Legal Briefs
Indictment in the Small Business Finance Industry’s “Long Running Mysterious Fraud”
December 22, 2025
There has been a major break in the case of the industry’s Long Running Mysterious Fraud, an indictment. Less than a year after deBanked ran a story about a sophisticated scheme employed to steal millions from merchants, funders, and lenders through a network of stolen identities and cryptocurrency exchanges, a criminal complaint was quietly filed under seal on February 24, 2025 against an individual named Saul Shalev with addresses in Brooklyn and Israel. He is currently thirty-six years old. On August 20, 2025 that complaint progressed to a sealed indictment and on October 3, 2025 all the filings were finally made public.
Shalev may still be at large. He has dual American/Israeli passports. The original criminal complaint states that he traveled to Israel in February 2019 and had not returned to the United States since. IP addresses, email accounts, and other internet data were used by law enforcement in its investigation. The criminal complaint says that the scheme was still going on earlier this year and that more than 25 victims of the scheme have already been identified.
Shalev, who is innocent until proven guilty, is charged with Wire Fraud, Money Laundering, Aggravated Identity Theft, and Aiding and Abetting.
Brokers and Funders – Are You Ready for Changes to California Law Effective January 1, 2026?
December 20, 2025Bob Gage is a partner in Hudson Cook, LLP’s Michigan office. Kate Fisher is a partner in Hudson Cook, LLP’s Maryland office. https://www.hudsoncook.com/
California has a new law, California S.B. 362, impacting how brokers and funders communicate with merchants starting on January 1, 2026. The new law adds provisions to California’s Commercial Financing Disclosures Law (“CFDL”) which became effective in 2023 and established the first law requiring commercial financers and brokers (described in the CFDL as “providers”) to provide cost-of-funding disclosures to applicants. Here is an overview of what you need to know:
Don’t Say “Factor Rate”
Under S.B. 362, commercial financing providers are not allowed to use the term “rate” in a manner that is likely to deceive a recipient. A “recipient” is generally a person who receives an offer of commercial financing of $500,000 or less. The preamble to the new law (which is not part of the law but informs how the regulator will approach enforcement) gives the following example of what California means by likely to deceive:
- Describing the price of credit as “X% fee rate” or “Y% factor rate,” particularly when those “rates” diverge materially from the APR.
A factor rate will almost always be much lower than any APR. This means that California has effectively banned use of the term “factor rate” when communicating with applicants for loans, sales-based financing, merchant cash advance and yes – even factoring transactions. It is probably safe to talk in terms of “factor rates” internally. But, starting on January 1, 2026 – saying “factor rate” to a California recipient can get you into hot water.
Don’t Say “Interest Rate” Unless Referring to an Annual Simple Interest Rate
S.B. 362 also prohibits commercial financing providers from using the term “interest” in a manner that is likely to deceive a recipient. The preamble to the new law gives the following examples of what California means by likely to deceive:
- Describing the price of credit as “simple interest” when referring to a nonannual rate as opposed to a noncompounding annual rate that a reasonable person would understand “simple interest” to mean; and
- Describing the price of credit as an “interest rate” when describing a daily, weekly, or monthly rate and not an annual rate; and
This potentially impacts providers who describe the cost of commercial credit using a daily or weekly rate and describing that rate as “interest”. For example, loan agreements that use a daily, weekly, or monthly “interest rate” may need to be modified.
California Requires Brokers and Funders to Remind Recipients of the Disclosed “APR” or “Estimated APR”
S.B. 362 complicates post-offer negotiations between providers and recipients by requiring redisclosure of the APR or Estimated APR calculation already required by the CFDL. It does this by adding the following new provision to the CFDL:
- After extending a specific offer to a potential recipient, whenever a provider states a charge, pricing metric, or financing amount to the potential recipient for that specific offer during an application process for commercial financing, the provider shall also state the annual percentage rate of that commercial financing offer by using the term “annual percentage rate” or the acronym “APR.”
What this means for providers:
- The APR reminder requirement applies “during an application process.” The term “application process” is not defined, but it probably does not end until the recipient receives funding or the provider definitively declines to proceed with the financing.
- During the “application process,” anytime a provider communicates with the recipient and states a charge, pricing metric, or financing amount, the provider must remind the merchant of the APR or Estimated APR for that offer. Here are examples of how this might impact brokers and funders:
|
New York Already has a Similar Law
New York already has similar requirements in its Commercial Financing Disclosure Law. See 23 N.Y. Admin. Code Section 600.1(f)(1). Accordingly, brokers and funders should implement these practices in New York as well.
This is only a high-level overview and not legal advice. If you have questions regarding how these laws impact your business, please contact knowledgeable counsel.
Bob Gage is a partner in Hudson Cook, LLP’s Michigan office. Kate Fisher is a partner in Hudson Cook, LLP’s Maryland office. https://www.hudsoncook.com/
Scott Pearson Is Retiring, But His Influence on Alternative Finance Will Remain
December 9, 2025In the footnotes of virtually every legal brief detailing merchant cash advance history is Richard B. Clark v. AdvanceMe. Filed as a class action in 2008 by a restaurateur in Orange County, California, Clark alleged that the merchant cash advance he received was really a usurious loan. When the case settled in 2011 with AdvanceMe admitting no wrongdoing and agreeing to make changes, industry observers were quick to recognize that the outcome paved the way for how to operate an MCA business—then a nascent concept—in a reliably compliant manner. The case even became a front-page story for The Green Sheet, a top trade publication for the payments industry, with the headline A New Chapter Opens for Merchant Cash Advance.
“In the class action’s aftermath, many alternative funding providers indelibly reshaped the way they do business,” the story began. “And the ripple effect has spawned a new wave of innovation in this sector with seemingly unlimited possibilities and merchants as the designated beneficiaries.”
speaks at deBanked CONNECT San Diego in 2023
The case also brought further notability to Scott Pearson, the attorney representing AdvanceMe for Stroock & Stroock & Lavan LLP at the time.
“I think a lot of people thought that after the case was resolved, it demonstrated that the product was viable,” Pearson recently told deBanked, “and a lot of other companies came into that space.”
Pearson had already established himself in this area of law after defending a class action brought by Bistro Executive in 2004 against Rewards Network over similar allegations, which also resulted in a settlement and no admission of wrongdoing. The outcomes of both offered guidance on how to clear up language that might otherwise appear ambiguous in an MCA agreement, such as how to establish that the transactions are not absolutely repayable.
“Now you see that language everywhere. Every agreement has that same language in it, pretty much saying that, essentially, if you go out of business or if you file for bankruptcy, nothing’s owed because you’re buying a slice of the future revenue stream with an MCA,” Pearson said.
Pearson has worked on well over a hundred class actions over the course of a legal career that has spanned more than thirty years, but those two cases are especially remembered in the small business finance industry and have led to many new client relationships. In some ways that was just the beginning. Today, he’s a Partner at Manatt, Phelps & Phillips, a firm with 450 attorneys and consultants that was founded 60 years ago in Van Nuys, California. Pearson has been very active on matters of compliance and regulatory enforcement over the last few years at Manatt where he leads the Consumer Financial Services group. At the end of December 2025, however, he’s hanging up the briefcase and retiring. His impact will be missed. As a regular on the conference speaker circuit and still one of the most highly sought-after attorneys in the space, his influence has been very beneficial to those around him.
Steve Denis, Executive Director of the Small Business Finance Association, said, “Scott has been an invaluable asset to the industry, a lawyer whose insight, integrity, and foresight have helped shape how we all navigate an evolving regulatory landscape. His steady and unmatched expertise have guided countless companies, and his support for the Association and for me personally has been nothing short of extraordinary.”
Lindsey Rohan, President of the Alternative Finance Bar Association, said, “Scott has been a leader in the legal community within this industry for many years. His willingness to take a leading role in establishing best practices has had a significant impact on alternative financing, and we are all better off as a result.”
How Pearson got to where he is today was a combination of hard work and the opportunity to work in an evolving area of law.
“I grew up in Arizona. I went to school in Southern California, and I think being a lawyer was something that was pretty natural for me,” Pearson said. “I was on the debate team in high school and college, for example, and I really wanted to be a trial lawyer.”
He noted that he did not really become a trial lawyer per se, but rather more of a litigator, since the vast majority of his cases were resolved before trial. Fortunately, he did get the opportunity to cut his teeth in a real battle.
“I did a six-week jury trial in New Hampshire in a trade secrets case that was all about electronic evidence and the destruction of electronic evidence, and that case was really a big thing for my career. Probably a lot of my fondest memories are from that case,” he said. “I think just being in a long trial like that is being in combat—not that I’ve been in combat—but it’s kind of like where you just build these bonds with the people on the trial team that will just be there forever.”
In the beginning of his legal career, Pearson worked under two top lawyers, one of whom handled a lot of smaller cases for banks. That provided valuable experience in financial services. He also worked on class actions for a long time until the landscape for those eventually shifted.
“I think when the Supreme Court decided that class action waivers were enforceable, that really had an impact on the amount of class action litigation out there, so that’s when I started doing a lot more enforcement work,” Pearson said.
Compliance work organically followed since he had an established reputation in the subject matter. Being in his shoes has taken tremendous effort, however, one that required six or seven days a week of his time throughout his career. When he was younger, he and his colleagues joked about looking forward to the weekends because it meant they could wear casual clothes to the office. The stereotype about lawyers working obscene hours is all too real.
“We would pull multiple all-nighters, like literally be up for two or three days in a row cranking things out,” Pearson recalled. “And maybe sleep on the floor of the office for an hour.”
The “thrill of battle,” as he termed it, made it easier to tolerate, but he also enjoyed working with people he admired, respected, and learned from. And he didn’t just defend, he also played offense, most notably by playing forward for multiple ice hockey teams in whatever downtime he managed to muster up.
Pearson recounts, “We had a bunch of guys from my law school class studying for the bar exam together, and what we did was we would go to a review course in the morning, then we’d go to the library and do all our homework, and then we went and played roller hockey in this pond in Santa Monica that had this big fountain that had been drained and the edges of the fountain could be like boards.”
One of his friends, who hailed from Minnesota, said he had to take his roller game to the ice, a challenge Pearson accepted and stuck with.
“I used to get up at like five in the morning and go take private lessons learning how to skate a lot better and how to play before I went to work, before I had kids,” Pearson recalled. After a private coach and several clinics later, he’s made the game a lifelong hobby, one among others such as fishing, golfing, and cooking. He still plays in an ice hockey league in the present day.
Despite his departure, Manatt will remain a powerhouse in the financial services space. The firm added the highly regarded Gianna Ravenscroft as a partner this past October. Pearson also noted many distinguished individuals at the firm, including Partners Charles Washburn, Bryan Schneider, and Andrew Morrison, just to name a few, as well as strong surrounding team players including an associate named Eric Knight.
Manatt describes itself as a “multidisciplinary, integrated national professional services firm known for quality and an extraordinary commitment to clients.” Pearson became a partner there in 2019 following partner titles at Ballard Spahr, Seyfarth Shaw, and Stroock & Stroock & Lavan, where he began and spent most of his career starting in 1994.
Manatt’s site says that “while most of [Pearson’s] clients are banks, fintechs, and other financial services companies (including institutional investors), he also does a substantial amount of work in real estate, sports and entertainment, retail, and other industries,” and that he’s “been repeatedly recognized as one of the top consumer finance lawyers in the United States, with clients in anonymous interviews praising his responsiveness and legal acumen.”
“Scott’s contributions to the alternative finance industry have been invaluable,” said Christopher Murray, Managing Member at Murray Legal, who also practices in the small business finance industry and is familiar with his work. “His knowledge of regulatory compliance and litigation is unmatched. It has been a true privilege to work with him and a pleasure to work alongside him. His retirement is a loss for the commercial finance space, but well earned.”
On matters of compliance, Pearson explained to deBanked that even a small startup financial services company should take some basic steps toward compliance—things like carefully drafting agreements and providing proper training for senior management. And as a company gets bigger, it requires a continuous and larger investment into compliance—real compliance. Some founders and executives, for example, can overestimate their preparedness and require professional help to get where they need to be. He’s seen that before. If there’s anything he hopes people take to heart in his coming absence, however, it’s this: remember that your customers are people too.
“When you think about someone on the other side of the phone, think about it being your grandmother or somebody who is maybe a little vulnerable,” Pearson advised. “I think that if you treat people well and if you’re nice to people, I think that ends up really benefiting your business. And I think the more companies that really commit to that, the better off they’ll be because compliance really flows from that basic concept of ‘do the right thing for people.'”
RadioShack Owners Accused of Running a Ponzi Scheme
September 25, 2025When the RadioShack brand was acquired in 2020 by Retail Ecommerce Ventures, LLC, the company shifted gears into a new direction, cryptocurrency. Using Twitter, now X, as its main base of messaging, the RadioShack account rapidly became outwardly controversial and hostile in order to generate eyeballs and attention. It was quite successful and piqued my curiosity to the point that it ended up on deBanked in 2021.
At the time the company said “RadioShack DeFi is focused on the early majority. It will become the first to market with a 100 year old brand name that’s recognized in virtually all 190+ countries in the world.”
When I actually inquired about information on its new DeFi platform, all I received was a digital coupon for a boombox…
I signed up to learn more about @RadioShack ‘s DeFi project and instead got offered a discount on a new boombox. pic.twitter.com/0O3i8llgyL
— Seán Murray (@financeguy74) December 30, 2021
But the party seemed to come to an end and the account stopped tweeting on November 17, 2022.
Why'd @RadioShack go dark after Nov 17, 2022? They were one of the most epic crypto troll accounts on twitter.
— Seán Murray (@financeguy74) February 15, 2023
Now, according to the SEC, it has been revealed that the owners of RadioShack and other defunct brand names had been conducting a ponzi scheme precisely through November 2022.
Taino Adrian Lopez, Alexander Farhang Mehr, and Maya Rose Burkenroad, were charged this week for running a $112M ponzi scheme. Apparently, none of the household brand names they acquired were generating any profits, but they claimed to investors that they were in order to raise capital. “Consequently, in order to pay interest, dividends and maturing note payments, Defendants resorted to using a combination of loans from outside lenders, merchant cash advances, money raised from new and existing investors, and transfers from other portfolio companies to cover obligations,” the SEC claims.
In addition to RadioShack, the accused operated Brahms, Linens ‘N Things, Modell’s, Stein Mart, and Pier 1 Imports.
MCA Reconciliation Can’t be Reviewed as “Illusory” if the Merchant Didn’t Even Engage in the Reconciliation Procedure
September 25, 2025In Apollo Funding Co v Dave Reilly Construction, LLC, The Appellate Division of the Second Department of the Supreme Court of New York, reversed the lower court’s denial of the plaintiff’s summary judgment motion. For background, Apollo purchased DRC’s future receivables, DRC breached the agreement, Apollo sued and moved for summary judgment, and DRC entered a defense that the agreement was actually an unlawful usurious loan. Based on DRC’s defense the lower court denied Apollo’s summary judgment motion.
Upon Apollo’s appeal in the Second Department, the Court found: “the plaintiff established that the transaction set forth in the agreement was not a loan. The terms of the agreement specifically provided for adjustments to the daily payments by DRC to the plaintiff based on changes to DRC’s daily receipts. Concomitantly, as the amount of the daily payments could change, the terms of the agreement were not finite, and because DRC did not engage in the agreement’s reconciliation procedure, our review of the claim that the process was illusory is precluded [emphasis ours]. Moreover, no contractual provision existed establishing that a declaration of bankruptcy would constitute an event of default.”
The Second Department ruled that Apollo had “otherwise established its prima facie entitlement to judgment as a matter of law on the complaint, and the defendants failed to raise a triable issue of fact in opposition, the Supreme Court should have granted the plaintiff’s motion for summary judgment on the complaint.”
The original case ID in the New York Supreme Court was 035156/2023. The Appellate Division’s Decision and Order was issued September 24, 2025.
As a Funder: Essential Provisions Your MCA Contract Must Include
September 22, 2025Merchant cash advance (MCA) agreements face increasing scrutiny, and even minor drafting flaws can trigger costly litigation. As a funder, making sure your contracts are airtight not only protects your investment but also demonstrates professionalism and transparency to merchants and the courts. In determining whether a transaction is a loan or a true merchant cash advance, courts in New York commonly apply a three-part test: whether the agreement includes a reconciliation provision, whether repayment has an indefinite term, and whether the funder lacks recourse if the merchant files for bankruptcy. Defense attorneys often argue these deals are loans to support usury claims, so addressing these factors explicitly in your contracts is essential.
Below are the three essential provisions every MCA contract must include, plus an additional recommendation that consistently prevents downstream disputes. Every MCA contract must have the three provisions, and the fourth is a highly recommended addition.
1. A Strong and Courteous Reconciliation Provision
Your reconciliation clause should not be discretionary. If a merchant requests reconciliation, your agreement must require the funder to perform it without exceptions. This protects your contract against arguments that the MCA agreement was a disguised loan. As funders understand, you are purchasing receivables, not enforcing fixed payments regardless of revenue.
2. Acknowledgment of No Definite Time Period
Your contract should specify that there is no fixed term for repayment. We recommend avoiding even an estimated repayment period. Due to the merchant’s reconciliation rights, payments may be delayed or, in some cases, may never fully materialize depending on receivables. By including this language, you show that you accept the inherent risk of purchasing receivables and are not guaranteed repayment on a schedule.
3. Explicit Clarification That Bankruptcy Is Not an Event of Default
Bankruptcy may not trigger an automatic default requiring repayment of the entire purchased amount. Making this crystal clear helps differentiate your MCA agreement from a traditional loan, which is critical for enforceability. State plainly that the transaction is a purchase of future receivables, not a loan, and that a bankruptcy filing alone does not constitute default. Clarify that while bankruptcy alone does not trigger default, other Events of Default – such as fraud or misrepresentation – remain fully enforceable.
4. Clear, Specific Attorney’s Fees Provision
Avoid vague phrases like “reasonable attorney’s fees.” While acceptable, they open the door for courts to use the lodestar method, multiplying hours worked by an hourly rate and potentially reducing your recovery. In New York and several other jurisdictions, percentage-based attorney’s fees provisions like the following have been upheld. Always confirm compliance with your governing law before adopting specific percentages:
“Upon the occurrence of an Event of Default, and Buyer retains an attorney or law firm to enforce this Agreement, Merchant and Guarantor agree that a fee equal to 30% of the Remaining Balance (purchased amount less amount remitted by Merchant) (“Attorney’s Fees”) shall be immediately assessed, and Merchant and Guarantor agree that this calculation for Attorney’s Fees is reasonable.”
Final Thoughts
Tightening your MCA contracts with these provisions will prevent expensive disputes and ensure your agreements stand up to judicial scrutiny. Clear, unambiguous terms protect you. Periodic reviews of your contracts by knowledgeable counsel are also a smart investment. Regularly consulting counsel familiar with evolving MCA case law ensures your agreements remain enforceable and defensible in court. Small details today can prevent major headaches tomorrow.
Don’t Wait, Arbitrate: New Era ADR and MCA Claims
September 10, 2025
“New Era, in a nutshell, is 100 days in arbitration, so legally enforceable arbitration, all for one flat fee, all on our platform,” says Rich Lee, CEO of New Era ADR. “This is deliberately built for the bulk of litigation, the stuff that organizations and people just want to get resolved fast, and they don’t want to just accept sub-optimal outcomes like walking away from a collection or settling an employment claim when they didn’t do anything wrong.”
Many industries, including automakers, banks, real estate companies, sports teams, and even the Olympics, rely on the New Era platform to handle arbitration cases. MCA companies too are using New Era, according to Lee. While arbitration as an established process to resolve contract breach claims is not new in MCA, the workloads experienced by certain court systems can make the speed and efficiency of arbitration a preferred alternative. New Era’s arbitration is all virtual so one party is not prejudiced by having to travel a long distance to go through it. And the process, managed by arbitrators that are knowledgeable in the specific area of law a claim calls for, is fast enough that if an award is issued in favor of a funder, they’ll be able to act on it quickly.
“If you started in court, because of the congestion, a lot of courts you’re waiting sometimes a year to get that court order,” Lee says. “But on our platform, inside of about 100 days, you’re getting the arbitration award and then maybe you’re tacking on an extra 30 days just for the court to give you the corresponding order. So that’s how it works. And so we’re actually seeing these MCA clients, their awards now on New Era are getting enforced and they’re getting the corresponding court orders.”
Beyond the 100 day resolutions, they actually have some funders who are getting arbitration awards for uncontested disputes in far less than 100 days, some in 30 days. Given that the arbitrators are neutral, even these situations are scrutinized, but it is done in an efficient manner.
New Era has over a hundred arbitrators on their tech-first arbitration platform which benefits from scale. “Even though it’s 90% faster and cheaper, [it’s the] same quality arbitrators and mediators you’d find anywhere else,” he says.
Those arbitrators are not just the standard style retired practitioner either. While New Era has many retired judges and lawyers on their bench of arbitrators and mediators, they also have many who are highly-experienced lawyers who are still practicing law. These people who are partners in law firms, in-house counsel at companies who are already very experienced lawyers in their space who are hearing these cases.
Lee says there’s always a conflict check before anyone is assigned and the benefit is an arbitrator familiar with the active area of law.
“So we’re able to put only employment arbitrators and mediators on employment cases. If an MCA came in they would never see one of our employment arbitrators, they would only see the folks who know finance, who know this space,” Lee says. “Our arbitrators for MCA disputes not only have finance experience, but specifically MCA-specific experience and many have New York-specific jurisdiction experience.”
New Era’s virtual platform enables resolution in all states and jurisdictions, not just New York, as they have neutrals across the country.
Lee is a former corporate and IP attorney himself and his three co-founders are also lawyers or have worked in a legal environment. And what he experienced from his career is that not every litigation should be as time-intensive as something like Google fighting Uber on a big stage, for example.
“The fact is like 99% of litigation doesn’t need the kind of two to three years that are synonymous with our court system and traditional arbitration systems, or even a year,” Lee says. “Examples in the employment world is, companies end up settling cases when they didn’t do anything wrong. Employees end up not bringing cases if they’ve actually been wronged. And then for the lender world they end up just charging off a lot of this debt because there’s no point in going and pursuing a case in court, many times spending all that time–the time is almost the worst part, right? The money too. But then by the time you get your court order, especially in the MCA world, a lot of these are unsecured cash advances and so you’re kind of left with no recourse and the cash is gone. And that’s kind of really messed up because that all comes back to like, ‘well, the systems that exist aren’t there for this 99%’ and so that’s what New Era is.”
Troutman Pepper Locke Podcast Talks Biz Financing and Impact of Legislative Changes in Texas and Louisiana
July 10, 2025Troutman Pepper Locke attorneys Carlin McCrory, Jason Cover, and Caleb Rosenberg talked small business financing, the recent changes in Texas and Louisiana, and what is likely to come next. The discussion took place prior to the Texas bill being signed by the governor there but provides insights on it that still apply.
You can listen to it here:
