iStockphoto / Jerry Habraken, Delaware News Journal, Delaware News Journal via Imagn Content Services, LLC
A company that purchased the intellectual property of defunct retailers RadioShack, Pier 1 Imports, Dress Barn, Modell’s Sporting Goods, Brahms, Stein Mart, Linens ‘n Things, and The Franklin Mint, now stands accused of doing something very shady. That company, Retail Ecommerce Ventures (REV), is now being sued by the Securities and Exchange Commission (SEC), which claims the company defrauded its investors out of $112 million using a Ponzi-style scheme.
According to the SEC complaint, filed on Tuesday, “From approximately April 2020 through November 2022,” Taino Lopez and Alexander Mehr, co-founders of Retail Ecommerce Ventures LLC and REV’s Chief Operating Officer, Maya Burkenroad, raised approximately $112 million “through the fraudulent offer and sale of securities issued by eight REV portfolio companies managed by REV” with the bogus promise of 25% annual returns. They also promised equity in the business with a monthly preferential dividend as high as 2.083%, as well as a full recovery of the investor’s initial investment by the end of the specified term (from 1 to 7 years).
REV also assured, both orally and in writing, that it had never missed a payment to a single investor. The SEC complaint alleges that “while some of the REV Retailer Brands generated revenue, none generated any profits” and that the defendants knew that, from at least early 2022, interest payments were not being made.
So, in order to pay interest, dividends and maturing note payments, they used of loans from outside lenders, merchant cash advances, money raised from new and existing investors, and transfers from other portfolio companies to cover the payments. They also are charged with misappropriating approximately $16.1 million in investor funds, which was diverted for Lopez’s and Mehr’s personal use.
A gigantic, tangled web of deception
“During weekly investor Zoom calls and at in-person meetings with investors, Defendants Lopez and Mehr – who did most of the talking during the Zoom calls and at in-person meetings – pitched new investment opportunities by touting the purported success of the previous offerings,” the SEC lawsuit reads. “They claimed that REV and the REV Retailer Brands were performing well, without providing any specific financial information about the companies or disclosing any concerns about any of the companies’ performance.”
Following one call, Lopez claimed that Dress Barn and Stein Mart were “on fire” and “cash flow is strong,” that “there are plenty of public companies operating at heavy losses” but that’s “not us.” Internal financial statements for Dress Barn, which were never shared with investors, actually showed that the company had experienced losses of nearly $13.7 million in 2020 and $10.7 million in 2021. Stein Mart financials showed the company had net losses of nearly $1.7 million in 2020 and $5.7 million in 2021. (RadioShack was eventually sold by REV and is currently owned by Unicomer Group which has no ties to REV.)
REV executives also lied about their qualifications on the company’s website. Burkenroad was listed as having “over 10 years of experience managing multi-million-dollar companies”,” when the reality was that she had “worked as a substitute preschool teacher, a promoter at a radio station, as an assistant to her cousin Lopez in his online education company” prior to becoming REV’s COO.
The SEC complaint laid out exactly how much money was supposedly raised by REV for each company. $1.2 million for Linens ‘N Things, $5.9 million for The Franklin Mint, $8.7 million for Modell’s Sporting Goods, $11.4 million for Dress Barn, $12.9 million for Brahm’s, $14.2 million for Stein Mart, $21.2 million for RadioShack, and $36.7 million for Pier 1 Imports.