RICO and Criminal Usury Revived: Lessons from DarkPulse v. EMA and VNUE v. LG Capital

Two decisions out of New York federal courts—DarkPulse, Inc. v. EMA Financial, LLC, 2023 U.S. Dist. LEXIS 33994, at 1 (S.D.N.Y. Mar. 1, 2023) and VNUE, Inc. v. LG Capital Funding, LLC, 2024 U.S. Dist. LEXIS 58931, at 1 (E.D.N.Y., Mar. 30, 2024)—are reshaping how courts treat convertible loan instruments (securities) under criminal usury laws and expanding the scope for civil RICO claims based on “unlawful debt.”

Together, these rulings signal a turning point in how aggressive, small-cap financing arrangements—often involving deeply discounted convertible notes—are scrutinized under both state and federal statutes.

The DarkPulse Decision: A Landmark Decision in S.D.N.Y.

In DarkPulse v. EMA, the plaintiff entered into a convertible promissory note with the defendant, which allowed the defendant to convert debt into equity at a 30% conversion discount to the market price.  Over a series of conversions in 2019 and 2020, the defendant received over 567,242,000 shares of the plaintiff’s common stock.

Plaintiff alleged that the total interest charged under the note not only exceeded New York’s 25% limit, but exceeded more than double New York’s criminal usury threshold, which amounted to a RICO violation that is predicated on the collection of unlawful debt.  The defendant moved to dismiss.  Judge Lorna G. Schofield denied the motion related to the RICO cause of action, holding that the complaint plausibly alleged that the note was criminally usurious and a RICO violation.  See DarkPulse, Inc. v. EMA Financial, LLC, 2023 U.S. Dist. LEXIS 33994, at *11-15 (S.D.N.Y. Mar. 1, 2023).

By allowing the RICO claim to proceed past the pleadings stage, the DarkPulse ruling underscores the judiciary’s growing willingness to treat convertible securities as unlawful funding schemes.

The VNUE Decision: The E.D.N.Y. Aligns with S.D.N.Y.

Shortly after DarkPulse, the Eastern District of New York weighed in with a parallel ruling in VNUE v. LG Capital Funding.  In VNUE, the defendant extended a $52,500 convertible note to plaintiff, which was later converted into stock worth roughly $156,000—resulting in an effective interest rate far in excess of New York’s criminal usury threshold of 25%.

Plaintiff brought claims for RICO with criminal usury being used as the predicate violation, arguing that the conversion feature functioned as disguised interest and that Defendant’s general business model constituted a pattern of unlawful debt collection.

Magistrate Judge Sanket J. Bulsara recommended denial of the defendant's motion to dismiss as it related to plaintiff’s RICO causes of action, and District Judge Nina R. Morrison adopted the recommendation in full.  See VNUE, Inc. v. LG Capital Funding, LLC, 2024 U.S. Dist. LEXIS 58931, at 3 (E.D.N.Y., Mar. 30, 2024).  The Court rejected Defendant’s arguments that Nevada law should govern the note in dispute, emphasizing that New York’s criminal usury laws reflect a fundamental public policy.  Id. at 2.  The decision further noted that the Second Circuit had partially vacated a contrary ruling in DarkPulse v. FirstFire Global, undercutting the defendants’ choice-of-law argument.  Id.

Expanding the Civil RICO Arsenal

Both DarkPulse and VNUE highlight an increasingly viable legal pathway: using federal RICO statutes to challenge convertible loan agreements that violate state criminal usury laws.

Under 18 U.S.C. § 1962(c), a plaintiff must show that the defendant engaged in a “pattern of racketeering activity” or the collection of an “unlawful debt.”  The statute defines unlawful debt to include debts that would be usurious under state law if incurred in connection with lending money or property.  See 18 U.S.C. § 1961(6).

Importantly, neither DarkPulse or VNUE required the plaintiffs to prove intent to evade the law at the pleading stage.  Instead, the plaintiffs simply had to plausibly allege that the effective interest rate exceeded the 25% criminal usury cap under New York law—something that could be inferred from conversion terms and market valuations.

This opens the door to substantial damages: civil RICO allows for treble damages and attorneys’ fees, greatly enhancing the stakes for defendants.

Practical Implications for Funders and Borrowers

These decisions have sweeping implications for private lenders, investors, and small-cap issuers:

• Convertible Note Diligence: Lenders must scrutinize conversion terms to ensure that they do not inadvertently cross usury thresholds.  Courts in New York are increasingly willing to treat conversion discounts and share price volatility as implicit interest.  See Adar Bays, LLC v. GeneSYS ID, Inc., 179 N.E.3d 612 (N.Y. 2021).

• Risk of Loan Voiding: Under New York law, criminally usurious loans are void ab initio, meaning lenders may lose their principal entirely—not just their profit.  See Id.;  see also Seidel v. 18 East 17th St. Owners, Inc., 598 N.E.2d 7, 9 (N.Y. 1992) (“The consequences to the lender of a usurious transaction can be harsh: the borrower is relieved of all further payment--not only interest but also outstanding principal, and any mortgages securing payment are cancelled.”).

• No Shield from Choice-of-Law Clauses: Courts have shown a clear preference for applying New York law when its public policy on usury is at stake, regardless of contract provisions favoring other jurisdictions.

• Litigation Leverage: Plaintiffs now have a clearer blueprint to assert RICO-based claims against convertible lenders, especially where predatory patterns of financing can be alleged across multiple counterparties.

Conclusion: RICO’s Rebirth in the Usury Context

DarkPulse and VNUE together mark a pivotal evolution in federal jurisprudence.  No longer confined to its criminal or fraud-based roots, RICO has found new life in regulating unlawful lending practices.  For plaintiffs, it offers a powerful lever against exploitative financiers.  For lenders and funders, it serves as a cautionary tale: structure your instruments carefully, or risk civil RICO exposure in one of the nation’s most influential districts.

These decisions empower borrowers to challenge questionable financing structures and open the door to substantial civil remedies—potentially transforming how small-cap funding deals are negotiated and enforced.

As New York federal courts continue to chart this course, litigants would be wise to treat civil RICO not as a bluff—but as a viable, judicially validated cause of action in modern financial disputes.

If you or your company have been affected by a toxic lending arrangement and want to explore possible remedies under New York law or the RICO Act, contact Christopher M. Basile, Esq. at The Basile Law Firm P.C., (516)-455-1500 x115 or email Christopher at Chris@thebasilelawfirm.com