Consumer Financial Protection Bureau v. Stratfs, LLC (f/k/a Strategic Financial Solutions, LLC)
1:24-cv-00040
| W.D.N.Y. | May 22, 2025Background
- The Consumer Financial Protection Bureau alleged that defendants, including StratFS, Lit Def, and Jason Blust, engaged in unlawful consumer debt-relief services, collecting advance fees in violation of law.
- Lit Def served as a support provider for law firms participating in the debt-relief business; Blust controlled both Lit Def and the law firms.
- In January 2024, the court issued a Temporary Restraining Order (TRO) and subsequently a Preliminary Injunction (PI), freezing assets, appointing a receiver, and defining "receivership defendants" expansively.
- Fidelis Legal Support Services, created as a successor to Lit Def by Blust and Christo, became a focus for asset transfers; Fidelis was later added as a defendant and designated a receivership entity.
- Substantial transfers (over $37 million) were made from Fidelis to entities including The Bush Lake Trust, Two Square Enterprises, Veteris Capital, and BDC Group, often after the TRO was entered, raising dissipation concerns.
- The Bush Lake Trust and the non-party entities challenged their designation as receivership defendants, arguing they were not properly subject to receivership.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether The Bush Lake Trust, Two Square, Veteris, and BDC Group qualify as receivership defendants under the PI | Entities are affiliates or controlled by defendants and related to the debt-relief operation; inclusion needed to prevent asset dissipation | Entities argued lack of direct connection and lack of proper inclusion under PI's language | Court held the entities qualify as receivership defendants; motions to exclude denied |
| Effect of new party status and timing on applicability of receivership | Receivership can include subsequently named entities as discovered | Inclusion improper because Fidelis and others were not parties when the PI was entered | Court found timing and party status immaterial; PI was designed to capture additional entities as facts arose |
| Whether receivership must comply with Fed. R. Civ. P. 65(d) | PI permits inclusion of affiliates/controlled entities to prevent asset dissipation | Placing an entity into receivership is injunctive; must follow Rule 65(d); consent lacking | Court ruled receivership is not equivalent to injunction under Rule 65(d); inclusion appropriate, consent via linkage to existing parties |
| Court's authority to enter final, dispositive order including new entities | Court has authority via parties' consent and magistrate referral order | Authority lacking without specific consent of each added entity | Court had ancillary/supplemental jurisdiction to effectuate prior orders; is a final, appealable order |
Key Cases Cited
- SEC v. Elliott, 953 F.2d 1560 (11th Cir. 1992) (expansion of receivership appropriate where funds are commingled among related entities)
- In re Saffady, 524 F.3d 799 (6th Cir. 2008) (orders appointing receivers distinguishable from injunctions under statutory scheme)
- CFTC v. Walsh, 618 F.3d 218 (2d Cir. 2010) (distinguishing orders of receivership from injunctions in federal practice)