Articles by deBanked Staff
MJ Capital Investors Allege Wells Fargo Knew MJ Capital Funding Was a Ponzi Scheme
August 24, 2021
A class action lawsuit filed in the Southern District of Florida on behalf of MJ Capital Funding’s investors is alleging that Wells Fargo knew that the company was a ponzi scheme.
“Wells Fargo knew based on its Know Your Customer inquiries that the MJ Companies were supposed to use investor monies to lend to small merchants, which would then repay the loans, the proceeds of which would be used to pay back investors. Wells Fargo monitored the MJ Companies’ accounts and saw that’s not what happened. Very little money that left the MJ Companies’ accounts went to merchants. Millions instead went to [the CEO’s] personal account at Wells Fargo, to MJ Companies’ sales agents or back to other investors.
Despite this knowledge, Wells Fargo substantially assisted the MJ Companies by allowing them to continue operating with Wells Fargo accounts, commingle investor funds and make payments via wire, transfer and check. Garcia and the MJ Companies’ banking activities at Wells Fargo were integral to her scheme to defraud investors.”
The claims are for aiding and abetting fraud, aiding and abetting breach of fiduciary duty, and unjust enrichment.
MJ Capital is estimated to have raised between $70M and $128M from investors over roughly one years time. The company is being sued by the SEC for securities fraud and its assets have been frozen pursuant to a court order.
The case # is: 0:21-cv-61749-RAR
Robinhood Posts Q2 Net Loss of $502M, Shareholders/Fans Pick Management’s Brain on the Call
August 19, 2021
Robinhood posted a massive net loss last quarter to the tune of $502M on only $565M in revenue.
Following the announcement, the company’s earnings call was a bit unusual, sounding more like a live AMA Reddit thread as the platform’s shareholders were given an opportunity to talk to senior management, a platform usually reserved only for Wall Street analysts. This format led to the submission of 1,300 questions, way more than could be answered in the time allotted, so only the most upvoted were selected to be answered on the call itself.
One person asked if they could get a Robinhood hat and hoody jacket, a surreal insight into how shareholders are thinking about a company that lost $2 for every dollar it brought in last quarter. Another shareholder asked if Robinhood was getting a crypto wallet.
“…I know that there’s been a ton of enthusiasm from the crypto community and the Dogecoin community in particular, on getting access to wallets and it’s something that our teams are working on,” said Robinhood CEO Vlad Tenev.
When the shareholders’ turn was over, the analysts took control, asking more pointed questions, like what happens when Robinhood runs out of potential customers that have so far comprised the demographic that led to the company’s early success.
Tenev said that “I think more and more, you’re going to see Robinhood, particularly with our mobile first platform and ease of use, be become incredibly attractive to folks that haven’t previously considered Robinhood, is the go to place. So we’re pretty optimistic about the opportunity ahead of us. And that’s limiting the response to investing. I think there’s a lot more that we can do, when we talk about being the single money app for our customers.”
The company’s stock went down slightly after earnings.
How the MJ Capital Funding Alleged Ponzi Scheme Played Out in Real Time
August 18, 2021
After the SEC shut down Pompano Beach-based MJ Capital Funding for running what is believed to be a $100M ponzi scheme, more than 2,000 investors are now struggling to figure out what happens next. But in hindsight, could they have known the risks?
Apparently, questions about MJ Capital had been circulating for months. A thread on Reddit with nearly 700 comments is now one of the best preserved insights into the company’s investor community mindset during 2021. There, posters traded anonymous barbs and insults in a spirited debate that challenged the company’s legitimacy. Those that argued it was a ponzi scheme were shouted down with reassurances from people claiming to be paid regularly.
“Scared money makes no money” is a mantra that comes up repeatedly.
The comments are eye-opening in retrospect as posters claim to have invested their life savings or know people that did on the hope that they would make 10% interest on their investment EVERY MONTH. One poster claims that his friend quit his job to promote MJ Capital full time and that he shaved his head, bought a suit, rented an office in Miami “and became some investment f***ing guru even though he could barely explain what the company would do with my money if I gave it to him.”
At least one person said that a friend invested as little as $1,000 into the company, an astonishingly small sum for an operation that is alleged to have raised as much as $129M in little over a year’s time.
Even now with the company’s assets frozen and a receivership in place, some users are wondering if that means their monthly checks will be delayed. Others are confused as to what the SEC lawsuit and temporary restraining order even mean.
“I am out a significant amount of money,” one user wrote. “Literally, my life’s savings. I am scared shitless as I am unaware of what will happen and if I will get my money back. Does anyone know what the odds are for investors who have not received any of their investment back?”
Despite all this, at least one poster thought the SEC’s reference to an undercover FBI operation could work in MJ Capital’s favor since an FBI agent, who posed as an investor, not only made an investment but also got paid.
“Anyone can go to the SEC or FBI to file a complaint about a company to bring them down,” they said. “And of course they are going to look into it. But facts hold up in court. The case file it self says that the [Undercover Agent] made an investment and got paid, proving that the business isn’t a scam and it works. Nothing illegal about what the company does.”
Meanwhile, on instagram, those claiming to be victims have been busy tagging accounts of the people who promoted the investment to hold them accountable. Most of those tagged accounts have already been made private and are not publicly accessible.
To deBanked’s knowledge, no criminal charges have been filed against anyone in connection with this case and it remains a civil matter with charges not proven.
MCA “Funder” Was a $100M Ponzi Scheme, SEC Alleges
August 18, 2021
It was all a ponzi scheme, the SEC alleged about MJ Capital Funding, LLC in a recently unsealed complaint. A purported MCA funding company in South Florida run by a woman named Johanna M. Garcia, is said to have raised between $70M and $129M from over 2,150 investors in roughly one years time.
According to the SEC, MJ Capital promised annual returns of 120% to 180% to syndicate in merchant cash advances and guaranteed the return of principal if the merchants defaulted.
Literally thousands of investors lined up to give their money, despite a similar scheme having just ripped through the community.
MJ Capital only funded between $588,561 and $2.9M worth of deals with the money, the SEC claims, while $27.4M was paid out to various entities including to sales agents for promoting the investment opportunity.
When someone tried to blow the whistle, MJ Capital responded by suing the whistleblower, “a cover-up effort” the SEC said was actually successful.
That is until an undercover FBI agent went to the company’s office in June and pretended to be an investor. The FBI successfully invested $10,000 into purported deals, and MJ Capital unknowingly made payments to the FBI as promised.
“Once the supply of new investors was exhausted, the MJ Companies would be unable to pay the promised returns to existing investors,” the SEC says.
Two companies are charged: MJ Capital Funding, LLC and MJ Taxes and More, Inc. in addition to Johanna M. Garcia personally. The SEC has already obtained emergency relief by securing a temporary restraining order and an asset freeze.
What The “Capital Dude” Said About Experience, Success, and the Future
August 18, 2021
Coming in at rank #1,044 on the 2021 Inc 5000 list was a small business finance provider with a whimsical name, Capital Dude. Having some common ownership overlap with another Inc ranked company, Central Diligence Group (#2,893), the Dude told deBanked that they didn’t shut down or pause funding throughout 2020. In fact, they continued to grow.
“We really have to attribute the company’s growth to our hardworking and efficient team that made sure we didn’t miss a beat while having to work remote,” said company partner Andrew Hernandez.
The name, Capital Dude, was chosen to convey an easy process to their partners and clients, the company says, while at the same time being compatible with a mascot they had in mind. The Capital Dude himself is a superhero in a green suit with the letters “CD” emblazoned on his chest. He’s also got a red cape and a flashy smile.
Behind the optics, however, is a seasoned team.
“We got started in the industry during the ’08 – ’09 recession,” Hernandez said, “so when you experience getting started during a downturn, you quickly realize that the only way to keep going is to stick to your principles while continuously taking inventory of the ongoing situation and making any necessary changes quickly in order to protect the portfolio. While both downturns were very different in how they played out, applying that previous experience to the past 18 months has been interesting as we have seen a lot of similarities that are very measurable.”
Central Diligence Group, meanwhile, has gotten repeat recognition on the Inc 5000 list.
“CDG offers consulting and underwriting services to other alternative financing companies in the industry,” Hernandez explained. The “short term plan is to scale out this portion of the business in 2022 via licensing of our platform to funders, funds, accredited investors, etc.”
The companies are currently in the process of moving to a new office and they expressed that they are “very bullish on the future” and plan to increase their headcount and continue to grow.
Small Business Finance on the 2021 Inc 5000 List
August 17, 2021Here’s where alternative small business finance ranks on the Inc 5000 list for 2021:
| Ranking | Company Name | Growth |
| 44 | Crestmont Capital | 7,404% |
| 1044 | Capital Dude | 463% |
| 1221 | Fountainhead | 394% |
| 2298 | Bankers Healthcare Group | 186% |
| 2427 | Fund&Grow | 173% |
| 2628 | Channel Partners Capital | 155% |
| 2803 | PIRS Capital | 142% |
| 2893 | Central Diligence Group | 135% |
| 3005 | ApplePie Capital | 127% |
| 3027 | Nav | 126% |
| 3365 | Onset Financial | 105% |
| 3394 | OTR Capital | 104% |
| 3547 | Forward Financing | 96% |
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Update on the Direct Lending Investments Case
August 15, 2021More than two years after the SEC charged Direct Lending Investments with fraud, work is still being done to manage the fallout. The firm was placed into receivership and since then $102.83M has been distributed back to 739 investors. Overall, the Receiver expects to recover somewhere between $215M and $265M, far short of the $789.6M supposed portfolio value at the time the Receiver took over.
Much of the shortfall can be attributed to poor investments in businesses that fell outside of what it promoted to investors. For example, $191M is tied up (and likely unrecoverable) in international telecom receivables, a far cry from the online lending industry it claimed to deal exclusively with.
Direct Lending’s former CEO, Brendan Ross, is still out on bail pending trial on related criminal fraud charges. He was indicted in August 2020. The trial was recently postponed and is now scheduled to take place on March 1, 2022.
One party that took heat over Direct Lending Investments, was the firm’s auditor, Deloitte. The Receiver sued Deloitte over the firm’s “improper clean audit opinions” in 2016 and 2017 that helped create the perception that Direct Lending Investments was managing its business on the up and up. Deloitte settled the case and agreed to pay $31M.
SoFi Posts $165.3M Q2 Net Loss
August 15, 2021SoFi put up a dastardly net loss of $165.3M last quarter on only $231.3M in net revenue.
The hit should be a one-off, according to the company.
We remeasured our valuation allowance during 2020 as a result of the deferred tax liabilities recognized in connection with our acquisition of Galileo, which decreased the valuation allowance by $99.8 million. The absence of that tax benefit, together with significant non-cash stockbased compensation expenses and fair value changes in warrants primarily related to the fair market value of SoFi stock, were the largest contributors to the current period net loss.
