No.

1:19-ap-00046 Doc 1 Filed 10/01/19 Entered 10/01/19 11:20:57 Page 1 of 6

IN THE UNITED STATES BANKRUPTCY COURT FOR THE

NORTHERN DISTRICT OF WEST VIRGINIA

PROTEA BIOSCIENCES, INC. AND )

PROTEA BIOCIENCES GROUP, INC. )
) Chapter 11
Debtors, )
) Case No. 1:17-bk-1200
)
) Judge Flatley
)
PROTEA BIOSCIENCES, INC. AND ) Adversary No.
PROTEA BIOSCIENCES GROUP, INC. )
)
Plaintiffs, )
)
v. )
)
BARRY C. HONIG, GRQ CONSULTANTS, INC, )
AND GRQ CONSULTANTS, INC. 401k )
)
Defendants )
)

COMPLAINT

Protea Biosciences, Inc. (“PBI”) and Protea Biosciences Group, Inc. (“PBGI”)

(collectively,“Plaintiffs”) bring this adversary proceeding against Barry C. Honig (“Honig”),

GRQ Consultants, Inc. (“GRQ”), and GRQ Consultants, Inc. 401k (“GRQ 401k”) (collectively,

“Defendants”) and allege as follows:

PARTIES AND JURISDICTION

1. PBI and PBGI are Delaware corporations which filed petitions for relief under

Chapter 11 of the United States Bankruptcy Code on December 1, 2017 (the “Petition Date”).

2. Honig is believed to be a resident of Boca Raton, Florida.

3. GRQ is a business entity believed to be owned by, controlled by and/or affiliated

with Honig.

1
No. 1:19-ap-00046 Doc 1 Filed 10/01/19 Entered 10/01/19 11:20:57 Page 2 of 6

4. GRQ 401k is believed to be a 401k plan sponsored by, owned by, controlled by

and/or affiliated with GRQ and/or Honig.

5. This is an adversary proceeding pursuant to Rule 7001 of the Federal Rules of

Bankruptcy Procedure and sections 548 and 550 of the Bankruptcy Code, to recover avoidable

transfers made by the Plaintiffs to Defendants.

6. This Court has jurisdiction over this proceeding pursuant to 28 U.S.C. § 1334.

7. This adversary proceeding is a core proceeding pursuant to 28 U.S.C. §

157(b)(2)(F).

8. This District is the proper venue for this proceeding pursuant to 28 U.S.C. § 1409.

BACKGROUND

9. At all times relevant to this matter, Plaintiffs were insolvent.

10. On September 8, 2016, PBGI borrowed the sum of $650,000 from GRQ 401k.

11. The loan was evidenced by a $720,000 10% original issue discount convertible

note that was due and payable on October 15, 2016 (the “Original Note”).

12. The Original Note was guaranteed by PBI.

13. Plaintiffs’ were unable to pay by the October 15, 2016 maturity date of the

Original Note.

14. Defendants eventually agreed to temporarily forbear on enforcing the Original

Note. However, Plaintiffs’ default gave Defendants even greater unequal bargaining power than

they originally had which enabled Defendants to extract concessions and consideration that was

overreaching, onerous and far in excess of the value provided by Defendants’ agreement to

temporarily forbear.

2
No. 1:19-ap-00046 Doc 1 Filed 10/01/19 Entered 10/01/19 11:20:57 Page 3 of 6

15. As of March 31, 2017, Plaintiffs owed $301,577.79 in connection with the

Original Note representing $280,000.00 of principal and $21,577.79 of accrued and unpaid

interest.

16. On April 20, 2017, PBGI entered into an exchange agreement with GRQ 401k

under Section 3(a)(9) of the Securities Act of 1933, as amended. Under the terms of the

exchange agreement, GRQ 401k exchanged the Original GRQ Note for a new PBGI note that

required PBGI to pay in full the overdue $301,577.79 amount by not later than June 30, 2017,

plus an additional unsecured amount of $375,000 by September 30, 2017 (the “Final Maturity

Date”). This latter amount was convertible by the holder at a conversion price $0.075 per share at

any time prior to the Final Maturity Date for 5,000,000 shares of PBGI’s common stock

represented by stock certificate number 3047.

17. At about the same time as the exchange agreement, Plaintiffs entered into an

agreement with Plaintiffs’ first priority secured creditor which had the effect of giving

Defendants a valuable first priority lien on certain of Plaintiffs’ assets. Prior to this agreement,

Defendants had a valueless junior lien on certain pf Plaintiffs’ assets.

18. On April 21, 2017, GRQ 401k exercised its conversion right an converted the

$375,000 obligation into 5,000,000 shares of PBGI common stock. At the time of the

conversion, these shares had significant market value and could have been sold by PBGI for cash

or other valuable consideration.

19. PBGI paid the remaining balance due in connection with the loan on or about

June 28, 2017.

20. Within one year prior to the Petition Date, Debtors paid Defendants at least

$501,557.79.

3
No. 1:19-ap-00046 Doc 1 Filed 10/01/19 Entered 10/01/19 11:20:57 Page 4 of 6

21. At relevant times, Defendants or their affiliates where “insiders” of Plaintiffs. In

particular, Defendants had a special and close relationship with Laidlaw & Company (UK), LTD

which maintained two seats on the PBGI board of directors which gave Defendants effective

control over certain of the activities of Plaintiffs. Defendants or their affiliates were also

significant stockholders of PBGI and part of a controlling block of shareholders.

COUNT I
FRAUDULENT TRANSFER

22. Plaintiffs incorporates the foregoing as is fully stated herein.

23. The transfers and obligations described in this complaint where made or incurred

with actual intent to hinder, delay, or defraud any entity to which Plaintiffs were or became, on

or after the date that such transfer was made or such obligation was incurred, indebted.

24. Plaintiffs received less than reasonably equivalent value in exchange for the

transfers and obligations described in this complaint.

25. The transfers and obligations described in the complaint were made or incurred

while Plaintiffs were insolvent, or became insolvent as a result of the transfers and obligations.

26. The transfers and obligations described in the complaint were made or incurred

while Plaintiffs were engaged in business or a transaction, or was about to engage in business or

a transaction, for which any property remaining of Plaintiffs were an unreasonably small capital.

27. The transfers and obligations described in the complaint were made or incurred

while Plaintiffs intended to incur, or believed that it would incur, debts that would be beyond the

Plaintiffs’ ability to pay as such debts matured.

28. As a result, the transfers and obligations are avoidable under applicable non-

bankruptcy law and pursuant to 11 U.S.C.§§ 548 and 550.

4
No. 1:19-ap-00046 Doc 1 Filed 10/01/19 Entered 10/01/19 11:20:57 Page 5 of 6

COUNT II
PREFERENTIAL TRANSFER

29. Plaintiffs incorporate the foregoing as is fully stated herein.

30. The transfers described in this complaint were preferential transfers

31. The transfers were made to or for the benefit of Defendants on account of an

antecedent debt owed by Plaintiffs before the transfers were made.

32. The transfers where made while Plaintiffs were insolvent.

33. The transfers where made within the applicable time period set forth in 11 U.S.C.

§ 547(b)(4).

34. The transfers enabled the Defendants to receive more and they would receive if

the case were under chapter 7 of the Bankruptcy, the transfers had not been made and the

Defendants received payment of such debt to the extent provided in the provisions of the

Bankruptcy Code.

35. As a result, the transfers are avoidable pursuant to 11 U.S.C. §§ 547(b) and 550.

36. Pursuant to Federal Rule of Bankruptcy Procedure 7008, Plaintiffs consent to

entry of final orders or judgment by the bankruptcy court.

5
No. 1:19-ap-00046 Doc 1 Filed 10/01/19 Entered 10/01/19 11:20:57 Page 6 of 6

PRAYER FOR RELIEF

WHEREFORE, Plaintiffs respectfully request that the Court enter judgment in its favor

and against Defendants for the relief provided for in sections 547, 548 and 550 of the Bankruptcy

Code and all other relief that is just and proper.

Dated: October 1, 2019 BUCHANAN INGERSOLL & ROONEY LLP

By: /s/Christopher P. Schueller

Christopher P. Schueller (WV 11267)
One Oxford Centre, 20th floor
301 Grant Street
Pittsburgh, PA 15219
Telephone: (412) 562-8800
E-mail: christopher.schueller@bipc.com
Counsel Protea Biosciences, Inc. and
Protea Biosciences Group, Inc.