UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF NEW YORK HPIL HOLDING , Plaintiff , v. GPL VENTURES, LLC., GPL MANAGEMENT, LLC, ALEXANDER DILLON, and COSMIN PANAIT, Defendants CIVIL ACTION NO. ____________ COMPLAINT DEMAND FOR JURY TRIAL Plaintiff HPIL Holding, through counsel, states for its Complaint against Defendants GPL Ventures, LLC, GPL Management, LLC, Alexander Dillon, and Cosmin Panait 1 as follows. NATURE OF THE ACTION 1. GPL is a “death spiral” or “toxic” lender: 2 an unregistered securities dealer that engages in convertible market adjustable securities transactions with small public companies — businesses that are often struggling to raise capital. Toxic lenders like GPL are not the savior of microcaps that they pu rport to be, nor is their business model legal; they are unregistered dealers and, often, as in this case, criminal usurers. 2. As reflected in recent Securities and Exchange Commission (“SEC”) prosecutions, 3 lenders like GPL avoid registering so they can evade regulatory oversight and thereby make 1 The following terms are used herein: Plaintiff HPIL Holding (“Plaintiff” or “HPIL”); Defendant GPL Ventures, LLC (“GPL” or “GPL Enterprise”); Defendant GPL Management, LLC (“GPL Management”); Defendant Alexander Dillon (“Dillon”); Defendant Cosmin Panait (“Panait”); GPL Management, Dillon, and Panait (“GPL Managers”); and all Defendants collectively (“Defendants”). 2 See https://www.investor.gov/introduction - investing/investing - basics/glossary/convertible - securities (last accessed April 5, 2022); https://en.wikipedia.org/wiki/Death_spiral_financing (last accessed April 5, 2022). 3 See, e.g., SEC v. Almagarby , 479 F. Supp. 3d 1266 (S.D. Fla. 2020); SEC v. Keener , No. 20 - cv - 21254, 2022 WL 1 96283 (S.D. Fla. Jan. 21., 2022); SEC v. Fierro , 2020 WL 7481773 (D.N.J. Dec. 18, 2020). Case 1:22-cv-02959-NRB Document 1 Filed 04/11/22 Page 1 of 32 2 predatory loans that generate outrageous profits. 3. The toxic lending business model is simple: unlike an investor or day trader, the lender uses the loan transaction to acquire the company’s stock at a steep disco unt 4 (on top of the formal loan interest), which it then dumps into the public markets as soon as possible, invariably causing a catastrophic plunge in the stock price. 4. GPL ’ s business model is illegal. In recent civil actions, the SEC has prosecuted toxic lenders that use GPL's precise business model for unlawfully operating as unregistered securities dealers in violation of § 15(a) of the Securities Exchange Act of 1934 (the “Act”) (15 U.S.C. § 78o). Every court to address this issue has agreed with the SEC. 5 5. The Agreements 6 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”). See 4 The stock is generally obtained via one or more market - adjustable convertible debt products required by the lender for making the loan; this may be the convertible promissory note itself or a warrant. 5 See , e.g. , SEC v. Big Apple Consulting USA, Inc. , 783 F.3d 786 (11th Cir. 2015); SEC v. Almagarby , 479 F. Supp. 3d 1266 (S.D. Fla. 2020); SEC v. Keener , No. 20 - cv - 21254, 2022 WL 196283 (S.D. Fla. Jan. 21., 2022); SEC v. Fierro , 2020 WL 7481773 (D.N.J. Dec. 18, 2020); SEC v. River N. Equity LLC , 415 F. Supp. 3d 853 (N.D. Ill. 2019); SEC v. Fife , 2021 WL 5998525 (N.D. Ill. Dec. 20, 2021) (the “SEC cases”). For private civil actions seeking rescission based on failur e to register, see Edgepoint Capital Holdings, LLC v. Apothecare Pharmacy , 6 F.4th 50 (1st Cir. 2021), and Auctus Fund, LLC v. Play ers Network, Inc. , 20 - cv - 10766 (D. Mass. Dec. 10, 2021) 6 “Agreements” are defined as the documents executed by Plaintiff in favor of GPL. Specific ally: (1) on November 9, 2016, HPIL and GPL entered into a Convertible Promissory Note (“November 2016 Note”), under which GPL purchased from HPIL a note in the amount of $250,000.00 bearing a 5% stated interest rate, and a Securities Purchase Agreement (“November 2016 SPA”); (2) on December 9, 2016, HPIL and GPL entered into a Convertible Promissory Note (“December 2016 Note”), under which GPL purchased from HPIL a note in the amount of $5,000.00 bearing a 12% stated interest rate. On January 15, 2019, the parties executed an amendment to the December 2016 Note (“December 2016 Amendment”), which modified the definition of the Conversion Price; (3) based on HPIL’s second quarterly 10 - Q report, filed on August 25, 2017, on April 11, 2017, HPIL and GPL entered into a Convertible Promissory Note (“April 2017 Note”), under which GPL purchased from HPIL a note in the amount of $10,000.00 bearing a 12% stated interest rate. On May 24, 2017, the parties executed an amendment to the April 2017 Note to be issued on May 24, 2 017 (“April 2017 Amendment”); ( 4) on July 28, 2017, HPIL and GPL entered into a Convertible Promissory Note (“July 2017 Note”), under which GPL purchased from HPIL a note in the amount of $15,000 bearing a 5% stated interest rate; (5) on August 9, 2017, HP IL and GPL entered into a Convertible Promissory Note (“August 2017 Note”), under which GPL purchased from HPIL a note in the amount of $10,000.00 bearing a 10% stated interest rate; (6) on January 11, 2019, HPIL and GPL entered into a Convertible Promissory Note (“January 2019 Note”), under which GPL purchased from HPIL a note in the amount of $20,000.00 bearing a 10% stated interest rate; (7) on February 11, 2019, HPIL and GPL entered in to a Convertible Promissory Note (“February 2019 Note”), under which GPL purchased from HPIL a note in the amount of $50,000.00 bearing a 10% stated interest; (8) on April 29, 2021, HPIL and GPL entered into a Convertible Promissory Note (“April 2021 Note” ), under which GPL purchased from HPIL a note in the amount of $50,000.00 bearing a 10% stated interest rate; (9) on May 7, 2021, HPIL and GPL Case 1:22-cv-02959-NRB Document 1 Filed 04/11/22 Page 2 of 32 3 15 U.S.C. § 78o. Plaintiff seeks rescission of the Agreemen ts, recessionary 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 just ice. 6. The Agreements are criminally usurious under New York law as they charge in excess of 25% interest. N.Y. Penal Law § 190.40. 7. GPL is an “enterprise” under the Racketeer Influenced and Corrupt Organization Act (“RICO”), 18 U.S.C. § 1962, et seq., which has engaged in the collection of unlawful debts at the direction and control of the GPL Managers because although the Agreements impose a stated interest rate of between 5 - 12% per annum, the 25 - 50% discount at conversion produces a total APR interest rate between 51 and 280% 8. Accordingly, among other relief, HPIL seeks treble damages under RICO because the amount of interest charged by GPL Ventures, LLC is more than double the maximum enforceable rate of interest allowed by law. Further, the equitable rem edy of voiding and rescinding the Agreements, provided under § 29(b) of the Act (15 U.S.C. § 78cc) , should be effectuated by , among other things, ordering GPL to return to HPIL every share of stock it acquired under the Agreements, less the cash value of t he net sum provided to HPIL for the purchase of the notes. entered into a Convertible Promissory Note (“May 2021 Note 1”), under which GPL purchased from HPIL a note in the amount of $50,000.00 bearing a 10% stated interest rate; and (10) on May 17, 2021, HPIL, doing business as Cybernetic Technologies Ltd., and GPL entered into a Convertible Promissory Note (“May 2021 Note 2”), under which GPL purchased from HPIL a note in the amount of $20,000.00 bearing a 10% stated interest rate. Copies of the Notes are attached hereto as exhibits, with the exception of the April 2017 Note, the contents of which are pled in good faith based HPIL’s public disclosure in its second quarterl y 10 - Q report, filed on August 25, 2017. While Plaintiff does not have a copy of the April 2017 Note, the 10 - Q provides the material terms of the Note. A true and correct copy of each of the Notes, SPAs, and accompanying transaction documents are attache d as follows: (1) November 2016 Note and November 2016 SPA as Exhibit 1; (2) December 2016 Note and Amendment as Exhibit 2 ; (3) July 2017 Note as Exhibit 3 ; (4) August 2017 Note as Exhibit 4 ; (5) January 2019 Note as Exhibit 5 ; (6) February 2019 Note as Exhibit 6 ; (7) April 2021 Note as Exhibit 7 ; (8) May 1, 2021 Note as Exhibit 8 ; and (9) May 11, 2021 Note as Exhibit 9. Case 1:22-cv-02959-NRB Document 1 Filed 04/11/22 Page 3 of 32 4 JURISDICTION AND VENUE 9. This Court has subject matter jurisdiction over this case pursuant to 28 U.S.C. § 1331 because Plaintiff is asserting a claim under the Act. 10. This Court has diversity jurisdiction over this case pursuant to 28 U.S.C. § 1332(a)(2) because Plaintiff is a citizen of a foreign state and Defendant is a citizen of Delaware and the amount in controversy exceeds $75,000.00. 11. The Court has supplemental jurisdiction over the stat e law claims pursuant to 28 U.S.C. § 1367. 12. Plaintiff is a citizen of a foreign state of Canada pursuant to 28 U.S.C. § 1603(a). 13. Venue is proper in this Court under 28 U.S.C. § 1391(b)(1) and (2) because Defendant’s principal place of business is located in this District and because a substantial part of the events giving rise to this action occurred in this District. 14. Venue is also proper in this Court because the Agreements each expressly state that any action brought by either party concerning the transact ions contemplated by the Agreements must be brought in New York state courts or in federal courts located in the State of New York. PARTIES 15. Plaintiff is a citizen of Vancouver, Canada and is headquartered at 650 West Georgia Street, Suite #1720, Vancouver, V6B 4N8, Canada. Plaintiff is currently incorporated in Wyoming as of 2019. 16. Defendant GPL Ventures, LLC is a Delaware limited liability company with its principal place of business at One Penn Plaza, Suite 6196, New York, New York 10119. 17. Defendant GPL Ma nagement, LLC is a Delaware limited liability company with its principal place of business at One Penn Plaza, Suite 6196, New York, New York 10119. Case 1:22-cv-02959-NRB Document 1 Filed 04/11/22 Page 4 of 32 5 18. Defendant Alexander Dillon is and was during the relevant time, a managing member of GPL Management, LLC. Dillon resides at 79 Chestnut Avenue, Closter, New Jersey 07624. 19. Defendant Cosmin Panait is and was during the relevant time, a managing member of G PL Management, LLC. Panait resides at 101 Wall Street #22A, New York, NY 10005. FACTUAL ALLEGATIONS I. THE GPL ENTERPRISE 20. Through Dillon and Panait, GPL exists for the purpose of lending money using the business model described herein. 21. Upon information and belief, GPL has made loans to other issuers which violate New York’s usury laws, in the same manner as the loans in this case. 22. GPL Management, under the sole control of Dillon and Panait, has authorized and directed GPL to enter into numerous convertible p romissory notes and other alternative securities transactions with various issuers also subject to New York law. Upon information and belief, the interest rates being charged on these transactions often exceed the lawful amount permitted in New York, resu lting in an ongoing business of unlawful debt collection. II. THE GPL GENERAL BUSINESS MODEL The Defendants Target Financially - Strapped Issuers in Need of Capital 23. Upon information and belief, Defendants position themselves to take advantage of issuers’ vulnerable conditions to negotiate highly favorable terms. 24. Upon information and belief, Defendants obtain all of the stock directly from the issuers through note conversions, as opposed to purchasi ng it in the open market ( i.e. , like a “trader”). Because the shares that Defendants obtain are newly - issued, their subsequent dumping Case 1:22-cv-02959-NRB Document 1 Filed 04/11/22 Page 5 of 32 6 of the shares in the market significantly increased both the amount of shares in the hands of the public and the issuers’ outstanding share totals. S elling into the public market large quantities of newly - issued shares obtained directly from issuers is a common hallmark of a securities dealer. 25. In addition to reaping gains from the spread between the discount and the market price, upon information and b elief, the Defendants negotiate to add consideration such as up - front stock, stock purchase warrants, and compensation for fees and costs. The Defendants Purchase Convertible Promissory Notes With Favorable Terms For the Purpose of Obtaining Shares of St ock 26. Upon information and belief, Defendants obtained all of the stock they sold as part of their business directly from the issuers through note conversions, as opposed to purchases in the open market, like a “trader.” The billions of shares that Defendan ts obtained through their deals with issuers were newly - issued, and their later sales of those shares in the market significantly increased both the amount of shares in the hands of the public and the issuers’ outstanding share totals. Selling into the pu blic market large quantities of newly - issued shares obtained directly from issuers is a common hallmark of a securities dealer. 27. In addition to profiting from the spread made available by Defendants’ prompt sales following a conversion, the Defendants reali ze additional financial gains by negotiating additional favorable terms, such as prepayment penalties, and imposing hidden “fees.” Defendants Converted Promissory Note Debt Into Newly Issued Shares of Common Stock at a Substantial Discount 28. The Defendan ts’ business model exploits the tacking provision by holding only the promissory notes (which are payable absolutely and carries no investment risk) for six months. Upon conversion of the Notes into stock, Defendants do not assume any economic risks of st ock ownership — they immediately sell the stock to reap the spread between the discount and the market Case 1:22-cv-02959-NRB Document 1 Filed 04/11/22 Page 6 of 32 7 price. 7 29. The value of the conversion discount at the time of entering into these transactions is considered interest under New York law. 30. Upon information and belief, Defendants time their conversions and sales in an effort to comply with the holding period under Rule 144. For that reason, Defendants generally wait either six months (the minimum Rule 144 holding period for securities issued by S EC - reporting companies) or one year (the minimum Rule 144 holding period for securities issued by non - SEC - reporting companies) after purchasing a convertible note, before they began to convert the note into newly - issued stock and then sell that stock into the public market. 31. The convertible notes that Defendants bought and/or solicited from the issuers allows them to acquire no fewer than one billion shares of newly - issued stock at a substantial discount — typically 25 - 50 % below the lowest trading price for th e issuer’s common stock during the “valuation period” of 20 trading days preceding the date of the conversion request 32. Upon information and belief, after holding the convertible debt acquired in a convertible note deal for the applicable holding period con tained in Rule 144, Defendants sent conversion notices to the issuers and their transfer agents, identifying the amount to be converted and the corresponding shares to be issued to Defendants. 33. Upon information and belief, instead of converting all of the d ebt into stock all at once, Defendants usually sent multiple conversion notices for each convertible note. Upon 7 SEC Rule 144 was adopted to establish criteria for determining whether a person was engaged in the distribution of securities. One condition under Rule 144 is that the selling security holder must have held the security for a specified period of time (six months in this case) prior to resale into the market. This condition helps ensure that the holder who claims an exemption has assumed the full economic risks of ownership, and is therefore not acting as an underwriter. Rule 144 also permits “tacking” of the six - month holding period; if a security holder simply exchanges a previously - purchased security for a different security of the same issuer (such as with conversion), the newly - acquired security is deemed to have the same purchase date as the original security. If the holding period has expired, the new security may be sold immediately. Case 1:22-cv-02959-NRB Document 1 Filed 04/11/22 Page 7 of 32 8 information and belief, among other reasons, Defendants incrementally converted debt into stock and sold said stock over a period of time to pu rposefully avoid owning more than five percent of any class of an issuer’s publicly traded stock at any one time. Far from an investment strategy, such incremental conversions and sales were ti med for the purpose of evading the requirement to file a “bene ficial ownership report” with the SEC ( i.e. , Schedule 13 D and Schedule 13G ). See 17 CFR § 240.13d - 1 34. Upon information and belief, Defendants arrange for the converted stock to be transferred to their brokerage accounts as quickly as possible to ensure maximum profits and to capitalize on the conversion discount, often paying expediting fees to further red uce the time. 35. Upon information and belief, as part of their business model, Defendants obtain incorrect attorney opinion letters to assure brokerage firms that the converted stock is not restricted and may be resold to the public. Defendants Sell the Con verted Stock Into the Public Market 36. Upon information and belief, once brokers deposited the converted shares from the issuers into the Defendants’ brokerage accounts, the Defendants generally begin selling the shares into the public marketplace immediate ly to lock in their profits. 37. Upon information and belief, the Individual Defendants personally, or through an affiliated person, entity, or independent contractor acting at their direction, use the telephone and the internet to place sell orders. Sales we re made through brokers. 38. Upon information and belief, however, Defendants generally sold only as much as the market would bear, often staggering sales over a short period of time instead of all at once. 39. Upon information and belief, Defendants’ practice is to sell the shares they had acquired in a conversion continuously on a daily or near - daily basis until they had sold all of their Case 1:22-cv-02959-NRB Document 1 Filed 04/11/22 Page 8 of 32 9 shares into the market. Defendants Earn Significant Profits From Selling Discounted Shares of Stock 40. Upon information and belief, Defendants reap large profits from their unregistered dealer activity, the majority of which resulted from reaping the difference between the market prices they received when they sold the stock to t he public, and the deeply - discounted prices at which they acquired shares from the issuers, rather than from any appreciation in the stock’s price. This mechanism, which gave Defendants a spread or markup on the stock that they sold, is a common practice among securities dealers. 41. As of 2015, Defendants purchased numerous convertible promissory notes (securities) from various issuers and have converted the same into no fewer than one billion shares of newly - issue d stock that Defendants subsequently sold on the secondary market for tens of millions of dollars. 42. Upon information and belief, Defendants generated tens of millions of dollars in gross stock sale proceeds, with many other securities transactions still outstanding. The majority of the net profits ca me from the spread between Defendants’ discounted purchase price (per the terms of the applicable note) and prevailing market pricing. 43. Upon information and belief, Defendants perpetrated their illegal activity: (1) by using the proceeds from the sales of t hese shares to fund the operations of their unlawful business ; and (2) by reinvesting the proceeds from the sales of these shares to purchase additional notes from the same and other penny stock issuers. Defendants Violate the Federal Securities Laws by A cting as Unregistered Dealers 44. Upon information and belief, GPL is not now, and has never been registered as a securities dealer with the Financial Industry Regulatory Authority (“FINRA”). Case 1:22-cv-02959-NRB Document 1 Filed 04/11/22 Page 9 of 32 10 45. GPL’s purchases of convertible notes (securities transaction), conversions of debt into stock (securities transaction), and subsequent stock sales (securities transaction) are part of an ongoing business for its own account. GPL acquires large volumes of shares privately from issuers at a substantial discount to market, sells large volumes of shares back into the open market for substantial profit due to the conversion discount, and always does so absent investment intent. 46. Every time GPL purchases a conv ertible note, converts debt into stock, or sells conversion stock, it effects transactions in securities. 47. As part of its regular business, GPL acquires large volumes of shares directly from issuers at a substantial discount to market, sells large volumes o f shares back into the open market for a substantial profit due to the conversion discount, and does so for its own account absent investment intent. Accordingly, GPL buys securities, converts securities, and sells securities as part of its regular busine ss for its own account. 48. Upon information and belief, GPL has purchased similar convertible securities on numerous occasions with various microcap companies in addition to HPIL. 49. Upon information and belief, GPL made use of the mails, email and other instrum entalities of interstate commerce to effect the Agreements and subsequent securities transactions. For example, GPL transferred cash through wire transfers, and used email and telephone communications to negotiate and effect purchases and sales. 50. Any perso n engaged in the business of buying and selling securities for such person’s own account (through a broker or otherwise) as part of a regular business must register as a dealer with the SEC, or, in the case of a natural person, associate with a registered dealer. See 15 U.S.C. § 78o(a)(1). 51. By failing to comply with the dealer registration requirements mandated by federal Case 1:22-cv-02959-NRB Document 1 Filed 04/11/22 Page 10 of 32 11 law, GPL purposefully “operated under the radar” to avoid important legal and regulatory oversight by the SEC and FINRA. 52. The dealer regis tration requirements provide important safeguards for the investing public, shareholders and companies. The excessive compensation and patently unfair terms used in the Agreements (and GPL’s transactions with other issuers) would have violated FINRA Rules 5110(b) and 5110(c)(2)(A), and thus could not have been effected by a registered securities dealer. 53. GPL’s outrageous profits from the Agreements resulted from the market prices they received when they sold the stock into the public market, and the steep d iscounted price at which it acquired the stock from HPIL. This practice — through which GPL reaps the profits on the spread or markup of the stock they sold — is a common behavior of a securities dealer or underwriter. 54. Registration as a securities dealer and accompanying SEC oversight would further prevent GPL from utilizing the Rule 144 tacking provision (17 C.F.R. § 230.144(d)(3)(ii)) because GPL’s business operations constitute underwriting activity, or sales with a view to distribution. 55. Operating as an underwriter requires dealer registration. 56. As a part of its regular business, GPL obtained newly - issued stock directly from microcap issuers through note conversions — as opposed to purchasing it in the open or secondary markets. 57. The convertible securities th at GPL purchased enable it to acquire billions of shares of newly - issued stock at a significant discount — typically between 25 and 50 percent of the trading price. 58. As a regular part of its business, GPL sold large blocks of such newly - issued shares into th e public market — a common hallmark of a securities dealer. 59. Upon information and belief, GPL has used its business model to extract millions Case 1:22-cv-02959-NRB Document 1 Filed 04/11/22 Page 11 of 32 12 of shares of stock from Plaintiff and other unwitting issuers. III. DEFENDANTS ’ BUSINESS MODEL AS APPLIED TO PLAIN TIFF Defendants Entered Into the Agreements That are Usurious and Unenforceable Under New York Law 60. The Agreements state that they are governed by New York law. 61. Pursuant to its typical business model, the Agreements provided GPL a conversion option, that is, an option to take repayment by exchanging the debt for shares of company stock. As was its practice, GPL would not exchange the debt on a dollar - for - dollar basis, but at a substantial discount to the market price at the time of conversion — in this case, at a 25% - 50% variable conversion discount. 62. The New York Court of Appeals has recently concluded that for securities of this type, the value conveyed by the conversion discount must be included in the interest calculation for purposes of asse ssing compliance with usury laws. 8 63. By charging through the Agreements more than double the maximum enforceable rate of interest, the Defendants have engaged in the collections of unlawful debts as follows: a. Pursuant to the November 2016 Note, the Defendant s collected/charged a 51% 9 APR interest rate based on its loan of $250,000.00; b. Pursuant to the December 2016 Note and Amendment, the Defendants collected/charged a 112% 10 APR interest rate based on its loan of $5,000.00; c. Pursuant to the May 2017 Note, the Defendants collected/charged a 112% 11 APR 8 Adar Bays, LLC v GeneSYS ID, Inc., 179 N.E.3d 612, 614 - 15 (N.Y. 2021). 9 Calculated as 25/75 = .333 or .33 (Conversion discount) x 365/263 = .457 or 46% APR + 5% APR (stated interest) = Total 51% APR interest rate. 10 Calculated as 50/50 = .5 (Conversion discount) x 12/6 = 1.00 or 100% APR + 12% APR (stated interest) = Total 112% APR interest rate. 11 Calculated as 50/50 = .5 (Conversion discount) x 12/6 = 1.00 or 100% APR + 12% APR (stated interest) = Total 112% APR interest rate. Case 1:22-cv-02959-NRB Document 1 Filed 04/11/22 Page 12 of 32 13 interest rate based on its loan of $10,000.00; d. Pursuant to the July 2017 Note, the Defendants collected/charged a 91% 12 APR interest rate based on its loan of $15,000.00; e. Pursuant to the August 2017 Note, the Defendants collected/charged a 96% 13 APR interest rate based on its loan of $10,000.00; f. Pursuant to the January 2019 Note, the Defendants collected/charged a 60% 14 APR interest rate based on its loan of $20,000.00; g. Pursuant to the February 2019 Note, the Defendants collected/charged a 60% 15 APR interest rate based on its loan of $50,000.00; h. Pursuant to the April 2021 Note, the Defendants collected/charged a 270% 16 APR interest rate based on its loan of $50,000.00; i. Pursuant to the May 2021 Note 1, the Defendants collected/charged a 35% 17 APR interest rate based on its loan of $50,000.00; and j. Pursuant to the May 2021 Note 2, the Defendants collected/charged a 220% 18 APR interest rate based on its loan of $20,000.00. 64. The Agreements provided GPL with an aggregate return rate of 1,107% based on loans totaling just $480,000.00. 12 Calculated as 50/50 = .5 (Conversion discount) x 12/7 = .857 or 86% APR + 5% APR (stated interest) = Total 91% APR interest rate. 13 Calculated as 50/50 = .5 (Conversion discount) x 1 2/7 = .857 or 86% APR + 10% APR (stated interest) = Total 96% APR interest rate. 14 Calculated as 50/50 = .5 (Conversion discount) or 50% APR + 10% APR (stated interest) = Total 60% APR interest rate. 15 Calculated as 50/50 = .5 (Conversion discount) or 50 % APR + 10% APR (stated interest) = Total 60% APR interest rate. 16 Calculated as .00270/.00001 = 270 (Conversion discount) or 270% APR + 10% = Total 280% APR interest rate. 17 Calculated as .0025/.0001 = 25 (Conversion discount) or 25% APR + 10% = Total 35% APR interest rate. Although the May 2021 Note 1 is criminally usurious under New York law because it charges a 35% APR interest rate, it is not subject to RICO because it do es not exceed twice the maximum enforceable rate, i.e., 51% APR interest rate or more. 18 Calculated as .0021/.00001 = 210 (Conversion discount) or 210% APR + 10% = Total 220% APR interest rate. Case 1:22-cv-02959-NRB Document 1 Filed 04/11/22 Page 13 of 32 14 65. The Agreements create an unlawful debt under RICO because the terms were imposed by GPL, which are in the business of lending money at an interest rate substantially in excess of the maximum lawful rate. See 18 U.S.C. § 1961(6); N.Y. Penal Law § 190.40. 66. Under the Agreements, HPIL was obligated to repay the money loaned, either in cash or in stock. 67. As consideration for the loans of $480,000.00, HPIL relinquished $16,887,299.75 worth of cash and stock, a 3,518% gain for GPL. On an annualized basis, HPIL paid an interest rate of no less than 51% on each of the Agreements. 68. As demonstrated by the Agreements, and the additional transactions with other issuers alleged above — which are a part of GPL’s regular business — the Defendants are engaged in the business of lending money. 69. Pursuant to New York’s usury laws, the maximum enforceable rate for a loa n to a corporation is 25% per annum. See N.Y. Penal Law § 190.40. 70. The fixed conversion discount, such as the ones provided to the Defendants in the Agreements, is interest that must be considered when calculating the true interest rate for usury analysis. 19 71. Although the Agreements impose a stated interest rate of between 5% to 12 % per annum, the 25 - 50% discount at conversion produces a total interest rate between 51% and 280% APR interest rate – at least double the maximum enforceable rate permitted by New York’s criminal usury law. Defendants Converted the Notes (Securities) to Stock (Also Securities) 72. In this case, starting on December 9, 2016, GPL submitted 34 separate conversions 19 See Adar Bays, 179 N.E.3d 612. Case 1:22-cv-02959-NRB Document 1 Filed 04/11/22 Page 14 of 32 15 under the Notes, pursuant to which GPL received 6,739,219 ,670 newly issued HPIL securities (the “Related Transactions”). 73. Each of the 34 conversions is a separate securities transaction. 74. Pursuant to those 34 conversions , GPL converted a total of $497,298.15 of debt. The open market value of the 6,739,219,670 new ly - issued HPIL securities received by GPL pursuant to the conversions is approximately $16,887,299.75. GPL’s discounted value of the 6,739,219,670 newly - issued HPIL securities received is approximately $637,298.15 Therefore, GPL’s profit from the Notice s of Conversion is approximately $ 16,250,001.60 75. As mentioned above, Defendants timed their conversions and sales in an effort to comply with the holding period under Rule 144 and thereby began converting almost immediately after the expiration of the holding period as follows. 20 a. The December 2016 Note: i. On August 31, 2017, a conversion notice was submitted requesting issuance of 2,900,000 shares for the satisfaction of $290.00 of debt. ii. On November 1, 2017, a conversion notice was submitted requesting issuance of 5,500,000 shares for the satisfaction of $550.00 of debt. iii. On January 22, 2018, a conversion notice was submitted requesting issuance of 120,000,000 shares for the satisfaction of $1,200.00 of debt. iv. On January 29, 2018, a conversion n otice was submitted requesting issuance of 139,000,000 shares for the satisfaction of $1,390.00 of debt. 20 Additionally, on June 2, 2021, Defendant s submitted a conversion notice request for issuance of 800,000,000 shares as related to an unidentifiable note, for the satisfaction of $80,000.00 in penalties. Case 1:22-cv-02959-NRB Document 1 Filed 04/11/22 Page 15 of 32 16 v. On November 12, 2018, a conversion notice was submitted requesting issuance of 80,000,000 shares for the satisfaction of $0.00 of debt, and $24,000.00 of interest. vi. On November 14, 2018, a conversion notice was submitted requesting issuance of 89,000,000 shares for the satisfaction of $25,597.26 of debt and $1,102.74 of interest. vii. On November 19, 2018, a conversion notice was submitted requesting issuance of 89,000,000 shares for the satisfaction of $20,025.00 of debt. viii. On December 3, 2018, a conversion notice was submitted requesting issuance of 82,000,000 shares for the satisfaction of $12,300.00 of debt. ix. On February 5, 2019, a conversion notice was submi tted requesting issuance of 140,000,000 shares for the satisfaction of $1,400.00 in penalties. x. On February 7, 2019, a conversion notice was submitted requesting issuance of 50,000,000 shares for the satisfaction of $500 in penalties. xi. On February 11, 2019, a conversion notice was submitted requesting issuance of 122,000,000 shares for the satisfaction of $800.00 of debt, and $420.00 in penalties. xii. On February 13, 2019, a conversion notice was submitted requesting issuance of 111,000,000 shares for the satisf action of $1,110.00 in penalties. xiii. On February 28, 2019, a conversion notice was submitted requesting issuance of 140,000,000 shares for the satisfaction of $1,400.00 in penalties. xiv. On March 5, 2019, a conversion notice was submitted requesting issuance of 2 20,000,000 shares for the satisfaction of $2,200.00 in penalties. Case 1:22-cv-02959-NRB Document 1 Filed 04/11/22 Page 16 of 32 17 xv. On March 8, 2019, a conversion notice was submitted requesting issuance of 140,000,000 shares for the satisfaction of $1,400.00 in penalties. xvi. On March 29, 2019, a conversion notice was submi tted requesting issuance of 150,000,000 shares for the satisfaction of $1,500.00 in penalties. xvii. On December 8, 2020, a conversion notice was submitted requesting issuance of 234,000,000 shares for the satisfaction of $2,340.00 in penalties. xviii. On January 22, 2 021, a conversion notice was submitted requesting issuance of 250,000,000 shares for the satisfaction of $2,500.00 in penalties. xix. On April 16, 2021, a conversion notice was submitted requesting issuance of 800,000,000 shares for the satisfaction of $8,000.0 0 in penalties. xx. On May 6, 2021, a conversion notice was submitted requesting issuance of 180,000,000 shares for the satisfaction of $9,000.00 of debt. xxi. On May 6 2021, a conversion notice was submitted requesting issuance of 300,000,000 shares for the satis faction of $15,000.00 in penalties. xxii. On May 7, 2021, a conversion notice was submitted requesting issuance of 112,000,000 shares for the satisfaction of $1,120.00 in penalties. xxiii. On May 17, 2021, a conversion notice was submitted requesting issuance of 350,00 0,000 shares for the satisfaction of $3,500.00 in penalties. xxiv. On May 24, 2021, a conversion notice was submitted requesting issuance of 75,835,600 shares for the satisfaction of $3,791.78 of interest. xxv. On May 24, 2021, a conversion notice was submitted requesting issuance of 300,000,000 shares for the satisfaction of $15,000.00 in penalties. Case 1:22-cv-02959-NRB Document 1 Filed 04/11/22 Page 17 of 32 18 xxvi. On July 27, 2021, a conversion notice was submitted requesting issuance of 20,370,000 shares for the satisfaction of $11,000.00 of debt, $2,200.00 of inter est, and $11,000.00 in penalties. b. April 29, 2021 Note : i. On June 22, 2021, a conversion notice was submitted requesting issuance of 248,931,500 shares for the satisfaction of $20,000.00 of debt, and $4,893.15 of interest. ii. On June 23, 2021, a conversion notice was submitted requesting issuance of 800,000,000 sha res for the satisfaction of $80,000.00 in penalties. iii. On July 7, 2021, a conversion notice was submitted requesting issuance of 800,000,000 shares for $80,000.00 in penalties. iv. On July 19, 2021, a conversion notice was submitted requesting issuance of 507,68 2,200 shares for the satisfaction of $42,000.00 of debt and $87.68.22 of interest. 76. Each conversion of debt to stock identified in Paragraph 75 above constitutes an additional transaction in securities. Defendants Continue to Convert and Sell Shares of Sto ck 77. Upon information and belief, Defendants continue to purchase new convertible notes, convert shares acquired in convertible debt transactions with counterparty penny stock issuers, and then sell those shares into the market. Upon information and belief , after waiting out the Rule 144 holding period, Defendants acted in the same manner and converted and rapidly sold millions of newly - issued shares into the market for substantial profit. Case 1:22-cv-02959-NRB Document 1 Filed 04/11/22 Page 18 of 32 19 78. Defendants sold stock that did not meet any of the exceptions from the definition of a “penny stock,” as defined by Section 3(a)(51) of the Act and Rule 3a51 - 1 under the Act. See 15 U.S.C. § 78c(a)(51); 17 C.F.R. § 240.3a51‒1. Dillon and Panait Control GPL in its Convertible Debt Securities Business 79. At all relevant times, Dillon and Panait, as GPL Management’s sole managing members and dominant shareholders, directly possessed and exercised control over GPL Management, including the power to decide whether to enter into agreements (including the HPIL Agreeme nts), to negotiate and approve the final deal terms, and to direct its sales of stock. 80. Upon information and belief, both Dillon and Panait negotiated the terms of the convertible notes that GPL purchased from microcap companies (including HPIL), as well as amendments to the original terms. 81. Ultimately, Dillon and Panait were and still remain as the sole persons holding the power to direct, authorize, and compel GPL indirectly through GPL Management to enter into, convert, and subsequently sell securities thr ough convertible notes with issuers, including the Notes with HPIL. 82. Dillon, Panait, and GPL Management were and currently are the “controlling persons” within the meaning of Section 20(a) of the Act and had the power to cause GPL to engage in unlawful co nduct described herein. HPIL was Harmed by GPL’s Unlawful Debt Collections 83. As a result of the unlawful debt collections, HPIL and its shareholders have been injured in its business and property. 84. As a result of the unlawful debt collections, GPL obtained tens of millions of shares Case 1:22-cv-02959-NRB Document 1 Filed 04/11/22 Page 19 of 32 20 of free - trading HPIL common stock to which they were not entitled or capable of lawfully receiving. 85. The excessive conversions and resulting issuances forced HPIL to incr ease its outstanding shares, thereby massively diluting HPIL’s stockholders. 86. Once GPL began converting under the Agreements, its immediate and massive selling of large blocks of newly - issued shares of HPIL’s common stock into the public market caused enorm ous depression in HPIL’s market capitalization and stock price. 87. As a result of these actions, HPIL became unable to privately raise money from other entities, with other toxic lenders becoming the only reasonably available option for short - term financing, leading to more losses. 88. All of the foregoing harm was foreseeable by GPL, and was proximately caused by GPL’s collections of unlawful debts as alleged herein. 89. Assessment of the total damage to HPIL caused by these actions is difficult to quantify and will be determined at trial. CAUSES OF ACTION COUNT I: Rescission Pursuant to § 29(b) of the Act for Violation of § 15(a) of the Act by GPL for Effecting (Making) the Securities Contracts as an Unregistered Dealer (Against Defendan