Nexus Services Inc. continues to be bludgeoned by courts, accused of playing 'shell game'

HARRISONBURG — The hits just keep on coming for Nexus Services Inc. as the company continues to be bludgeoned by the courts.

Last week, a federal judge ordered the former Verona company be placed into receivership in an ongoing six-year legal battle with an Illinois Insurance company, forcing Nexus to finally open up its books in an effort to scrutinize its finances.

In another gut punch, a United States Supreme Court decision last week could deeply impact a recent federal lawsuit where Nexus and its defendants were ordered to pay hundreds of millions of dollars.

Nexus once helped post bond through third-party licensed bondsmen with federally-approved insurance companies for people held in immigration detention centers while they awaited court cases.

However, after pulling in more than $200 million over a span of nine years, last summer the company's office complex was sold at a public auction for $3.4 million. Then, in March, Nexus, along with its owners and a former owner, who is now jailed, was ordered to pay a staggering sum of $811 million in federal court for violating various state consumer protection laws and the Consumer Financial Protection Act of 2010. The case was spearheaded by the Consumer Financial Protection Bureau (CFPB) along with the states of Virginia, New York and Massachusetts.

The 17-count CFPB lawsuit was filed in 2021 against Nexus, its subsidiary, Libre by Nexus, CEO Mike Donovan, his spouse, Richard Moore, and Evan Ajin, a vice president at Nexus who once owned 10 percent of the company. The complaint said Nexus and the defendants engaged in a "slew of deceptive conduct" while operating the business. Donovan and Moore have past criminal convictions.

Donovan — the company's former majority owner who is facing unrelated felony theft charges in Augusta County and will go on trial this summer — had hoped publicly that the Supreme Court would come to the rescue in a suit that was initially brought forth by payday lenders, who held that the CFPB's funding mechanism was unconstitutional. In 2022, the somewhat controversial Fifth Circuit Court of Appeals in New Orleans ruled in favor of the Community Financial Services Association of America, fueling optimism in the Nexus camp as the case was sent to the highest court in the land.

“I am also confident the Supreme Court will rule in favor of the Fifth Circuit's interpretation of the constitutionality of the CFPB, likely mooting this judgement entered against us today,” Nexus CEO Mike Donovan told The News Leader last month following the $811 million ruling.

His confidence was misplaced. Last week, the U.S. Supreme Court reversed the lower court's previous ruling in a 7-2 decision.

"Yesterday, the Supreme Court rejected a radical theory that would have rattled financial markets by injecting uncertainty into all of the CFPB’s actions taken since day one. In its opinion, the Court repudiated the arguments of the payday loan lobby. The Court’s ruling makes clear the CFPB is here to stay," CFPB Director Rohit Chopra said a day after the ruling.

While Nexus awaited the Supreme Court's decision, the defendants appealed the $811 million ruling and filed a motion to stay the massive judgement. In April, the company was apparently sold to a Pennsylvania businessman for the bargain basement price of $3.50. Attorneys for the government claim the sale was illegal. Nexus attorney Zachary Lawrence said in a recent Fourth Circuit Court of Appeals filing that the sale, which he argued is legal, was equivalent to a "more realistic" price of $21 million if one were to combine assumed liabilities with the purchase price.

Monday, following the Supreme Court's ruling validating the CFPB's funding mechanism, attorneys for the CFPB filed paperwork notifying the court of the decision "which squarely forecloses an argument raised in Defendants’ pending motion for a stay pending appeal."

A day after the Supreme Court brushed aside the CFPB challenge and deprived Nexus of one of its last remaining hopes in the $811 million lawsuit, the company and its owners were slapped down again in an unrelated federal case involving the RLI Insurance Company. In that case, a judge ruled Nexus must go into receivership, meaning it will finally have to open its books and records to allow post-judgement discovery.

Nexus has been involved in a legal fight with RLI since 2018, when the Illinois company filed a complaint in federal court that sought an injunction to an indemnity agreement. In its initial complaint, RLI said Nexus failed in several instances "to timely pay bond claims, despite contrary representations to RLI, exposing RLI to additional interest and penalties in excess of the bond’s penal sums."

In 2020, Chief U.S. District Judge Michael Urbanski ordered Nexus to pay $3.3 million in losses, costs, damages, fees for attorneys and expenses in the case. But Nexus stalled, delaying collection efforts during the post-discovery process and hindering the court's effectiveness in determining the company's ability to pay, court records state.

In March, a special master appointed by the court filed a report detailing his efforts to get Nexus to comply with the outstanding discovery issues. In the report, he noted Nexus made a suspicious administrative transfer of its financial operations to a company called Subversivo — whose owner, David See, is a former Nexus executive — in an alleged effort to hide assets, according to court records.

"The contractual arrangement between Nexus and Subversivo is little more than a badge of fraud," the special master said. "The contractual arrangement between Nexus and Subversivo is a fraudulent conveyance by a cynical debtor determined to conceal its assets and financial records from its creditor."

Nexus now claims it can't get its records from Subverisvo. RLI characterized Nexus's failure to obtain its own records "as mere theatre."

"It is simply inconceivable that Nexus is operating as an ongoing business for nearly two years (since the services agreement was signed) and no one in the company knows what it is spending money on and that nowhere in its possession, custody, or control is a single third-party invoice, check, transfer, receipt or other document," RLI said.

While placing Nexus into receivership, Judge Urbanksi noted in his opinion the company shifted its revenue stream to Subversivo "to pay Nexus’s payroll and vendors, and to repay a $1 million Subversivo loan, to the detriment of RLI. In light of this blatant diversion of Nexus’s assets to make preferential payments to its vendors and lender, it is no wonder that the Special Master saw no option other than to recommend appointment of a receiver for Nexus."

The judge said the company's "years-long pattern of noncompliance and deception, evident most recently in the Subversivo shell game, leaves it no choice but to appoint a limited receiver."

Nexus said it transferred all of its financial records to Subversivo because no banks or financial institutions would work with them, according to court records. But Urbanski said that didn't explain why Nexus had failed to provide RLI with financial records handled by Subversivo for the last two years.

In an earlier court filing, RLI said Nexus collected nearly a quarter-of-a-billion dollars from 2013 and 2022, but the legal team for RLI doesn't know where the money went. "One of the key questions in post-judgment discovery has been where did all the revenue go that was earned by Defendants and Entities?" the filing said.

In July, Donovan and Moore are scheduled to go on trial after being accused of stealing $426,000 from the brother of Florida school shooter Nikolas Cruz. Timothy Shipe, a former Nexus executive, is charged in the case as well.

Moore also has a pending tax case in federal court, where he is facing 10 federal charges of employment tax fraud along with two charges of aiding and assisting in the preparation of a false tax return. He's accused of bilking the IRS out of an estimated $1.5 million while he worked at Nexus. The federal trial is scheduled to begin in December.

According to the Augusta County Commonwealth’s Attorney’s Office, Moore has been convicted of fraud 11 times and charged with a total of 33 felonies in Virginia, not including his current federal charges. Up until 2022, Moore had 39% ownership of Nexus before transferring his interest to Donovan.

Moore is currently incarcerated at Middle River Regional Jail in Verona after botching a plea deal in a relatively minor perjury case in Augusta County, where he was convicted of lying to a magistrate in 2019. He is serving a nine-month sentence.

Court records show Donovan has a dozen convictions for past crimes, the last coming in 2011. The charges include grand larceny, obtaining money by false pretenses, forgery, and writing bad checks.

Attorneys for Nexus declined comment for this article.

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Brad Zinn is the cops, courts and breaking news reporter at The News Leader. Have a news tip? Or something that needs investigating? You can email reporter Brad Zinn (he/him) at bzinn@newsleader.com. You can also follow him on X (formerly Twitter).

This article originally appeared on Staunton News Leader: Courts continue to hammer Nexus Services Inc.