Double Factoring Puts Business Owners in Jail

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merchant fraudIt’s a case of receivables being sold to two parties at the same time. According to the FBI, Brian Newton and Victoria Snow were convicted last week on 1 count of conspiracy, 13 counts of mail fraud, and 11 counts of wire fraud. They face a combined 40 years in prison.

The pair owned a company called Dataforce International in Clearwater, FL and began factoring their invoices in 2003 through a firm called Amerifactors. “As part of their scheme, Newton and Snow submitted a series of invoices for factoring to Amerifactors that were inflated and that did not reflect work that had been performed by Dataforce,” the report says. “In addition, the two engaged in ‘double factoring,’ which involved submitting the same Dataforce invoices for factoring to both Amerifactors and Prestige Funding.”

That aspect of the crime is significant because of how closely it relates to a questionable practice in the merchant cash advance industry known as stacking. Traditional merchant cash advances are purchases of future receivables and stacking is the instance of when a merchant allegedly sells those receivables to more than one party.

The practice is part of the reason the International Factoring Association actually voted to ban merchant cash advance companies from their trade association last year. “The merchant cash advance financing arrangement often leads to breaches of factoring agreements, because the factor client granted junior liens against the factor’s collateral or took on additional debt without the factor’s consent and knowledge,” wrote Steven N. Kurtz, Esq. last year in The Commercial Factor.”

Notably, Newton and Snow did more than just double factor invoices. Newton was secretly a partner in Prestige Funding, one of the factoring companies. Prestige Funding had raised more than $8 million from over 50 investors according to the FBI’s report and the scheme allowed Newton to divert more than $3 million into his personal bank account.

Sentencing has been set for October 9, 2015.

Last modified: July 29, 2015
Sean Murray

Category: Business Lending

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