Joshua Newman, a serial entrepreneur who is facing federal fraud charges for ventures associated with two CrossFit affiliate gyms, is now also being sued by a former business partner in U.S. District Court in Manhattan.
The lawsuit filed by John Franklin earlier this month accuses Newman of misappropriating more than $400,000 from their joint business venture, Northstar Inc., to cover personal debts and expenses. Franklin is seeking a jury trial, compensatory and punitive damages related to the fraud, and an injunction to prohibit Newman from using his name and business without his authorization.
According to the complaint (read it in its entirety at the bottom of this page):
- Franklin currently lives in New Jersey and operates River CrossFit in Hoboken and Bowery CrossFit in Manhattan. Newman was a co-owner and executive officer at CrossFit NYC until he was arrested and charged by federal prosecutors on May 21.
- Around July 2014, Newman told Franklin he was leaving CrossFit NYC to start Northstar, with the vision it would build and operate a network of CrossFit facilities around the country starting with the New York metro area. In October, Newman formally offered Franklin the opportunity to become a 'co-founder' and partner in Northstar, with Newman proposing to own 70 percent of the business and Franklin owning 30 percent.
- Newman predicted Franklin would pocket $20 million to $25 million from the Northstar venture, and by November the two were working full time on the business.
- In December, Newman and Franklin opened a bank account for Northstar at Bank of America. Newman assured Franklin that investor funds were flowing into the account and at one point represented approximately $1.3 million was deposited in the account.
- Also in December, Newman proposed he and Franklin provide $55,000 each in personal funds to secure a deal for rental space near Grand Central Station in New York. Franklin wired the money to a Santander Bank account believing it was Newman's personal account, but it was opened in Northstar's name without Franklin's knowledge or consent. Franklin later discovered those funds were immediately transferred into a bank account held by Newman.
- In January 2015, Newman recommended closing the Bank of America account due to dissatisfaction with customer service and opening a new account for Northstar at JPMorgan Chase. Franklin opened the Chase account but did not close the Bank of America account and changed the address on the account to his home.
- In January, Franklin used $10,000 of his own money to pay for 10 future Northstar staff members to attend a retreat in Florida, believing Newman's representations of millions of dollars of investor funds had already been raised for Northstar.
- In February, Franklin wired $84,000 in personal funds to a landlord in Hoboken after Newman negotiated a lease for gym space. Newman said he could not wire the money himself due to the bank's internal fraud controls and promised to reimburse Franklin once the funds became available.
- Newman became suspicious about two weeks later after receiving a notice from the Chase account showing Newman transferred $60,000 to an individual account. Newman said he needed the money to purchase intellectual property rights from CrossFit NYC.
- Franklin visited a Bank of America branch and discovered the account was still open, investor money was never deposited in the account, and Newman used the account to make personal purchases, including groceries, drug store purchases and pet supplies.
- When Franklin confronted Newman, Newman said he got himself into 'deep trouble' and was desperate to pay off 'some old investors.'
- In March, Franklin resigned from Northstar and sent a cease and desist letter to Newman demanding he stop using his name or business on Newman's website or in negotiations.
- Franklin obtained a $300,000 loan from his parents out of 'moral obligation' to pay back three investors who invested in Northstar based on Newman's representations. Newman has not repaid Franklin or the investors.
In May, Newman was arrested by the FBI in a separate case for allegedly defrauding investors out of $2 million and faces up to 40 years in prison if convicted. Federal prosecutors and Newman's lawyers are engaged in plea negotiations, according to a report from the New York Times.
The negotiations could lead to a disposition of the case before a grand jury is asked to indict Newman, 35, according to the report.