The executives running a publicly traded cosmetics company took out loans that a federal appeals court says may have been criminally illegal, and when they couldn’t pay them back, a lender walked away with nearly 20 million shares of company stock that it sold for more than the original loan was worth.

The Non-Financial Ledger: What the Numbers Don’t Say

Joey New York started as a genuine small business. In 1993, Joey Chancis co-founded the company to create and sell skincare and cosmetics. The brand went dormant in 2009, came back to life in 2014, and went public — meaning ordinary investors could buy shares. For a moment, it looked like a working-class origin story made good. Then the financial machinery arrived.

When the company needed money to grow in 2017, leadership turned to EMA Financial, LLC — a lender that didn’t want cash back. It wanted stock. The loan agreement gave EMA the right, at any time it chose, to convert the debt it was owed into company shares at a guaranteed 35% discount to market value. That means every time EMA exercised that option, it received stock worth significantly more than the debt it was canceling. The executives signed this deal. Whether they understood what they were signing is another question entirely.

Here is what that sentence means in plain English: the people running this company — the CEO, her husband, the co-president — put their own money in, worked without pay, and still watched the company collapse under the weight of a loan that may have been illegal from day one. They were not fat cats cashing out. They were people stuck in a financial structure that the courts are now saying should never have been legally enforceable.

What happened next gets worse. Because the company couldn’t afford lawyers by the time the case went to trial, its legal counsel withdrew. Corporations legally cannot represent themselves in federal court, so the company entities were hit with automatic default judgments. That left Joey Chancis and Richard Roer — two individuals — standing alone in federal court, defending themselves pro se (without a lawyer) against a professional financial firm backed by experienced counsel. That is what “access to justice” looks like in practice when you’ve run out of money.

The court record also documents hundreds of withdrawals and transfers from company accounts by the individual executives. Some were legitimate business reimbursements. Some crossed the blurry line between business and personal. And some — this is the part that should make anyone’s stomach drop — were transactions the executives testified under oath that they simply did not know the purpose of. They submitted almost no receipts. The accounting was, by the court’s own description, not backed by “robust documentation.” Whether this represents outright theft, catastrophic disorganization, or something in between, the court record does not fully resolve. What it does establish is that a publicly traded company was being run with the financial discipline of a shoebox.

The human texture of this story is a company that started with a real product and real people, got entangled with financial instruments sophisticated enough to fool even a federal district court judge about their legality, lost its lawyers, lost its documentation, and ultimately had its fate argued by non-lawyers in front of federal judges. The stock the lender converted and sold belonged to public shareholders. Every share dumped on the open market diluted the value of every ordinary investor who trusted the brand. Those people are invisible in this court record. They have no names here. But they are the ones who paid.

Legal Receipts: The Damning Record, Word for Word

These are direct quotes from the court record. Read them slowly. They say exactly what they appear to say.

“There were instances where the Individual Defendants made transfers or withdrawals for which they testified they do not know the purpose. Defendants provided few receipts indicating contemporaneous corroboration of the purpose of these transactions.”

— U.S. District Court Findings of Fact, as cited by the Second Circuit, EMA Fin., 2022 WL 292920, at *5-6

“Because floating-price conversion options have intrinsic value that is bargained for in these loans, they should be treated as a component of interest.”

— New York Court of Appeals, Adar Bays, LLC v. GeneSYS ID, Inc., 37 N.Y.3d 320, 337 (2021)

“[I]f a loan’s interest rate, taking into account the floating-price conversion option, exceeds the statutory cap of 25%, then the loan is ‘subject to the same consequence as any other usurious loans: complete invalidity of the loan instrument.'”

— Second Circuit Court of Appeals, citing Adar Bays II, 37 N.Y.3d at 333

“[T]his figure [$301,023.27] is greater than the $241,600 that [EMA] loaned [to the Corporate Defendants] pursuant to the two Notes.”

— U.S. District Court, EMA Fin., 2022 WL 292920, at *15

“EMA also does not dispute that the district court’s treatment of the usury defense at summary judgment is irreconcilable with the Court of Appeals’s decision in Adar Bays II.”

— Second Circuit Court of Appeals, EMA Financial, LLC v. Chancis, Docket Nos. 22-274(L), 22-402(CON), September 6, 2023

Societal Impact: Who Really Gets Hurt

Economic Inequality: The Predatory Lending Pipeline Targeting Small Business

The loan structure at the center of this case — the “floating-price conversion option” — is a financial instrument designed to extract maximum value from companies that are already struggling. EMA had the unilateral right, “in its sole and absolute discretion, at any time from time to time,” to convert any portion of the outstanding debt into company stock at a guaranteed 35% discount to market price. That means the lender was structurally guaranteed a profit on the stock side regardless of whether the company recovered. Joey New York had to turn a profit. EMA did not.

New York state law sets a criminal usury cap at 25% annual interest. The entire legal dispute in this case turns on whether the conversion option’s built-in discount, treated as a form of interest, pushed the effective rate past that threshold. The New York Court of Appeals ruled in 2021 that yes, such conversion options count as interest. That ruling meant the loan at the center of this case may have been a criminal contract from the moment it was signed. Small and mid-sized businesses across the country sign instruments like this every day, often without the legal expertise to understand that they may be void under state criminal law.

The court record also documents that the company never turned a profit and that none of the individual executives received a salary after the company went public. These are not wealthy executives padding offshore accounts. These are people who sank personal funds into a venture, paid themselves nothing, and still found themselves in federal court facing individual liability. Meanwhile, the lender walked away with $301,023.27 ($301,023.27 — roughly what it costs to put two kids through four years of public college) from a company that couldn’t pay its own bills.

When the company could no longer afford legal representation, the corporate entities received automatic default judgments because corporations cannot represent themselves in court. This is a structural feature of the legal system, not an accident. It means that any company that runs out of money mid-litigation automatically loses, regardless of the underlying merits. The individual defendants then had to navigate a six-day federal bench trial without lawyers against a professional litigation team. The system rewarded the party with more money. That is not justice; that is a billing contest.

Public Health: Cosmetics, Consumers, and Corporate Collapse

Joey New York sold skincare and cosmetic products to real consumers. The court record does not detail product safety violations or consumer harm from the products themselves. What the record does show is a publicly traded company managing its finances so loosely — with hundreds of undocumented withdrawals and transfers, officers moving money between personal and corporate accounts with minimal documentation — that any regulatory or quality oversight system built on the assumption of reliable internal financial controls would have been operating on a foundation of sand.

Consumers who purchased Joey New York products were buying from a company whose leadership, by their own trial testimony, could not always account for where corporate funds had gone. The court specifically noted that some withdrawals were for purposes that “seem unusual for business expenses and perhaps skirted the line between business and personal.” When a company’s financial infrastructure is this compromised, the risk of corner-cutting in other areas — sourcing, formulation, quality testing — rises in direct proportion.

What Now? The Names, The Watchdogs, and What You Can Do

Who Is Still Accountable

• Joey Chancis — Co-founder and CEO of Joey New York, Inc. Named defendant in federal litigation for breach of contract, breach of guaranty, and claims of fraudulent conveyance.
• Richard Roer — Co-president of Joey New York and president of subsidiary RAR Beauty, LLC. Named co-defendant. The case against him has been vacated and remanded; his liability is legally unresolved as of the court’s September 2023 ruling.
• Richard Chancis — Consultant turned operational manager for Joey New York. Named in the amended complaint alongside Chancis and Roer.
• EMA Financial, LLC — The lender whose loan contracts the court has sent back for a determination of criminal usury. EMA collected more than it loaned while the company it lent to collapsed.

Regulatory Watchdogs That Should Be Paying Attention

• SEC (Securities and Exchange Commission): Joey New York was a publicly traded company. The share dilution caused by mass stock conversions directly harmed retail investors.
• CFPB (Consumer Financial Protection Bureau): Floating-price conversion loan instruments targeting small businesses are a known predatory lending mechanism. The CFPB has jurisdiction over certain lending practices that harm small business owners.
• New York State Attorney General: The New York Court of Appeals has already ruled that these loan structures can constitute criminal usury under state law. State-level prosecution is a live option.
• DOJ (Department of Justice): If the district court on remand determines the Notes were criminally usurious, a referral for criminal investigation becomes a legal possibility under New York Penal Law § 190.40.
• FTC (Federal Trade Commission): Predatory convertible note lending targeting small businesses — especially minority-owned and women-owned businesses — warrants investigation as an unfair commercial practice.

What You Can Actually Do Right Now

Start local. Predatory lending structures like floating-price conversion notes show up in small business communities everywhere — often targeting the most vulnerable entrepreneurs. Connect with community development financial institutions (CDFIs) in your area that offer fair-terms small business lending. Pressure your city council and state representatives to strengthen criminal usury enforcement and cap convertible note discount rates for small business loans. If you are an investor in any publicly traded small-cap company, read the company’s SEC filings and look for convertible note agreements with floating-price conversion provisions. If you find them, ask publicly: what is the effective interest rate on this instrument? Organizations like the Predatory Lending Association watchdog network and local legal aid societies provide resources for business owners trapped in these structures. Share this investigation. The people who sign these contracts often have no idea what they signed until it is too late.