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LI startup accused of defrauding investors of at least $30 million

New York State Attorney General Letitia James said

New York State Attorney General Letitia James said Cardis Enterprises raised tens of millions of dollars from investors using false representations. Credit: Charles Eckert

A Cedarhurst startup has been accused of defrauding investors of at least $30 million, state Attorney General Letitia James said Thursday.

She said she has secured default judgments against Cardis Enterprises International Inc., which she said claimed its software would lower retailers’ costs to process low-value credit-card transactions. Fees merchants must pay on such small transactions lower their profit margins.

Cardis allegedly raised tens of millions of dollars from investors in stock sales and loans through false representations, including that the company was on the verge of monetizing its technology through partnerships with prominent companies and that an initial public offering or buyout of Cardis was on the horizon.

James said many of Cardis’ purported partnerships did not advance beyond preliminary discussions and an IPO or buyout was never “actually on the horizon.” She also said the company did not maintain financial records, which would be necessary to go public.

James filed a lawsuit against five Cardis executives alleging one of them used investors’ money to enrich himself, his family and his favorite charities.

According to the suit, Cardis’ “fraud was far-reaching” and many of its investors were vulnerable to the fraud because they were part of “a close-knit religious community.” Cardis obtained tens of millions through the sale of stocks, warrants and convertible notes to “more than one hundred investors,” the suit said.

Former Cardis CEO Jonathan Nierenberg, named in a news release from the Attorney General’s office, agreed to cease working for the company except for “the winding down” of operations, and agreed to pay a $100,000 penalty, James said. He also is barred from working in the securities industry for five years.

“After a short stint as the interim CEO of Cardis, Mr. Nierenberg terminated his relationship over two years ago with the company and has had nothing to do with the company since that time,” said Michael Bachner, counsel for Nierenberg. “The settlement with the Attorney General’s office was made without admitting any liability.”

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