The owners of Proof 22, the shuttered Main Street restaurant that surrendered its liquor license last month, face yet another financial problem: a $734,000 lawsuit from an investor that claims they defaulted on a contract to turn over 30 percent of revenue from their restaurants to cover a $1.2 million advance.
Fundamental Capital, a private equity firm doing business as Nexi, based in New York, says that in February, it bought $1.8 million worth of future receipts from Paul Tupa and Peter Lucido.
Tupa and Lucido own Proof 22, Tavern on the Wharf, Plymouth Public House in Cedarville, and the new Shanty restaurant under construction on Town Wharf, as well as three restaurants in Amherst and Yarmouth. Work on the Shanty appeared paused this week.
Under the arrangement, called a merchant and security agreement, Tupa and Lucido were to pay Fundamental 30 percent of receipts Monday through Friday in exchange for the $1.2 million advance, according to the lawsuit. In effect, it amounted to a high interest loan.
The suit claims the restaurant owners were making regular daily payments of $8,000 until June through automatic debits. At that time, payments declined to $5,300 a day, then to $3,750 until July 11, after Tupa and Lucido allegedly issued a stop payment order. They still owe $734,000 to Fundamental, according to court documents.
Fundamental is a financial technology company, part of the merchant cash advance industry valued at more than $17 billion in 2023. The company invests in small businesses that no longer have access to more conventional sources of credit, such as bank loans. A business, such as a restaurant, sells its future receipts for a discounted price to the lender and then pays a percentage of those receipts until the promised amount is paid off. Often, as in this case, the percentage of receipts is high. Such merchant cash advances are not regulated in Massachusetts.
Neither Lucido nor Nicholas Rosenberg, the attorney for Fundamental, returned phone calls seeking comment.
The heavy burden of having to pay Fundamental 30 percent of their revenues may have affected Tupa and Lucido’s ability to meet other financial obligations, including those related to Proof 22.
Proof 22 had been ordered to vacate the premises by its landlord, Megryco Inc., for non-payment of more than $54,000 in rent and other expenses, allegedly since March.
In June, the Massachusetts Department of Revenue imposed a tax lien on Proof 22 for failure to pay $41,217 in meals, food, and beverage taxes for August, September, and October 2024. Including penalties and interest, the total was $45,552.
In addition, the owners have faced other troubles in recent months.
In May, the family of a 20-year-old Plymouth man killed in a single-vehicle car crash last October filed a $1 million lawsuit against Proof 22 and Tavern on the Wharf, alleging that bartenders served him for hours before the accident without asking him for identification. Benjamin Ruley died less than half an hour after leaving Proof 22, where he had spent four hours socializing, according to investigators.
In July, Tavern on the Wharf filed a third-party complaint against two adult friends of Ruley’s who allegedly bought him drinks there before he headed to Proof 22, arguing that they were therefore at least partly liable.
The state Alcoholic Beverages Control Commission alleged Proof 22 violated licensing laws twice in 2024, one for serving alcohol to someone under 21, and another for serving an intoxicated person.
The ABCC also alleged that last year Tavern on the Wharf violated the law by serving an underaged person.
Hearings on the three alleged violations were scheduled for Sep. 9, but now that Proof 22 has surrendered its license, only the hearing on Tavern on the Wharf will proceed, according to a source familiar with ABCC procedures who did not want to be named.
In January, the Massachusetts Attorney General’s office fined Tavern on the Wharf and Plymouth Public House nearly $500,000 for violating labor laws, including regulations governing child labor, sick time, wage and hour compensation, and payroll records.
Fred Thys can be reached at fred@plymouthindependent.org.