Some of the city’s richest business owners admit being hoodwinked by a Gladwyne furniture heir

Some of Philadelphia’s richest business owners, sophisticated finance professionals, and the state-funded Ben Franklin Technology Partnership of Southeastern Pennsylvania fell for an investment scheme that the Securities and Exchange Commission now says was too good to be true.

The identities of the alleged victims, and how they unwittingly helped fool each other, is the untold story behind the SEC’s June 13 civil fraud complaint against Josh Verne, who resigned from the hometown companies he started and left his Gladwyne home for Florida after investors began getting suspicious.

The suit doesn’t identify the investors, but many were simple to find. Verne’s former backers on the Main Line, including billionaires and bankers, real estate developers and law firm heads, and a few national financiers, have been buzzing about the government’s complaint, and wondering whether criminal charges are next. Two investors told The Inquirer that they’ve been contacted by FBI investigators.

Verne’s lawyers in Philadelphia and New Jersey declined to comment.

It’s been five years since a Philadelphia start-up called Ownable, based in Urban Outfitters’ old headquarters near the University of Pennsylvania, began pitching investors what it called in its marketing materials “a Billion Dollar Opportunity.”

Ownable’s plan was to rent laptops and smartphones to “subprime customers” who couldn’t afford to buy their own gadgets.

Targeting frustrated shoppers who load electronic shopping carts on Best Buy and other popular retail sites, only to realize they don’t qualify for financing, Ownable offered an app to turn non-buyers into renters. Ownable would work like rent-to-own furniture chains, whose customers often end up paying far more than if they could have afforded to purchase outright.

That pitch from Verne, Ownable’s creator, raised $31 million from investors eager to capitalize on people with bad (”subprime”) credit. Verne assured investors that this was a rapidly growing population, citing data from consultant McKinsey & Co., according to marketing materials obtained by The Inquirer.

Now the SEC says it was a fraud.

The agency says Verne spent at least $9 million from his investors, family, staffers and friends on personal expenses — such as his kids’ Main Line private-school tuition and a house for himself in Florida, according to the suit.

The SEC also accuses Verne of hiding Ownable’s losses through $5 million in “Ponzi-like” payments to reassure some investors, so he could attract new ones. (For example, developer Bart Blatstein says he got back the $150,000 he invested with Verne.) In other cases, he made promised investments, then sold them, and pocketed shareholders’ money instead of giving it to them, according to the SEC filing.

While many frauds target unsophisticated investors, Verne raised his cash from many of Philadelphia’s richest, who helped convince each other to pump in more.

The victims haven’t been identified by the SEC. But in a dozen interviews, investors and former Ownable staffers — most of whom agreed to provide or confirm details and documents on condition they not be quoted, citing private shame, public embarrassment, or a desire not to seem accusatory among their fellow-investor friends — gave a deep Philly context to the SEC’s claims.

According to the SEC complaint, Verne built investors’ confidence by lying about his career as dealmaker and start-up whiz. In conversations with The Inquirer, investors described Verne as gregarious, energetic and engaging, the creator of a convincing persona as well as plausible business plans.

A Huntingdon Valley native, Verne began serving as an executive of his family’s business, Home Line Furniture Industries Inc. in 2003. The company, founded in 1962 as Chuck’s Bargain House, according to industry accounts, grew to include factories in Philadelphia, North Carolina and Vietnam, and supplied furniture to the rent-to-own industry.

According to the SEC, Verne later boasted to an investor that he sold Home Line for $80 million. But contemporary accounts show it was forced into bankruptcy by creditors in 2011, liquidating inventory to pay suppliers and lenders.

Verne then helped start Workpays.me LLC, an employee payroll-deduction purchasing program, and in 2018 sold it for $4 million (most of which went to others, not Verne). He also helped launch a King of Prussia firm, FlockU, touted as a website for college students. He renamed it Ownable after refocusing operations on rent-to-own in 2017, according to the SEC.

The SEC says Verne spun that modest record into a false portrait of multi-million-dollar venture capital success. He told Ownable investors that he had sold Workpays.me for “between $30 million and $100 million” and sold FlockU for as much as $500 million; and that he had used money from his profitable exits to build Ownable, according to the SEC.

In fact, Verne “never invested any of his own money in Ownable,” according to the SEC. Instead, the agency says, he used investor funds to finance a lifestyle that included a private jet charter, “an elaborate Bat Mitzvah for his daughter,” and the redesign of his family beach home in Longport. According to the federal documents, he paid for it all “by misusing investor proceeds and taking millions of dollars in personal loans from family and friends.”

Early investors in FlockU included Ben Franklin Technology Partnership of Southeastern Pennsylvania, a largely state-funded investment group that announced it had distributed $2.3 million among 16 area start-up companies in early 2017.

The Ben Franklin partnership still lists FlockU under its later name, Ownable, as an ongoing investment (”delivering working families access to great brands at affordable prices”). Executive director Scott Nissenbaum and other Ben Franklin officials didn’t respond to calls and messages seeking comment.

There were plenty of accomplished people on Ownable’s corporate masthead.

Verne listed Sree Kotay as chief technology officer. He held the same job at Philly-based media giant Comcast and at Gopuff, the city’s leading “unicorn” start-up of the early 2020s and is pictured smiling in a 2020 pitch document distributed to investors and obtained by The Inquirer.

Ownable’s chief financial officer was Verne’s sister-in-law. She has not been accused of any wrongdoing. The SEC says Verne’s family, as well as friends and employees, were among Verne’s victims.

Board members included two Philadelphians: billionaire college housing developer and FS Investments cofounder David Adelman, currently leading the effort to build a new Sixers arena; and Edmund Garno, a national squash champion who got rich building a Conshohocken-based employee-benefits management business.

It also included national figures: Florida investor Jay N. Levine, who has founded multiple subprime-lending companies; William S. Green, head of Florida-based private investor Crestar; and Kimberly Blackwell, whose Ohio-based ad agency, PMM, helps Nationwide, Walmart and other big companies market to Black customers.

“You have very good questions, and it’s probably not appropriate for me to comment,” said Levine, who headed subprime lenders Springleaf and One Main Holdings. He added that he approved of the SEC’s complaint.

Mostly, Verne attracted Philadelphians. Adelman invested about $3 million, making him the largest single Ownable backer. Adelman’s longtime friend Michael Rubin, whose daughter is close friends with one of Verne’s children, also invested, even as Rubin warned Adelman and others to beware of what Rubin saw as a risky investment. (Rubin is the founder and chief executive of Fanatics, the sports-paraphernalia maker valued at $31 billion by investors last December.)

Developer Bart Blatstein was also an Ownable investor. So was developer Rob Zuritsky, of the parking-mogul family. So were lawyers William Harvey, of Philadelphia’s Klehr Harrison Harvey Branzburg LLP, and Roger Braunfeld, of Royer Cooper Cohen; and investor David Magerman, Main Line restaurant owner and managing partner at New York-based Differential Ventures. The venture drew more than 100 others, according to the SEC and investor lists acquired by The Inquirer.

To provide “a false sense of security and continue the lie that he was a wealthy and successful entrepreneur,” Verne showed purported bank statements from Goldman Sachs that listed $52 million in a family trust account, the SEC said. “The statement was fake,” according to the lawsuit.

Sam Katz, the investment banker and past Philadelphia mayoral candidate, said he met Verne at an event attended by supporters of the American Jewish Committee around 2018. “Almost everyone was dressed for business, but [Verne] was very casual. He had this idea that you could rent-to-own computer gadgets, and it would not be as [expensive] as at the rent-to-own stores. That was very interesting to me.

“So was his family’s religious dedication. Their kids went to Jewish day schools. Every Friday night they had people at their house. They created this aura of being a welcoming family.” (Katz said he did not attend the Friday gatherings.)

But even with payments and investments experts in the group, “all of whom had credibility — with all the hocus pocus, nobody was paying enough attention,” Katz added.

What finally made Verne’s fraud obvious to him, Katz said, was an investment Verne arranged in a packaged-alcohol distributor, BeatBox Beverages, a successful Texas company that drew the interest of Dallas Mavericks owner Mark Cuban after an appearance on Shark Tank.

As BeatBox gained value, and investors were eager to watch their share values grow, Katz checked records and saw he was credited with fewer shares than what he had paid for. (In the lawsuit, the SEC says Verne used some of the money to repay a loan from an investor.)

Katz and other investors pressed Verne on the missing money, eventually demanding that he resign, which Verne did, in December 2020. “We all felt so stupid,” Katz said.

Those and other allegations are now part of the SEC’s case. An SEC lawyer said the agency does not comment on cases in progress.

Editor’s note: This story has been edited to include a comment from Bart Blatstein and to update the value of Michael Rubin’s Fanatics brand.