Cardis Enterprises Falsely Claimed it Could Cut Costs for Small Businesses
New York Attorney General Letitia James today announced she has secured default judgments in a securities fraud lawsuit against a host of entities and individuals associated with Cardis Enterprises International, Inc. for defrauding investors out of at least $30 million.
“Individuals who sell false promises and commit fraud will be held responsible for their misdeeds,” said Attorney General Letitia James. “We will continue to seek justice for small business proprietors who fall victim to the greed of those intent on breaking the law. New Yorkers can rest assured that my office will always fight to hold companies that aim to defraud investors and tarnish the name of honest businesses accountable for their lies and deceitful actions.”
Cardis, a now defunct Long Island-based technology startup, claimed to possess patented and proprietary technology that would make low-value credit card transactions less expensive for merchants. Historically, low-value credit card transactions have posed a problem for merchants because they include a fixed fee — regardless of the size of the transaction — which has had the effect of severely depressing margins. But Cardis raised tens of millions of dollars from investors in stock sales and loans through a steady drumbeat of false representations, including: 1) that it was on the verge of monetizing its technology through partnerships with prominent companies and 2) an initial public offering (IPO) or buyout of Cardis was on the horizon.
In fact, many of Cardis’ purported partnerships did not advance beyond preliminary discussions, and there was never an IPO or buyout ever actually on the horizon. Cardis even failed to maintain basic books and records, making the notion of an IPO or buyout impossible.
In December 2018, the New York Attorney General’s Office filed suit against Cardis and company personnel Aaron Fischman, Stephen Brown, Steven Hoffman, and Seth Rosenblatt for participating in the fraudulent marketing of Cardis to investors. The complaint further alleged that, while Cardis was raising significant investor funds, Fischman was fraudulently diverting much of the proceeds to enrich himself, family members, and his favored charities. Additionally, the complaint alleged that Lawrence Katz — Cardis’ in-house attorney — aided in Fischman’s theft and diversion of investor funds from the company’s principal bank account, which was an Interest on Lawyer Account (IOLA) in the name of his law firm.
Last week, Attorney General James secured default judgments against Cardis and a number of Cardis-related entities, including Choshen Israel LLC, a company controlled by Fischman. Attorney General James also secured default judgments against a number of Fischman’s relatives, including Nina Fischman, Rafaela Fischman, Alexander Fischman, Anne Shimanovich, and Ethel Weissman — all of whom were personally enriched through Fischman’s fraud.
Prior to filing the lawsuit, the New York Attorney General’s Office entered into an assurance of discontinuance with Cardis’ then-current Chief Executive Officer Jonathan Nierenberg. Under the assurance of discontinuance, Nierenberg agreed to cease working for Cardis (or any affiliated entity) and to refrain from participating in any business activities related to Cardis, except for the winding down of the company. As part of his settlement with the New York Attorney General’s Office, Nierenberg incurred a monetary penalty of $100,000 and was barred from participating in the securities industry for five years.
The case remains ongoing with several motions pending, including a motion for leave to amend the complaint to re-plead claims against Brown (who was previously dismissed from the case) and the remaining defendants.
The investigation of Cardis was prompted by investor complaints to the Investor Protection Bureau in the Office of the New York Attorney General. Those with information about possible investment fraud are encouraged to submit a complaint online. Additionally, for those who wish to report fraudulent conduct without compromising their identity, the Office of the New York Attorney General launched a secure whistleblowing system — the N.Y.A.G. Whistleblower Portal — that allows for the simple and secure transmission of information and two-way anonymous communication.