Following its merger with Innocap, UNQL signed two notes totaling under $2.5 million with interest rates of 1137% and 11,101%,. When fully executed, these notes would have resulted in the issuance of over a billion shares of stock. This is not only a civil matter for damages but also a criminal matter, as the total interest exceeds the 25% limit established by New York law.
In Adar Bays, LLC v. GeneSYS ID, Inc., 2021 WL 4777289 (N.Y. Oct. 14, 2021), the New York Court of Appeals addressed certified questions from the United States Court of Appeals for the Second Circuit regarding New York’s usury laws. One key question was whether a stock conversion option allowing a lender to convert any outstanding balance to shares of stock at a fixed discount should be treated as interest under N.Y. Penal Law § 190.40, the criminal usury statute. The court’s answer was an unequivocal yes.
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