Neyo v Kevin Foster

UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF NEW YORK --------------------------------------------------)( SHAFFER SMITH, 2424, LLC, SUPER SA YIN' PUBLISHING, LLC, COMPOUND TOURING, INC., and COMPOUND ENTERTAINMENT, LLC,

Plaintiffs,

v.

KEVIN FOSTER, VERNON BROWN, FOSTER & FIRM, INC., and V. BROWN & COMPANY, INC.

Defendants. --------------------------------------------------)(

No.

COMPLAINT AND JURY DEMAND

Plaintiffs Shaffer Smith, 2424, LLC, Super Sa yin' Publishing, LLC., Compound Touring,

Inc., and Compotmd Entertainment, LLC (collectively, "Plaintiffs"), by and through their

undersigned attorneys, The Roth Law Firm, PLLC, hereby allege the following against

Defendants Kevin Foster, Vernon Brown, Foster and Firm, Inc., and V. Brown & Company, Inc.

(collectively, "Defendants"):

NATURE OF ACTION

1. Plaintiffs commence this action to recover money damages resulting from

Defendants' wholly inappropriate conduct, which includes gross malfeasance and the intentional

misappropriation of funds. Plaintiff Shaffer Smith ("Smith") is an artist and for several years,

Kevin Foster ("Foster") was Smith's manager, confidant, trusted advisor, and friend. Through

his employers, V. Brown & Company, Inc. ("V. Brown & Co.") and Foster & Firm, Co. ("Foster

& Finn"), and after gaining the trust and confidence from Smith, Foster took control of Smith's

ban1c accounts and transferred monies to himself and others, all in violation of his fiduciary duty

to Smith. If that were not enough, Foster forged Smith's signature on loan documents and

converted monies for his personal use. For his gross misconduct, Foster, and the firms in which

he worked, must be held liable.

PARTIES

2. Smith is an individual who resides in Georgia.

3. 2424, LLC is a limited liability company organized and existing under the laws of

the State of Georgia with its principal place of business located at 11255 Huston Street, Apt. I 06,

N. Hollywood, California 91061.

4. Super Sayin' Publishing, LLC ("Super Sa yin"') is a limited liability company

organized and existing under the laws of the State of California with its principal place of

business located at 795 Champions Club Dr., Alpharetta, GA, 30004.

5. Compound Touring, Inc. ("Compound Touring") is a corporation organized and

existing tmder the laws of the State of California with its principal place of business located at

795 Champions Club Dr., Alpharetta, GA, 30004.

6. Compound Entertainment, LLC ("Compound Entertainment") is a limited liability

company organized and existing under the laws of the State of California with its principal place

of business located at I 0960 Wilshire Boulevard, Floor 5, Los Angeles, California 90024.

7. Upon information and belief, Defendant Kevin Foster is an individual who resides

at 10 Christopher Court, Montclair, New Jersey 07042. Upon information and belief, Foster has

transacted business in connection with this dispute and conducts business in the State ofNew

York.

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8. Upon information and belief, commencing in 2004, Foster worked at V. Brown &

Co. Thereafter, Foster left V. Brown and Co. and formed his own management/accounting firm

which he named Foster & Firm, Inc.

9. Upon information and belief, Defendant Vernon Brown ("Brown") is an

individual who resides in New York. Upon information and belief, Brown has transacted

business in connection with this dispute and conducts business in the State of New York.

10. Upon information and belief, V. Brown & Company, Inc. ("V. Brown and Co.")

is a corporation organized and existing under the laws of the State of New York with its principal

place of business located at 888 Seventh Ave, Suite 500, New York, New York 10019. Upon

infonnation and belief, V. Brown & Co. is an accolmting and business advisory firm that

provides services to professionals in the sports, entertainment, and fashion industries.

11. Upon information and belief, Foster & Firm, Inc. ("Foster & Firm") is a

corporation organized and existing under the laws of the State of New York with its principal

place of business located at 1350 Avenue of the Americas, Suite 310, New York, New York

10019. Upon infonnation and belief, Foster & Firm is an accounting and business advisory firm

that provides services to professionals in the sports, entertainment, and fashion industries.

JURISDICTION AND VENUE

12. This Court has subject matter jurisdiction based on the fact that certain claims

herein are premised on a federal statute, and pursuant to 28 U.S.C. 1332 because the parties are

of diverse citizenship and the amount in controversy, exclusive of interest and costs, exceeds

$75,000. Specifically, Plaintiffs seeks damages of at least $4.5 million.

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13. Venue is proper in this judicial district pursuant to 28 U.S.C. 1391(a)(2) because

a substantial part of the events giving rise to this action occurred within this judicial district and

because Defendants maintain their principal places ofbusiness in New York, New York.

FACTUAL BACKGROUND

14. During 2005, Smith was introduced to Foster, who at the time worked for V.

Brown&Co.

15. After initial conversations and meetings, Foster convinced Smith to engage V.

Brown & Co. to handle all of Smith's business management and accmmting needs.

16. Accordingly, during 2005, Smith retained V. Brown and Co. to represent him in

connection with all of his business needs and to perform all accounting and business services for

Smith and his companies. Upon information and belief, as compensation for its services, V.

Brown & Co. received 5% of Smith's gross revenues.

17. As Smith's business manager, Foster and V. Brown & Co., as his employer, were

responsible for handling all of Smith's finances and business transactions. V. Brown & Co.'s -- - - - ----- - -- -----

responsibilities included, but were not limited to: (i) working with Smith and his representatives,

including agents and lawyers, to determine Smith's earning projections; (ii) overseeing Smith's

advisers and financial consultants who handled Smith's investments, including investments in

bonds, stocks, real estate; (iii) devising strategies for managing funds responsibly; and (iv)

advising Smith on non-conventional investments. In his capacity as business manager, Foster

maintained control of all of Smith's banlc accounts at Citibank.

18. Additionally, V. Brown & Co. and Foster's position as Smith's business manager

imparted on them responsibilities to maintain Smith's budget, ensure Smith was financially

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situated as to maintain his accustomed lifestyle for the remainder of his life, protect Smith from

financial min, and mitigate risk of frivolous spending.

19. Through their role as Smith's business manager, with control over his finances,

Foster and V. Brown & Co. had the fiduciary duty to manage Smith and all aspects of Smith's

finances and businesses responsibly.

20. Additionally, notwithstanding the fact that V. Brown & Co. and Foster & Firm

were responsible for the filing of Smith's individual and corporate tax returns each year, during

certain years, Foster failed to file timely tax rehrrns for Smith and his companies, thereby forcing

Smith to incur substantial penalties and unnecessary interest.

21. Foster, while at V. Brown & Co. and Foster & Firm also failed to timely pay

invoices incurred on behalf of Smith and/or his companies, causing Smith to incur substantial

additional penalties and interest as a result.

22. Thereafter, Foster represented to Smith that he was leaving V. Brown & Co. and

fanning a new c?m_pariY cal!ed_F()ster & FirJ1l, and that, in so doing, Foster &Finn would take

over all management responsibilities previously held by V. Brown & Co.

23. From 2005 through 2013, V. Brown and Foster & Firm, through Foster,

maintained complete responsibility and control over Smith's and his companies' finances.

Throughout this time period, Foster obtained the unfettered trust and respect of Smith. In fact,

over time, the two individuals developed a personal relationship, with Smith eventually placing

complete tmst in Foster's handling of Smith and his companies' finances and affairs.

24. From the inception of Foster and Smith's business manager-client relationship,

Foster had a power of attorney for Smith's personal and company accounts. Foster, both at V.

Brown & Co. and Foster & Firm, maintained unrestricted control over all of Smith's bank

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accotmts and engaged in transactions on behalf of Smith and his companies. Certain of those

transactions were without Smith's knowledge.

25. Thereafter, Smith changed business managers from Foster & Firm to Nigro Karlin

Segal Feldstein & Bolno, LLC ("Nigro Karlin").

26. At some point during the inception of the relationship between Smith and Nigro

Karlin, Smith began to uncover potential improprieties committed by V. Brown, Foster & Firm,

and Foster. The more Smith began to question the transactions, the more he uncovered instances

ofF oster engaging in self-dealing and inappropriate conduct.

27. In or about August/September 2013, Smith visited a branch ofCitibank located in

New York, New York for the purpose of closing the accounts which Foster had previously

controlled through his power of attorney. From September 2013 through April2014, Citibank

provided Smith with information and documents revealing that Foster, while at V. Brown and

Foster & Firm, engaged in serious improprieties.

28. While the true depth of Defendants' deceit has yet to be fully uncovered, in 2014,

Smith began to learn of many instances of self-dealing and negligence, some of which are set

forth below.

29. Commencing in or about July 2011, Foster conducted a series oftmauthorized

transactions which resulted in the movement of monies from different Smith accounts.

30. The inappropriate transfers continued. For example, in October 2012, Foster,

through deception, caused Smith to transfer $1 million from Smith's accounts to an investment

in a water product.

31. Foster continued to make inappropriate transfers through 2012 and into 2013.

Certain transfers, for no apparent reason, exchanged money between various accounts held by

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Smith, and other transfers were payments to individuals with whom Smith had no relationship.

For example, payments were made to "Edward R. Grauer, Esq. Attorney Trust Account" in the

amount of$300,000.

32. Foster's action progressed from improprieties to illegalities. That is, upon

information and belief, on or about February 21, 2013, Foster executed several documents,

including two promissory notes (the "Notes") in Smith's name without Smith's knowledge or

authorization, thereby forging Smith's signature.

33. The first Note, between Compound Touring and Citibank in the amount of

$400,000 (the "First Note") was purportedly signed by Smith and was accompanied by a

personal guarantee by Smith and 2424, LLC and Super Sayin'. Foster forged Smith's name on

the First Note and all related documents, including a loan agreement and guarantees. Thus, the

First Note and related documents bear Smith's signature, but Smith never signed them.

34. Also on February 21,2013, Smith purportedly entered into a second note (the

"Second Note") with Citibank on behalf of Super Sayin' and secured by 2424, LLC. Smith did

not sign any of the documents associated with this Note. This Second Note also bears Smith's

signature, but Smith never signed the Second Note, nor any of the documents associated with the

Note. Indeed, they were all forged by Foster.

35. Additionally, the books and records of certain of Smith's companies reflect

transfers made to Smith and others, yet those transfers were never received by Smith. For

example, according to the books and records, $70,000 was pnrportedly transferred from an

account for Compotmd Ventures LLC, a limited liability company jointly owned by Smith,

Tishawn Gayle ("Gayle") and Reynell "Tango" Hay ("Hay"). The books further state that the

$70,000 was delivered as follows: $20,000 to each of the three members and $10,000 to

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Compound Touring. Yet, the amounts were never transferred as reflected in the books and

records. Upon information and belief, those monies were transferred, directly or indirectly to

Defendants. Thus, those individuals never received the purportedly transferred funds.

The OXYwater Transactions

36. As part of Foster's scheme, in 2011 and 2012 Foster both induced Smith to invest

in and, tmbeknownst to Smith, directed additional funds from Smith's accounts to, Imperial

Integrated Health Research & Development, LLC ("Imperial"). In total, Imperial received $3.5

million from Smith.

37. Upon information and belief, Imperial was founded by Preston Harrison

("Harrison"), a fonner Ohio State University football player, with his partner Thomas E. Jackson

("Jackson").

3 8. Upon information and belief, imperial was an Ohio corporation that produced

OXYwater, a vitamin-infused sports beverage. According to Foster, OXYwater was an oxygen-

enhanced mineral water with no calories, sugar, carbohydrates, caffeine, or other artificial colors ---------- ----------------------- ---- -- --- -

or sweeteners. Foster also explained to Smith the nmnerous health benefits of the beverage,

including its patented extra oxygen infusion process and its wealth of vitamins, minerals, and

electrolytes.

39. Foster further presented to Smith that OXYwater was set to replace Vitamin

Water, the market leader of the product, and that OXYwater had several deals in place, including

transactions with school boards and other organizations.

40. Upon information and belief, Imperial had partnered with three professional

sports organizations, including NASCAR's FAS Lane Racing Team, the National Basketball

Association's Cleveland Cavaliers, and the American Hockey League's Lake Erie Monsters.

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41. Upon information and belief, Foster was Imperial's President and Chief Financial

Officer and owned 66% of the shares oflmperial.

42. When making each of the above representations to Smith regarding Imperial,

Foster never disclosed to Smith that Foster served as President and CPO of the company or that

he had any relationship with Imperial.

43. Upon information and belief, Foster misrepresented to Smith the product, the

company, and the return to investors. Foster also misrepresented that Smith's investment was

being used for proper purposes.

44. On or about July 8, 2011, through reliance upon the aforementioned omissions

and material misrepresentations by Foster, Smith invested $2.5 million in OXYwater. In order to

further induce Smith to invest in OXYwater, Foster represented to Smith that there were many

additional deals with OXYwater in place and the time to invest was "now," before the company

went public.

45. Following the $2.5 million investment, Foster did not end his self-serving pursuit ------

- -- - - - ---

to obtain fi.mding for OXYwater by exploiting his position with Smith. Upon information and

belief, on or about October 12, 2012, unbeknownst to Smith, Foster had an addition $1 million

wire-transferred from Smith's accounts to those of OXYwater.

46. Yet, upon information and belief, Foster knew at the time he invested an

additional $1 million of Smith's money, but did not inform Smith, the true financial status of

Imperial- that it was losing money at an alarming rate and was on the verge of bankruptcy.

47. Upon information and belief, in or about March 2013, the Internal Revenue

Service ("IRS") launched an investigation of Foster, Harrison, Jackson and OXYwater following

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allegations that they improperly diverted at least $1.2 million of investors' money into their

personal banlc accounts and into another company.

48. Upon information and belief, the investigation included reviewing the financial

records of Foster and Imperial.

49. In April2013, Imperial filed for bankruptcy with little to no assets, which, upon

information and belief, cost its investors approximately $9 million. Upon information and belief,

Foster, as President and CPO of Imperial, had defrauded investors, including Smith, by creating

false sales, revenues, expenses, and profit information. The other two principals of Imperial,

Harrison and Jackson, have been indicted on charges relating to the raise of monies at Imperial

and the misappropriation of those funds. The indictment seeks more than $1.1 million in

forfeiture from Harrison and Jackson. Upon information and belief, Foster, Harrison, and

Jackson misappropriated several million dollars of investor funds between August 201 0 and into

2013.

herein.

FIRST CAUSE OF ACTION - FORVIOLATION OF-THE-SECURITIES-ACT OF1934

AND RULE lOB-5 PROMULGATED THEREUNDER

50. Plaintiffs repeat and reallege the above paragraphs as though fully set forth

51. The material misrepresentations, on which Plaintiffs relied to their detriment,

constitute fraudulent and deceptive acts and practices by the Defendants, committed lmowingly,

intentionally and/or grossly negligently and with a deliberate and/or reckless indifference to

making an accurate, fair, balanced and non-misleading presentation to Plaintiffs, in violation of

lO(b) of the Securities Exchange Act of 1934, 15 U.S.C. 78j(b), and Rule !Ob-5 promulgated

thereunder.

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52. As a direct result of Defendants' securities fraud, Plaintiffs have been injured in

an amount to be determined at trial, but believed to be no less than $4.5 million, exclusive of

interest and all attorneys' fees and costs associated in prosecuting this action.

53. As Defendants' actions were intentional and designed to deceive Plaintiffs and the

public in general, Plaintiffs respectfully requests an additional award of punitive damages.

herein.

SECOND CAUSE OF ACTION FOR SUITABILITY


55. Defendants invested Plaintiffs' money in a company which Defendants knew was

on the brink ofbankruptcy.

56. As a direct result of Defendants' unsuitable investment, Plaintiffs have been

injured in an amount to be determined at trial, but believed to be no less than $4.5 million,

exclusive of interest and all attorneys' fees and costs associated in prosecuting this action.

57. - - As Defendants' actions were intentional and designed to deceive Plaintiffs and i:he -

public in general, Plaintiffs respectfully requests an additional award of punitive damages.

herein.

THIRD CAUSE OF ACTION FOR BREACH OF FIDUCIARY DUTY


59. As Plaintiffs' business manager, Defendants owed Plaintiffs a fiduciary duty.

60. Defendants breached their duty by, among other things, making multiple

tmauthorized transactions to and from Plaintiffs' bank accounts.

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61. As a result of Defendants' breaches of their fiduciary duties, Plaintiffs have

incurred damages in an amount to be determined at trial, but no less than $8 million exclusive of

interest, costs, and attorneys' fees.

62. As a further result of Defendants' breaches, Plaintiffs are entitled to a return of

the 5% compensation Defendants received for each of the years that the respective Defendant

was paid for allegedly perfonning services.

herein.

FOURTH CAUSE OF ACTION FOR BREACH OF CONTRACT

63. Plaintiffs repeat and reallege the above paragraphs as though fhlly set forth

64. Plaintiffs had an Agreement with Foster's employers, under which Defendants

agreed to act in the best interests of Plaintiffs and their companies.

65. Smith performed all obligations undt::r the Agreement.

66. Defendants failed to perform under the contract, by making numerous

tmauthorized transactions in-Plaintiffs' accounts from2011-t

herein.

FIFTH CAUSE OF ACTION FOR NEGLIGENCE


70. As Plaintiffs' business managers, Defendants owed Plaintiffs a duty ofcare.

71. Defendants breached the duty by making numerous unauthorized transactions in

Plaintiffs' accounts commencing shortly after the beginning of their representation and

continuing through 2013.

72. These transactions caused $4.5 million to be diverted from Plaintiffs' bank

accounts to other entities, including entities in which Defendants had a direct financial interest.

73. Additionally, Defendants failed to file timely tax returns for Plaintiffs for various

years, including 2012 and 2013.

74. As a result of Defendants' improper conduct, Plaintiffs have been damaged in an

amount to be determined at trial, but no less than $8 million, exclusive of interest, costs and

.. attorney' sfeeS. - -

75. As a further result of Defendants' breaches, Plaintiffs are entitled to a reh1m of

the 5% compensation Defendants received for each of the years that the respective Defendant

was paid for allegedly performing services.

herein.

SIXTH CAUSE OF ACTION FOR CONVERSION


77. Plaintiffs have several bank accounts and, directly or indirectly, own the fi.mds in

the accounts.

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78. Defendants intentionally interfered with Plaintiffs' possessory interest in their

funds by executing numerous unauthorized transactions of the funds. Namely, Defendants made

several withdrawals from Plaintiffs' accotmts and issued the withdrawn funds to OXYwater and

Imperial without Plaintiffs' knowledge or authorization.

79. As a result of Defendants' improper conduct, Plaintiff has beeu damaged in an

amount to be determined at trial, but no less than $4.5 million, exclusive of interest, costs, and

attorney's fees.

herein.

SEVENTH CAUSE OF ACTION FOR UNJUST ENRICHMENT


81. During their relationship, Defendants diverted at least $2.5 million from

Plaintiffs' accounts to Imperial.


attorney's fees.

EIGHTH CAUSE OF ACTION FOR FRAUD AND FRAUD IN THE INDUCEMENT


herein.

84. In soliciting an investment from Plaintiffs, Defendants misrepresented to

Plaintiffs numerous facts about Imperial and OXY water and failed to inform Plaintiffs that

Imperial was on the verge of bankruptcy.

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85. The material misrepresentations and omissions by the Defendants described

above, on which Plaintiffs relied to their detriment, were fraudulent and made with the intent to

mislead Plaintiffs and induce it into investing millions of dollars in hnperial.

86. At the time they solicited the investment from Plaintiffs, Defendants knew that

the representations were false.

87. Smith relied upon Defendants' misrepresentations.


amount to be determined at trial, but no less than $4.5 million.

PRAYER FOR RELIEF

WHEREFORE, Plaintiffs respectfully requests that this Court grant the following relief:

1. An award of Plaintiffs' actual dan1ages in an amount to be determined at trial but

no less than $8 million, exclusive of interest, costs and attorney's fees.

2. Such other and fi1rther relief as this Court may deem just and proper.

Dated: New York, New York JuJyJo, zor4 - -

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T FIRM,PLLC

By: --~Ri~.c~h_ar_d~A~.R~o-th~------

295 Madison A venue, 22nd Floor New York, New York 10017 Tel: 212-542-8882 Fax: 212-542-8883 Attorneys for Plaintiffs

Neyo v Kevin Foster

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