FIRST AMENDED COMPLAINT FOR INJUNCTIVE AND OTHER RELIEF

Transcription

1 DISTRICT COURT, DENVER COUNTY, COLORADO 1437 Bannock Street Denver, CO GERALD ROME, Securities Commissioner for the State of Colorado, Plaintiff, v. JOSEPH DAVID RYAN, MADYSON CAPITAL MANAGEMENT, LLC, MADYSON EQUITY GROUP, LP, MADYSON HOLDINGS, INC., MADYSON REALTY FUND I, LLLP, and MADYSON REALTY PARTNERS, LLC, Defendants, and GABRIELLE DEMEO, and AMANDA ROSE RIZARRI, a.k.a. AMANDA ROSE RIZARI, Relief Defendants. CYNTHIA H. COFFMAN, Attorney General ROBERT W. FINKE, 40756* First Assistant Attorney General CATHERN H. SMITH, 39715* Assistant Attorney General Ralph L. Carr Judicial Building 1300 Broadway, 8 th Floor Denver, CO Finke Tel: (720) Smith Tel: (720) Fax: (720) Robert.Finke@coag.gov Cathern.Smith@coag.gov *Counsel of Record COURT USE ONLY Case No.: 2017CV34027 Courtroom: 215 FIRST AMENDED COMPLAINT FOR INJUNCTIVE AND OTHER RELIEF

2 Plaintiff Gerald Rome, Securities Commissioner for the State of Colorado, by and through his counsel, the Colorado Attorney General and undersigned counsel, alleges as follows for his Complaint for Injunctive and Other Relief against the Defendants: JURISDICTION 1. Plaintiff Gerald Rome is the Securities Commissioner for the State of Colorado. Pursuant to , C.R.S., the Commissioner is authorized to bring this action in which he may seek temporary, preliminary, and permanent injunctive relief, along with other equitable relief, against the Defendants upon sufficient evidence that the Defendants have engaged in or are about to engage in any act or practice constituting a violation of any provision of the Colorado Securities Act ( Act ). The Act expressly provides that any violation of the Act is deemed to constitute the transaction of business within this state providing jurisdiction pursuant to , C.R.S (4), C.R.S. 2. Venue is proper in the district court for the City and County of Denver, Colorado (1), C.R.S. SUMMARY OF THE ACTION 3. Defendant Joseph David Ryan and the Madyson entity defendants solicited investors to invest in the various Madyson Investments telling most investors that the companies were being formed to acquire residential and commercial properties to own and operate for a holding period. In reality, the Defendants were soliciting investors to acquire money to pay for the extravagant life-style of Ryan, his friends, and family. Following Ryan s investment advice, many investors redirected money from their retirement accounts to the Madyson Investments. 4. In violation of the anti-fraud provision of the Act, the Defendants represented to investors that the Madyson Investments were low-risk, guaranteed, safe, and profitable investments, while failing to disclose, among other things, conflicts of interest, misuse of investor funds, and misappropriation of assets purchased with investor funds. For example, Defendants failed to disclose that investor funds would be used to purchase: (a) a mansion that would become Ryan s personal residence as well as a residence in Colorado that his wife would occupy and a residence in Nevada that his personal assistant would occupy; (b) at least four (4) luxury vehicles; (c) at least $81,000 of medical expenses for treatment of Ryan s girl friend at drug rehabilitation and 2

3 detoxification facilities; (d) at least $10,000 worth of goods from Tiffany s and other personal expenses of Ryan, his friends, and family. These material omissions constitute violations of the anti-fraud provisions of the Act. 5. Ryan personally solicited and sold investments to at least 78 persons living in Colorado Springs, Aurora, Denver, Centennial and other Colorado cities. At the end of the second quarter of 2017, Madyson Capital Management, LLC had 101 clients throughout the United States whose accounts were collectively valued at approximately at $13.2 million. 6. As of the date of this filing, no Madyson investor has received their third quarter dividend 2017 payment. Furthermore, Ryan changed his cell phone number and investors no longer have a way to contact him personally. DEFENDANTS 7. Joseph David Ryan ( Ryan ) is a married adult male whose last known address is Whitehills Street, Las Vegas, NV The following entity defendants are referred to collectively as Madyson Investments. Ryan is the sole control person of Madyson Investments, controlling employees access to books and records, with sole access to the Madyson Investments bank accounts, investor disclosures, and serving as the executive officer of Madyson Holdings, Inc. and director of Madyson Realty Partners, LLC. a. Madyson Capital Management, LLC is a Colorado Limited Liability Company with a last known address of 3204 N. Academy Blvd Ste. 120, Colorado Springs, CO Its registered agent is Defendant Ryan, 3204 N. Academy Blvd Ste. 120, Colorado Springs, CO Madyson Capital Management also does business under the names of Madyson Capital Money Market Fund and Madyson Fund I, although neither entity is registered with the Colorado Secretary of State. b. Madyson Equity Group, LP is a Colorado Limited Partnership with a last known address of 3204 N. Academy Blvd Ste. 120, Colorado Springs, CO Its registered agent is Defendant Ryan, 3204 N. Academy Blvd Ste. 120, Colorado Springs, CO c. Madyson Holdings, Inc. is a Colorado Corporation with a last known address of 3204 N. Academy Blvd Ste. 120, Colorado Springs, CO Its registered agent is Defendant Ryan, 5720 Linger Way, Colorado Springs, CO

4 d. Madyson Realty Fund I, LLLP is a Colorado Limited Liability Limited Partnership with a last known address of 3265 West Carefree, #B, Colorado Springs, CO Its registered agent is Madyson Holdings, Inc., 5420 Majestic Drive, Colorado Springs, CO e. Madyson Realty Partners, LLC is a Colorado Limited Liability Company with a last known address of 3204 N. Academy Blvd Ste 120, Colorado Springs, CO Its registered agent is Defendant Ryan, 5720 Linger Way, Colorado Springs, CO RELIEF DEFENDANTS 9. Relief Defendant Gabrielle DeMeo is an adult female individual whose last known addresses are Whitehills Street, Las Vegas, NV and Corsica Mist Ave., Las Vegas, NV Ms. DeMeo is the girlfriend of Defendant Ryan. 10. Relief Defendant Amanda Rose Rizarri, a.k.a. Amanda Rose Rizari, is an adult female individual whose last known address is 782 Vortex Avenue, Henderson, NV Ms. Rizarri was employed or otherwise engaged by Madyson Investments as the personal assistant of Defendant Ryan. GENERAL ALLEGATIONS 11. Many investors were introduced to Ryan through Farrah Tax Advisory and Senior Planning Group ( Farrah ). Farrah offered and sold annuities to its clients. Ryan did all of Farrah s clients tax returns - free of charge. 12. In late 2015, Ryan purchased a book of business from Farrah Tax Advisory. Shortly after purchasing Farrah s book of business, Ryan gave the former Farrah clients the option of either (i) cashing out their annuities and investing their money in Madyson Investments, or (ii) in the alternative, transferring their annuities to another financial management or investment advisory firm. 13. While some clients kept their annuities, a significant number of individuals cashed out their annuities and purchased Madyson Investments. Investors were told that Ryan would invest their money in various real estate investments, including commercial real estate assets that would be owned and managed directly by Madyson as well as real estate investment trusts ( REITs ). At least one investor was initially told that his money would be invested in the 4

5 stock market, but that later shifted to investing in commercial real estate assets and real estate investment trusts. 14. Madyson Investments is an intertwined set of entities. Investors were told that the business plan was to acquire properties, operate them at a profit during a holding period, and then sell the properties for a profit at the end of the holding period. Some investors were told that a cash reserve would be maintained to meet liquidity needs and that these funds would be invested in the markets. 15. The form of the investment opportunity varied. Some investors were offered stock, while other investors were offered units of interest in an LLC, or limited partnership interests, but in all cases the investors were passive. For example, investors had no role in determining the criteria for selecting other investors, did not assess the eligibility of other investors, did not select assets to be acquired with investor funds, did not actively manage property acquired with investor funds, did not participate in management meetings, or play any other direct role. 16. Defendants provided investors with marketing materials that summarized the investment opportunities. Although Private Placement Memorandums ( PPMs ) and other detailed offering materials were prepared, they were not provided to most investors until after they invested if at all. When training sales representatives to solicit investors, Ryan instructed sales representatives to tell investors that returns were guaranteed, there were effectively no risks aside from fluctuations in the real estate market, and that Ryan or Khristie Craver, an employee of Madyson Investments, would provide the PPMs and other relevant documents to investors after they decided to invest, filled out the application form, and were enrolled. 17. Investors were told that their annualized returns would range from 6% to 10%. Some investors were told that their investment was guaranteed. 18. Madyson charged investors an annualized fee of approximately 1.05% of the amount of the investment. 19. Each quarter, investors received statements from Defendants showing that their accounts were growing at the stated rate of return. Investors had the option of reinvesting the dividends earned or taking their dividends in cash. 20. The following known residential and commercial properties in Colorado Springs, CO - all purchased with investor funds - were originally titled 5

6 in the name of Madyson Equity Group, LP, Madyson Capital Management, LLC, or in Ryan s personal name: a Northwind Dr., Colorado Springs, CO (titled in the name of Madyson Equity Group, LP); b E Pikes Peak Ave, Colorado Springs, CO (titled in the name of Madyson Equity Group, LP); c E Pikes Peak Ave, Colorado Springs, CO (titled in the name of Madyson Equity Group, LP); d Julynn Rd, Colorado Springs, CO (titled in the name of Madyson Equity Group, LP); e Denton Grv. #101, Colorado Springs, CO (originally titled in the name of Madyson Equity Group, LP and transferred to James Hall 10/13/2017); f Linger Way, Colorado Springs, CO (originally titled in Ryan s name and transferred to Tyler Erhardt 10/19/2017); and g Camel Grv, Colorado Springs, CO (titled in Ryan s name). Websites such as Zillow and Loopnet provide an estimated, combined market value of the five (5) properties titled in the name of Madyson Equity Group, LP of approximately $4,130, The following known residential and commercial properties located in and around Las Vegas, Nevada - all purchased with investor funds - were originally titled in the name of Madyson Capital Management, LLC, Madyson Equity Group, LP, or Madyson Realty Partners, LLC. a. 217 N 9th St, Las Vegas, NV (titled in the name of Madyson Capital Management, LLC); b Sunrise Ave, Las Vegas, NV (titled in the name of Madyson Equity Group, LP); c Sunrise Ave, Las Vegas, NV (titled in the name of Madyson Equity Group, LP); 6

7 d Clifford Ave, Las Vegas, NV (titled in the name of Madyson Capital Management, LLC); e S 3rd St, Las Vegas, NV (titled in the name of Madyson Capital Management, LLC); f Pentland Downs St, Enterprise, NV (titled in the name of Madyson Capital Management, LLC); g. 782 Vortex Ave, Henderson, NV (records of the Clark County Recorder state that Madyson Capital Management, LLC and Rizarri each received an undivided 50% interest in 782 Vortex Avenue on August 15, 2017 and that Madyson Capital Management, LLC, a Colorado limited liability company, conveyed the remaining 50% interest to her on October 17, 2017 making her the sole owner. When 782 Vortex Ave was purchased, Ms. Rizarri could not qualify for a mortgage on the property by herself.); and h Whitehills St, Las Vegas, NV (titled in the name of Madyson Realty Partners, LLC). Information obtained from websites such as Zillow and Loopnet indicate that these properties are worth approximately $4,527, The following known bank accounts are known to have either directly or indirectly, received investor funds: a. Wells Fargo Account No owned by Melodee and Joseph Ryan; b. Wells Fargo Account No owned by Joseph Ryan; c. Wells Fargo Account No owned by Joseph Ryan; d. Wells Fargo Account No owned by Madyson Equity Group, LP; e. Bank of America Account No owned by Joseph Ryan; f. Bank of America Account No owned by Madyson Capital Management, LLC; g. Pacific Premier Bank Account No owned by Madyson Capital Management, LLC; 7

8 h. E*Trade Account No owned by Joseph D. Ryan; i. E*Trade Account No owned by Madyson Equity Group, LP; j. JPMorgan Chase Bank Account No owned by Madyson Capital Management, LLC; k. JPMorgan Chase Bank Account No owned by Joseph Ryan; l. JPMorgan Chase Bank Account No owned by Joseph Ryan; m. Wells Fargo Account No owned by Madyson Capital Management, LLC; and n. Wells Fargo Account No owned by Madyson Capital Management, LLC. The aforementioned bank accounts are hereinafter referred to as the Bank Accounts. 23. Ryan misused funds of Madyson Investments investors in at least the following undisclosed ways: a. Telling investors that the properties purchased with their funds would generate rental income when in truth some properties would be occupied by persons who did not pay rent or make other payments sufficient to generate income. For example: i. Purchasing a high-end, residential property at Whitehills Street, Las Vegas, NV for rental when, in truth, instead of renting out the property, Ryan took up residence there; ii. Purchasing a residential property at 782 Vortex Avenue, Henderson, NV for rental when, in truth, Ryan purchased the property to provide housing for Relief Defendant Rizarri who could not qualify for a mortgage on her own and transferring title to her through a two-step process where she acquired an undivided 50% interest on or about August 15, 2017 and became the sole title holder on or about October 17, The down payment of $149, was paid to Chicago Title of Nevada Inc. through a wire transfer sent from Madyson Capital Management, LLC s Wells 8

9 Fargo bank account number on or about July 20, Instead of renting out the property, Ryan allowed Relief Defendant Rizarri to live there rent free; iii. Upon information and belief that Ryan s wife is living in a 4 bedroom, six bathroom, 6,848 square foot home on a 22,918 square foot lot at 3725 Camel Grv, Colorado Springs, CO, purchased with investor funds without paying rent and that her parents are paying little to no rent while living in another home in Colorado Springs purchased with investor funds. b. Withdrawing significant amounts of investor funds from Madyson Investment bank accounts in the form of shareholder draws. For example, on May 23, 2016 Ryan took a Shareholder Draw in the amount of $225,000 from the Wells Fargo account ending in 7350 belonging to Madyson Holdings, Inc. On June 10, 2016, Ryan took a $5,000 Shareholder Dividend, followed by an $110,000 payment (without a notation in the memo field) on June 21, 2016 all from the same Wells Fargo bank account. c. Compensating his personal assistant at rates far in excess of market rates and transferring money generated directly or indirectly from investor funds to Relief Defendant Rizarri without receiving reasonably equivalent value. For example: i. Paying Ms. Rizarri, a former bartender, a $50,000 signing bonus for becoming his personal assistant through check number 26322, dated April 12, 2017, drawn on Madyson Capital Management, LLC s Wells Fargo bank account no ; and purchasing a Cadillac for $109,500 from Findlay Cadillac on or about April 14, 2017 for Rizarri s use and/or ownership; ii. Transferring $48,950 to Rizarri for the two month period beginning July 10, 2017 and ending September 11, 2017 through seven checks drawn on Madyson Capital Management, LLC s Bank of America account nos and ; iii. Transferring $8000 to Rizarri in July-August 2017 through check nos and 7163 drawn on Madyson 9

10 Capital Management, LLC s Wells Fargo bank account number ; and iv. Transferring an additional $2000 to Rizarri on September 21, 2017 through check no drawn on Madyson Capital Management, LLC s Chase bank account no Excluding the $50,000 signing bonus, Ms. Rizarri was paid a total of $58,950 for the nearly two and a half months beginning July 10, 2017 and ending September 21, d. Purchasing at least five (5) luxury vehicles: two (2) Range Rovers, a Porsche, a Cadillac and an Audi. For example, on March 14, 2017, Ryan transferred $149,422 from Madyson Equity Group, LP s checking account ending with 1341 at Wells Fargo to Ryan s personal checking account ending with 8277 at Wells Fargo. Three days later, on March 17, 2017, Ryan spent $149,422 at Land Rover of Las Vegas. e. Paying at least $81,000 to drug rehabilitation and treatment facilities ($11,450 on May 1, 2017 to Access Malibu and $69, on May 3, 2017 to Cliffside Malibu) for the treatment of Relief Defendant DeMeo. Total payments for DeMeo s treatment may exceed $100,000. f. Purchasing expensive personal items with investor funds, including $10, from Tiffany s on May 12, 2017, $ from Deja Vus Adult Emporium on April 3, 2017, and $3, from Victoria s Secret on May 21, g. Giving Relief Defendant Gabrielle DeMeo a birthday gift of $1,500 from Madyson Capital Management LLC s Wells Fargo bank account no in November Defendants failed to disclose (i) the conflicts of interest between Defendant Ryan and investors stemming from the use of investor funds to purchase real estate, automobiles, and consumer goods and services with investor funds, and (ii) the lack of financial controls to prevent misuse of investor funds, including the issuance of an American Express Card to Defendant Ryan and others. 25. Defendants engaged in at least one sham transaction which resulted in Relief Defendant Gabrielle DeMeo (i) getting a fictitious $700,000 investment in Madyson Equity Group without actually investing $700,000, and 10

11 (ii) then - as if she were a legitimate investor receiving actual or accrued dividends on her $700,000 investment. DeMeo completed a subscription agreement for Madyson Equity Group and a Madyson Application on which she checked the box to indicate that a transfer of $700,000 payable to Madyson Capital Management LLC would follow. The subscription agreement indicates it was accepted by Ryan on behalf of Madyson Equity Group on January 11, 2016 and DeMeo received periodic Quarterly Investor Account Summaries showing an initial investment of $700,000 with dividends. 26. Some real estate investments made by Madyson Investments were purchased outright, while others were financed through hard money lenders. In some cases, equity was removed from the properties through first, second, and third mortgage loans. Once the equity was converted to cash, it could be used to make periodic payments to investors and to finance Ryan s lavish lifestyle. However, the properties were no longer profitable and did not generate sufficient cash flow to service all of the debt and pay investors. At least 1 property is in foreclosure. Misrepresentations and Omissions of Material Fact 27. In connection with the offer, purchase, and sale of securities of Madyson Investments to investors as described herein, Defendants, either directly or indirectly, made untrue statements of material fact or failed to disclose to investors material facts, which were necessary to make the statements Defendants made to investors, under the circumstances in which they were made, not misleading. The omitted and untrue statements of material fact that investors did not know included, but were not limited to, the following: a. That the properties would be operated profitably when in truth many properties could not profitably carry the full debt load, and collectively the properties do not generate profits to pay expenses and periodic payments to investors; b. That the properties would be sold for a profit at the end of a holding period, when in truth Defendants extracted the equity from properties by taking out loans; c. That Ryan would personally withdraw significant amounts from the bank accounts of Madyson Investments in the form of a Shareholder Draw, Shareholder Dividend or for other unspecified purposes without regard to the underlying safety and soundness of the investments to the detriment of investors; 11

12 d. That Ryan would routinely disperse monies from the Bank Accounts to friends and family without receiving reasonably equivalent value and without regard to the underlying safety and soundness of the investments to the detriment of investors. For example, (i) at least $113, was disbursed from the Bank Accounts directly to Relief Defendant DeMeo, who had no known duties at Madyson Investments; (ii), including her $50,000 signing bonus, at least $108,950 would be paid to Relief Defendant Rizarri from the Bank Accounts; and (iii) a $149, wire payment was made from a Madyson Capital Management, LLC bank account payable to Chicago Title of Nevada Inc. for the purchase of 782 Vortex Ave in Henderson, Nevada for the direct benefit of Relief Defendant Rizarri who did not qualify for a mortgage on the property herself and who resided in the property without paying market rents; e. That the Madyson Investments were guaranteed, low-risk investments, when in truth, there was no guaranty and, as operated, the investment was high-risk; f. That the residential real estate property located at Whitehills Street, Las Vegas, NV would be operated as a profitable rental property, when in truth Ryan would reside in this property and pay the mortgage without making any supplemental payment to generate income for the investors; g. That the residential real estate properties purchased with investor funds would be occupied by friends and family, including at least Ryan s wife, her parents, and the Relief Defendants, and that instead of renting these residential properties out at a profit, the Defendants would permit friends and family to live in the properties rent free or to pay below market rates. Additionally, investors were not told that Relief Defendant Rizarri would ultimately get full title to 782 Vortex Avenue, Henderson, NV without paying fair value; h. That investor monies would be used for at least one birthday gift and to purchase luxury vehicles, lingerie, jewelry, and other consumer goods; i. That investor monies would be used to pay for medical care for Relief Defendant Gabrielle DeMeo, adult entertainment, and other personal services; 12

13 j. That investor monies would be used to pay a $50,000 signing bonus to Relief Defendant Rizarri when she left her bartending job to become Ryan s personal assistant and that Rizarri would be compensated at rates far above the market rate for a personal assistant.; k. That conflicts of interest existed between Ryan and investors who did not live on the properties or receive the benefits of goods purchased for Ryan, his friends, and family; l. That at least one sham investment transaction would be created by granting Relief Defendant DeMeo a fictitious $700,000 interest in Madyson Equity Group and then treating DeMeo as if she were a legitimate investor, providing her with periodic statements showing dividends; and m. Lack of financial controls to prevent the misuse of investor funds, the dissipation of investor funds through the purchase of consumer goods and services with a corporate credit card, and the creation of sham investment transactions such as the fictitious $700,000 investment of Relief Defendant DeMeo. These material omissions constitute violations of the anti-fraud provisions of the Act. 28. Approximately six months ago, Madyson Investments began having trouble repaying investors. For example: a. Investor J.C. Ryan failed to hold quarterly meetings with investor J.C. in April or July Staff of Madyson Investments informed J.C. that Ryan was in Las Vegas, Nevada establishing a second office. J.C. called Ryan and stated that he wanted to withdraw $30,000 from his account. On August 10, 2017, Ryan called J.C. and the two decided that J.C. would withdraw only $15,000 because of tax consequences detailed by Ryan. The $15,000 was supposed to be deposited in J.C. s bank account on August 23, 2017, but was not. J.C. lost confidence in Ryan and, on August 28, 2017 he filed paperwork to cash-out his entire $371,895 Madyson Investment. J.C. received just $15,000 from Madyson on September 8, Despite being informed by Ryan s attorney that it was Madyson s intent to satisfy [his] request within thirty (30) days, J.C. has not received the rest of his money. b. Investor K.D. When K.D. had difficulty cashing out his investment he filed a complaint with the Colorado Attorney General s 13

14 Office. K.D. later withdrew the complaint after receiving payment. Interestingly, Ryan obtained the funds to pay K.D. through a check-kiting scheme. Ryan deposited a $360,000 check written to himself from his Pacific Premier Bank account into his Wells Fargo account on August 14, The next day, August 15, 2017, Ryan purchased a $349,215 cashier s check payable to K.D. from Wells Fargo. Then, on August 24, 2017, Pacific Premier Bank returned Ryan s check to Wells Fargo for nonsufficient funds. 29. Madyson employees stopped receiving their pay through direct deposits in August 2017 and Ryan began to pay employees from his personal account. 30. At the time the Receiver was appointed, Defendants were liquidating the real estate held by Madyson Investments. Properties in Colorado and Nevada had recently been sold and other properties were listed. 31. Former employees confirm that the sale of the properties cannot generate nearly enough money to repay investors. FIRST CLAIM FOR RELIEF (Securities Fraud) (All Defendants) 32. Paragraphs 1 through 31 above are incorporated herein by reference. 33. The preferred stock, units in the entities, and other investment contracts in Madyson Investments are securities as that term is defined in (17), C.R.S. in that they are at least a stock, certificate of interest or participation in any profit-sharing agreement, investment contract, or, in general, any interest or instrument commonly known as a security. 34. In connection with the offer, sale, or purchase of securities in Colorado, Defendants Ryan, Madyson Capital Management, LLC, Madyson Equity Group, LP, Madyson Holdings, Inc., Madyson Realty Fund I, LLLP and Madyson Realty Partners, LLC, directly or indirectly, in violation of (1), C.R.S.: a. employed a device, scheme, or artifice to defraud; 14

15 b. made written and oral untrue statements of material fact or omitted to state material facts necessary to make the statements made, in light of the circumstances under which they were made, not misleading; or c. engaged in acts, practices, or courses of business which operated or would operate as a fraud and deceit on investors. 35. The Commissioner is entitled to a preliminary and permanent injunction against Defendants Ryan, Madyson Capital Management, LLC, Madyson Equity Group, LP, Madyson Holdings, Inc., Madyson Realty Fund I, LLLP and Madyson Realty Partners, LLC, their officers, directors, agents, servants, employees, successors and attorneys-in-fact, as may be; any person who, directly or indirectly, through one or more intermediaries, controls, is controlled by, or is under common control with the Defendants; and all those in active concert or participation with the Defendants, enjoining violation of (1), C.R.S., by virtue of (1), C.R.S. 36. The Commissioner is also entitled to an award of restitution, disgorgement, and other equitable relief on behalf of persons injured by the conduct of the Defendants pursuant to (2), C.R.S. 37. The Commissioner is also entitled to a joint and several award of rescission, damages, interest, costs, attorney fees, and other legal or equitable relief, including disgorgement, on behalf of persons injured by the conduct of the Defendants pursuant to (2) and 604(3) and (5), C.R.S. SECOND CLAIM FOR RELIEF (Imposition of Constructive Trust or Equitable Lien) (Defendants Ryan, Madyson Capital Management, LLC, Madyson Equity Group, LP, Madyson Realty Partners, LLC, Amanda Rizarri and Gabrielle DeMeo) 38. Paragraphs 1 through 37 are incorporated herein by reference. 39. As a consequence of the fraudulent, wrongful, unlawful and inequitable conduct of Ryan, Madyson Capital Management, LLC, Madyson Equity Group LP, Madyson Holdings, Inc., Madyson Realty Fund I, LLLP and Madyson Realty Partners, LLC, as alleged above, the Relief Defendants, Ryan, Madyson Capital Management, LLC, Madyson Equity Group, LP, Madyson Holdings, Inc., Madyson Realty Fund I, LLLP and Madyson Realty Partners, LLC have obtained Property Interests, Funds and Profits therefrom which in justice and equity belong to investors. 15

16 40. These Property Interests, Funds and Profits include, but are not limited to, all of the Relief Defendants, Ryan, Madyson Capital Management, LLC, Madyson Equity Group, LP, Madyson Holdings, Inc., Madyson Realty Fund I, LLLP and Madyson Realty Partners, LLC s ownership interest in the aforementioned real properties, the Bank Accounts, monies received by the Relief Defendants from the Bank Accounts, and all profits (whether measured by revenues in excess of operating costs or otherwise) arising out of the operations at or the sale of the aforementioned properties and Bank Accounts, and all sums derived from the investment of such profits and any assets purchased therewith, together with an amount equal to the remaining present value of the said property and/or Bank Account. 41. Relief Defendants and Defendant Ryan received these fraudulently obtained Property Interests, Funds and Profits without giving a reasonably equivalent value in exchange and, as a result, have no legitimate right or claim to these Property Interests, Funds, and Profits. Joseph David Ryan, Gabrielle DeMeo, and Amanda Rizarri will each, therefore, be unjustly enriched if they are allowed to maintain ownership of the Property Interests, Funds and Profits fraudulently obtained. 42. The Relief Defendants, Ryan, Madyson Capital Management, LLC, Madyson Equity Group, LP, Madyson Holdings, Inc., Madyson Realty Fund I, LLLP and Madyson Realty Partners, LLC hold said Property Interests, Funds and Profits in constructive trust or in a manner in the nature of a constructive trust for the benefit of the investors and must account to the investors and the plaintiff for all such property, Bank Accounts, monies received by Relief Defendants from the Bank Accounts and all such sums of money, all profits derived from the investment of such money and any assets purchased therewith, together with the remaining property. Moreover, these Property Interests, Funds and Profits, sums of money, profits, and assets are impressed with an equitable lien for the benefit of the investors. Accordingly, ownership of all such property interests, funds, sums of money, profits, and assets must be accounted for and adjudicated to be vested in the investors. 43. Accordingly, the Commissioner requests that the Court impose a constructive trust and/or equitable lien on all of the aforementioned Property Interests and Profits and any fraudulently obtained funds received by Defendant Ryan, Madyson Capital Management, LLC, Madyson Equity Group, LP, Madyson Holdings, Inc., Madyson Realty Fund I, LLLP and Madyson Realty Partners, LLC and Relief Defendants, and order Defendant Ryan, Madyson Capital Management, LLC, Madyson Equity Group, LP, Madyson Holdings, Inc., Madyson Realty Fund I, LLLP and Madyson Realty Partners, LLC, and each of 16

17 the Relief Defendants, and any entity controlled by them, to account for and disgorge all properties and funds received by them. WHEREFORE, Plaintiff prays for relief as follows: 44. For temporary, preliminary and permanent injunctive relief against the Defendants Joseph David Ryan, Madyson Capital Management, LLC, Madyson Equity Group, LP, Madyson Holdings, Inc., Madyson Realty Fund I, LLLP and Madyson Realty Partners, LLC enjoining them from any violation of the Act and ordering the non-destruction of records. 45. For a judgment in an amount to be determined at trial against each Defendant, jointly and severally, for restitution, disgorgement, and other equitable relief pursuant to (2), C.R.S. and for damages, rescission, interest, costs, reasonable attorney fees, and such other legal and equitable relief as the Court deems appropriate, pursuant to (2) and 604, C.R.S., all on behalf of all persons injured by the acts and practices of all Defendants violations of the Colorado Securities Act. 46. For an Order imposing a constructive trust and an equitable lien on the fraudulently obtained Property Interest, Funds and Profits held by Joseph David Ryan, Madyson Capital Management, LLC, Madyson Equity Group, LP, Madyson Holdings, Inc., Madyson Realty Fund I, LLLP, Madyson Realty Partners, LLC, Amanda Rizarri and Gabrielle DeMeo, or any entity controlled by them, and to order these Defendants and Relief Defendants to account for and disgorge all funds and/or property fraudulently obtained by them from the investors and/or transferred to them. 47. For such other and further relief as the court deems just and proper. Dated this 23 rd day of February, CYNTHIA H. COFFMAN Attorney General /s Cathern H. Smith ROBERT FINKE, 40756* First Assistant Attorney General CATHERN H. SMITH, 39718* Assistant Attorney General Financial and Health Services Unit Attorneys for Plaintiff Gerald Rome, Securities Commissioner *Counsel of Record 17

18 CERTIFICATE OF SERVICE This is to certify that I duly served the foregoing FIRST AMENDED COMPLAINT FOR INJUNCTIVE AND OTHER RELIEF upon all parties herein via the Colorado Courts E-Filing system, and by depositing copies of same in the United States mail, first-class postage prepaid, at Denver, Colorado, this 23 rd day of February, 2018, addressed as follows: Martin M. Berliner Berliner McDonald P.C S. Syracuse Way, Suite 100 Greenwood Village, CO Attorney for Defendants Joseph David Ryan and the Madyson Entities John C. Smiley Sender & Smiley, LLC th Street Suite 2800 South Denver, CO Receiver Gabrielle DeMeo Whitehills Street Las Vegas, NV Relief Defendant (Entry of Default entered Dec. 19, 2017) Tobin D. Kern VOLANT LAW LLC 333 W. Hampden Ave., Ste Englewood, CO Attorney for Amanda Rose Rizarri Michael T. Gilbert Gilbert Law Office, LLC th Street, Suite 240 Denver, CO Attorney for John C. Smiley, Receiver Gabrielle DeMeo Corsica Mist Ave. Las Vegas, NV Relief Defendant (Entry of Default entered Dec. 19, 2017) /s William Russell 18