Updated: Nov 3, 2022
After commencing litigation against DarkPulse, Inc. in a Minnesota State Court, convertible note purveyor Carebourn Capital, L.P. has engaged in litigation gamesmanship and obfuscated the discovery process in an effort to preclude it from being declared an unregistered dealer acting in contravention of Section 15(a) the Securities and Exchange Act of 1934 (“Exchange Act”).
After propounding irrelevant and incomplete discovery responses and document production, DarkPulse moved the Minnesota Court for an order to compel production of material, relevant information concerning Carebourn’s securities dealings effectuated pursuant to convertible promissory notes—a type of security that has been at the center on numerous recent enforcement actions commenced by the U.S. Securities and Exchange Commission.
On February 15, 2022, the Court granted in part DarkPulse’s Motion to Compel and ordered Carebourn to produce documents concerning, among other things, (i) its annual income and sources of income, (ii) sales, short sales, and purchases of issuer securities, including the dates of such transactions, and (iii) its domestic and foreign brokerage accounts, bank accounts, and other financial accounts, along with supplemental responses to interrogatories concerning Carebourn’s business activities. In addition to being ordered to make supplemental production and issue revised responses, Carebourn was also ordered, pursuant to the Minnesota Rules of Civil Procedure, to pay attorneys’ fees to DarkPulse (in an amount to be determined at a future date).
The Minnesota Court’s decision is a substantial and noteworthy victory for private litigants, specifically micro-cap issuers who have been the target of and victimized by unregistered dealers (i.e., persons who are in the business of buying and selling securities for their own account) that have provided alternative financing through convertible promissory notes, only to later destroy the issuer’s market capitalization and severely dilute legitimate stockholders through future conversions into millions (if not tens of millions) of newly-issued shares of common stock that are promptly sold back into the public marketplace.
In its Order that simultaneously denied Carebourn’s motion for summary judgment on its breach of contract claim, the Minnesota Court agreed with the conclusions reached by several neighboring circuit and district courts, acknowledging that if Carebourn is ultimately found to be an unregistered dealer acting in violation of the Exchange Act, then DarkPulse has a claim for rescission under Section 29(b) of the Exchange Act.
The Basile Law Firm, P.C. continues to vigorously represent DarkPulse in the litigation and awaits the discovery Carebourn has now been ordered to produce to help shape the litigation and better frame its Exchange Act claims. Should DarkPulse obtain a favorable judgment, it would not only represent a landmark decision for private litigants seeking relief under the Exchange Act in this context, but also would stand to return substantial value—Carebourn converted debt purchased under two convertible notes into more than $200,000 worth of newly-issued shares of common stock, and is attempting to convert the remaining debt into an additional estimated $1,300,000 worth of DarkPulse securities—to a company that aspires to be listed on a reputable national exchange, such as the NYSE or NASDAQ.
Eric J. Benzenberg is an attorney at The Basile Law Firm P.C. and is part of the firms New York securities litigation team. Eric can be reached at firstname.lastname@example.org. To learn more about what we can do for you, please call us today at 516.455.1500 ext. 112 to request your free initial consultation. With offices in New York, Texas and Florida, we serve wronged public companies nationwide