CrossFit Venture Gone Awry Leads to Lawsuit

     MANHATTAN (CN) – A New Yorker charged with defrauding more than $2 million from his CrossFit venture faces a civil lawsuit from his one-time business partner.
     Joshua Newman, 35, allegedly doctored paperwork to lure investors to pour money into CrossFit NYC, the Manhattan-based “box” of a nationwide network of gyms.
     The young Yale graduate swiped money meant for his exercise business to pull himself out of other failed ventures, including a failed film project about the New York Yankees, prosecutors say.
     Newman, who was arrested last month, faces up to two decades in prison if convicted in Newark Federal Court.
     Now, Newman faces a civil lawsuit that his former partner John Franklin filed in the Manhattan Federal Court on Monday.
     Franklin, who also ran two CrossFit gyms, claims that Newman misappropriated $400,000 from their joint venture called Northstar intended to expand their CrossFit enterprises.
     “In or about July of 2014, Newman told Franklin that he was leaving CrossFit NYC to start a new company, Northstar, that he envisioned build and operate a network of CrossFit facilities across the country, beginning with the New York metropolitan area,” the 12-page complaint states. “Newman assured Franklin that although he was no longer working with CrossFit NYC, the separation was amicable and there was no litigation against him. He also told Franklin that he still owned shares of CrossFit NYC.”
     Three months after the initial proposal, Newman formally offered Franklin to become a 30 percent partner in Northstar with the prediction that Franklin would “pocket” between $20 and $25 million, the lawsuit.
     The two started working full-time together at Northstar in November, the lawsuit states.
     Franklin says that he took his new business partner at his word Newman proposed closing a Bank of America account used to collect investments in favor of a JPMorgan Chase account.
     “Unbeknownst to Franklin, Newman did not close the Bank of America account, but, instead, kept it open, and changed the address for the account to his home so that only Newman would see those statements,” the complaint states. “After ‘closing’ the Bank of America account, the Chase account was the only Northstar bank account to which Franklin maintained joint access with Newman.”
     Franklin alleges that Newman also tricked him into fronting $55,000 in personal funds into rental space near Grand Central Station.
     “Newman told Franklin that the investor money that had been raised for Northstar had not yet ‘cleared’ into the Bank of America account, but that it would be arriving very soon, at which point Newman would immediately pay Franklin back,” the complaint states.
     Franklin says he also spent $10,000 on a corporate retreat in Florida for Northstar employees and $84,000 on a lease for a gym space in Hoboken because he believed that the venture already raised millions in investment.
     On Feb. 17, however, Franklin says he grew suspicious after Chase sent him a wire alert about a $67,000 transfer to an account he did not know. When confronted, Newman insisted the money went to securing “intellectual property rights” for his CrossFit NYC venture, and Franklin took up his own investigation, according to the lawsuit.
     Once he returned to the Bank of America, Franklin says he learned that Newman had lied about the account being closed.
     “Because Franklin was still a signatory on the account, he asked for, and obtained previous months’ statements from the Bank of America account,” the complaint states. “Those statements reflected that Newman had used the account to make numerous personal expenditures including groceries, drug store purchases, and pet supplies. The statements also revealed that no investor money was ever deposited into the Bank of America account.
     “Franklin confronted Newman about his discovery, and Newman admitted that he had gotten himself into ‘deep trouble’ and was desperate to pay off ‘some old investors.’ Newman said that he needed to pay off these old investors so that they could start fresh with Northstar. Newman also stated once again that he needed to buy back his CrossFit NYC ‘intellectual property rights.'”
     Resigning from Northstar on March 17, Franklin sent a cease and desist letter less than a week later forbidding his name from being affiliated with the business, according to the lawsuit.
     “Newman is still using the Northstar name on his website, and, upon information and belief, he is still using Franklin’s name and biography to fundraise,” the complaint states.
     Meanwhile, Franklin asserts that he took out a $300,000 loan from his parents to repay investors out of a “sense of moral obligation.”
     Franklin demands $449,000 for three counts of fraud, conversion, and breach of fiduciary duty.
     He is represented by Eric Creizman of Creizman LLC.

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