Attorneys for the chief financial officer of a merchant cash advance company accused of fixing finances said a former general counsel does not have standing to file a shareholder derivative suit because he had his shares repurchased.

In December, Steven Berkovitch filed suit against Oded Segev, the CFO of Delaware-based Five Hole, claiming breach of fiduciary duties, unjust enrichment and conversion. Specifically, Berkovitch, who was the general counsel for Pearl Capital Business Funding, a company owned by Five Hole, created a law firm, Berkovitch & Bouskila, to make collections for the company and for other companies looking to outsource the work as a way to bring himself and Pearl Capital more revenue. Berkovitch also had a small stake in the company.

Berkovitch claims the company did not pay him bonuses that were promised and Segev was fixing the books in order to give bonuses to executives. In December, Segev filed a motion to dismiss and Berkovitch filed an amended complaint in January making the same allegations.

"Although Five Hole is attempting to confuse the court with a myriad of irrelevant facts, the story here is simple, Berkovitch was coerced and convinced to make an investment that could never be profitable, and then was subsequently purported to be forced to sell his share for less than its current value after the Berkovitch amendment was made without Berkovitch's knowledge or consent," Berkovitch's attorney, Marc Casarino of White and Williams in Wilmington, Delaware, said in the amended complaint.

A spokesperson for White and Williams said in an email that the firm does not comment on pending litigation.

Now, in a motion to dismiss the amended complaint filed this week, Segev's attorneys argue that Berkovitch does not have the standing to file the suit because he is no longer a shareholder in the company and that he had his 0.33% share repurchased.

"The continuous ownership rule bars plaintiff's claims here," Segev's attorneys said in the motion. "On November 26, 2019, Five Hole sent plaintiff the repurchase notice advising him that it was exercising its right under the LLC agreement to repurchase his units for their initial cost. As set forth above, 10 days later, on December 6, 2019, the repurchase transaction closed. Under the plain terms of the LLC agreement, nothing more was required to repurchase plaintiff's units."

Joseph Tuso, a partner at Reed Smith in Philadelphia representing Segev, said in a statement to Corporate Counsel the claims that Segev committed any kind of fraud are fabricated.

"Mr. Berkovitch's amended claims continue to be devoid of any merit and do nothing to change the fact that Mr. Segev has done absolutely nothing wrong," Tuso said in a statement to Corporate Counsel. "Mr. Berkovitch's new allegations are again frivolous and lack any semblance of accuracy. Mr. Segev and Five Hole remain committed to holding Mr. Berkovitch accountable for his continued filing of meritless claims."

Segev is also represented by Wayne Stansfield and Nicholas Rodriguez of Reed Smith in Philadelphia, Brian Rostocki of Reed Smith in Wilmington, and Blake Rohrbacher and Matthew Murphy of Richards, Layton & Finger in Wilmington.

The suit in the Delaware Chancery Court is not the first suit Berkovitch has filed against Segev. Berkovitch made similar claims in the Kings County Supreme Court in New York and awarded $96,000 in fees to Segev and his attorneys.