchase convertible promissory notes from public companies such as VNUE and then convert those notes into stock and sell that stock into the public markets. When a company does this as a business, it is acting as a “dealer” as per the specific language in the Exchange Act, Section 15(a) of the Securities and Exchange Act of 1934, which requires registration as a dealer.

VNUE alleges Power Up Lending Group, LTD & Kramer are indeed “toxic lenders” operating as unregistered dealers because their agreements included specific provisions that usually result in securities transactions that harm small businesses, and especially target penny stock market companies trading on the OTC Markets, which is much less regulated than NASDAQ or the NYSE.

The defendants are accused of targeting numerous penny stock issuers that had either experienced large trading volumes or had the potential to have such trading volumes. VNUE claims the defendants could then “easily convert and quickly sell the shares after the required six-month holding period.”

In court documents, VNUE alleges the plaintiff is a “toxic” lender, and “from at least 2015 through the present, Kramer and Power Up^[1] bought and sold billions of newly issued shares of microcap securities (i.e., penny stocks)—and generated millions of dollars from those sales—but failed to comply with the mandatory dealer registration requirements of the federal securities laws.”

The lawsuit states Power Up Lending, from 2015 to 2021, engaged in more than 612 securities transactions and “converted and sold over 5.2 billion shares of stock, generating tens of millions of dollars in gross stock sale proceeds, with many other securities transactions through convertible notes and other market adjustable securities still outstanding” for their own accounts.

In a statement, VNUE CEO Zach Bair said when his OTC company “took these notes, we did so reluctantly, because we had no other funding source at the time, and it was either that or be unable to execute our business plan. The intent was always to pay them off rather than have them convert to shares. But it was only recently through the SEC enforcement actions that we learned that our transactions may have been unlawful because the defendants were alleged to be unregistered dealers, taking advantage of dozens of small companies like ours, and likely breaking the law in the process.”

Recently, the SEC has commenced several enforcement actions against numerous toxic funders acting as dealers claiming they were not registered as a broker or dealer with the SEC nor belonged to an SRO, a self-regulatory organization, such as the Financial Industry Regulatory Authority (FINRA). If a lender’s business engages in securities transactions without proper registration, they violate securities laws, and their financing agreements will be void, according to 15 U.S.C. § 78cc(b) and Section 29(b) of the Exchange Act.

Prior SEC cases enforcing action against similar “toxic” companies include SEC v. John D. Fierro and JDF Capital, Inc.; (SEC v. Justin W. Keener, d/b/a JMJ Financial and SEC v. John M. Fife, Chicago Venture Partners, Iliad Research and Trading, St. George Investments, Tonaquint, and Typenex Co-Investment, to name a few.

VNUE attorney Mark R. Basile, Esq. said, “It’s time that small public companies started standing up for themselves and their shareholders by actively seeking judicial review of these types of transactions, and if warranted, the return to these companies of the stock or the stock’s cash value that may have been unlawfully taken. VNUE’s claims are legally consistent with those of the SEC in other similar cases as the behaviors and violations are potentially the same. The only differences are the remedies.”

VNUE is seeking rescission of the agreements with power Up Lending, LTD, to be deemed null and void, stating in the lawsuit that these “agreements are patently unlawful, as they were made and subsequently performed in violation of Section 15(a) of the Securities Exchange Act of 1934 (the “Act”). Plaintiff seeks rescissionary damages equal to the gross proceeds Defendants received from the sale of Plaintiff's stock, less the amounts advanced by Defendants to Plaintiff, attorneys’ fees, and any and all other relief that the Court deems just, proper, and in the interest of justice.”

_{1 Power Up is the primary defendant in this action, but several other commonly owned and controlled entities associated with Power Up include KBM Worldwide, Inc., Vis Vires Group, Inc., Redstart Holdings Corp., Geneva Roth Remark Holdings, Inc., Mazuma Holding Corp., Asher Enterprises, Inc., and Hope Capital, Inc. (collectively referred to as “Related Entities”).}