Legal Briefs

Eight Individuals Arrested by FBI in Small Business Loan Carroting Scam

April 18, 2025
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fbi agentsEight individuals have been arrested by the FBI and charged in connection with a scheme to defraud small business owners out of millions of dollars by charging them money in return for a promise of a large line of credit that would never come.

The individuals charged include: Joseph Rosenthal, Matthew Robertson, Nicholas Smith, James Missry, Paul Cotogno, Blaise Cotogno, Adam Akel, and Nicholas Winter.

As part of the alleged conspiracy the group used the following domain names: oakcapitalgrp.com, oldbridgefunding.com, wsfcap.com, opticapitalgrp.net, and more.

In addition, they used company names and entities that include: Clover Advance Group LLC, FFCG LLC, Advance Source Capital Group dba ASF Capital, WSF Capital Group, Forward Advance LLC, Delta Fund Grp, Oak Capital Grp, United Front Capital, Quick Call Capital, Pine Equities, D&D Equities, ASC Group LLC, and Old Bridge Funding.

“For some victims, the Defendants sent some of the Defendants’ funds to bank accounts provided by the victim,” the criminal complaint states. “The victim was instructed to then repay that same money back to the Defendants over several days, which would in turn improve the victim’s credit score, making the victim more credit-worthy. Further, to secure the loan or line of credit, the victims were required to make a larger, one-time payment comprised of the victim’s own money, which the Defendants typically referred to as a balloon payment. Once the Defendants had recouped their own funds and obtained the victim’s own money via the balloon payment, the Defendants did not extend financing to the victim. Instead, the Defendants kept the victim’s money and broke off communication with the victim.”

The scam had been going on for almost four years, according to the criminal complaint. Several of the names listed above had circulated on an industry message board as likely being involved in a bait and switch LOC fraud scheme.

“These defendants perpetrated a years’ long scheme to defraud hard-working business owners in New Jersey and across the United States, stealing millions of dollars from thousands of victims,” said U.S. Attorney Alina Habba. “These charges reflect our Office’s commitment to holding accountable those who prey on small business owners trying to support their communities and earn a decent living.”

Will the CFPB’s Small Business Data Collection Rules Change?

April 4, 2025
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On April 3, the CFPB filed papers agreeing with the Revenue Based Finance Coalition’s (RBFC) request to stay the litigation between them over coverage of the Small Business Lending Rule. As it last stood, a federal court was leaning toward the CFPB’s side that the 888 pages of data collection rules should apply to MCAs despite them not being loans.

As to why the CFPB would agree to a stay, the agency explained that it may now be tweaking the rules at issue.


“New leadership has been assessing the Final Rule and the issues that this case presents to determine the CFPB’s position. CFPB’s new leadership has directed staff to initiate a new Section 1071 rulemaking. The CFPB anticipates issuing a Notice of Proposed Rulemaking as expeditiously as reasonably possible. Because the anticipated rulemaking process may moot or otherwise resolve this litigation, holding this matter in abeyance would conserve the Court’s resources.”

– CFPB in its response to the Motion to Stay



“The CFPB respectfully proposes submitting periodic status reports every 90 days during the pendency of the rulemaking and will promptly inform the Court when the rulemaking process is complete,” the Agency stated. “Within 30 days of the issuance of a final rule, the CFPB proposes that the parties confer and notify the Court of whether and how they wish to proceed.”

The small business data collection rules are scheduled to go into effect in July.

Debt Relief Scammer Charged Criminally With Wire Fraud

April 3, 2025
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Edward William Rennick III, a known debt relief scammer previously barred from the debt relief industry by the FTC, continued on with his scheme for years after the ban. He is now charged criminally with wire fraud conspiracy.

According to the US Attorney for the Middle District of Florida, Rennick and others engaged in a scheme to defraud consumers by instructing them to stop paying their creditors and to make fixed monthly payments to the entities they controlled instead, all under the guise of consolidating their debts. These consumers were told that all of the diverted funds would go into an escrow account and be used to pay off their debts. Instead, much of those funds were misappropriated by members of the conspiracy for personal use.

You can view the US Attorney’s charges here.

Court Leans Toward CFPB in MCA Section 1071 Lawsuit

February 19, 2025
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A federal magistrate judge found that the CFPB did not overstep its authority when it subjected MCA transactions to the Small Business Data collection rule slated to go into effect this year. The lawsuit was filed a little over a year ago by the RBFC. The RBFC has the opportunity to file an objection within 14 days. For an analysis of the findings, you should consult with an attorney. It can be downloaded here.

This course of events is not related to the recent headwinds the CFPB is facing otherwise.

California Passes Law Extending Debt Collection Rules

January 30, 2025
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The new year brings yet more distressing news from the Golden State. If you are in the commercial finance space, and you want to collect that gold in California, you will soon have to heed all the rules that, until now, only applied to consumer debt collectors.

Beginning July 1, 2025, commercial loans of $500,000 or less will be subject to the debt collection protections of the Rosenthal Fair Debt Collection Practices Act (“RFDCPA”). What is potentially more troublesome is that the statute will apply not only to debt collectors, but creditors! That means that your in-house collection department will have to heed all the prohibitions and restrictions of the RFDCPA.

The rules are fairly straightforward and apply to debt collectors and creditors attempting to collect on their own paper. There are many, including:

  1. It will be a crime for collection notices to simulate legal or judicial process or give the appearance of being authorized by a governmental agency or attorney (if it is not).
  2. If a borrower claims identity theft, collection efforts must cease once the borrower provides certain information which confirms the identity theft claim.
  3. The use, or threat of use, of physical force or violence is prohibited, as is telling a borrower that failure to pay a debt will result in an accusation that the borrower has committed a crime.
  4. Debt collectors/creditors can only initiate judicial proceedings in the county in which a non-natural person is located.
  5. There are many restrictions as to the timing of collection notices and calls.

There is a plethora of other rules, but you get the picture.
There are other important issues, i.e.:

  1. Are your attorneys bound by these rules? In my opinion, the answer is yes. At least I intend to comply.
  2. How liable is a creditor for its independent contractors who perform collection activities?
  3. Can you send emails at night? What if they are computer generated?
  4. Some of the terms of the law i.e. communicating with “such frequency as to be unreasonable” are vague, subjective and rich fodder for consumer plaintiff’s lawsuits. Lender beware!
  5. The new law will prohibit the “false representation that a legal proceeding has been or is about to be instituted” if payment is not made. Gone are the days of sending that threat to sue if you don’t really mean it. So, if you make that threat, are you compelled to sue? I am sure the consumer lawyers will claim foul!

One good thing about the expanded statute is that there is no licensing requirement for commercial debt collectors/creditors (yet!).

There is much more, but it is, as they say, beyond the scope of this article. My best advice is to have an attorney prepare a best practices guide to help you navigate this minefield. That is exactly what I am doing for my clients.

The Law Offices of Kenneth Charles Greene present this article. All copyrightable text, the selection, arrangement, and presentation of all materials (including information in the public domain), and the overall design of this presentation are the property of the Law Offices of Kenneth Charles Greene. All rights reserved. Permission is granted to download and reprint materials from this article for the purpose of viewing, reading, and retaining for reference. Any other copying, distribution, retransmission, or modification of information or materials from this article, whether in electronic or hard copy form, without the express prior written permission of Kenneth C. Greene is prohibited. The materials available from this article are for informational purposes only and not for the purpose of providing legal advice. You should contact your attorney to obtain advice with respect to any issue or problem. Use of and access to these materials does not create an attorney-client relationship between the Law Office of Kenneth Charles Greene and the user or viewer. The opinions expressed herein are the opinions of the individual author.

Legal Complexities in the Revenue-Based Financing Industry: An Analysis of Recent Court Cases

January 6, 2025
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Jeffrey S. Paige is the General Counsel of CFG Merchant Solutions. Visit: https://cfgmerchantsolutions.com

Navigating the intricate legal landscape of the revenue-based financing industry has become increasingly complex, with recent court cases providing profound insights into the sector’s regulatory dynamics. Amidst legislative shifts, litigation between funders and merchants, and public enforcement actions, three prominent court cases have recently emerged, each offering further guidance into the nuanced legal dynamics governing this innovative sector.

SBFA vs. DFPI: Constitutional Challenges to California’s Regulatory Framework

In the Small Business Finance Association (SBFA) vs. California Department of Financial Protection and Innovation (DFPI), 9th Cir., Case No. 24-50, SBFA challenged the constitutional validity and federal preemption of California’s Commercial Financing Disclosure Law. Central to SBFA’s stance is the contention that the state’s regulatory framework infringes upon the First Amendment rights of its members. SBFA asserts that the regulations compel its members to disseminate inaccurate disclosures to customers, while simultaneously prohibiting any communication that could rectify or clarify purportedly misleading information. Furthermore, SBFA contends that California’s customized interpretation of the Annual Percentage Rate (APR) conflicts with the federal Truth in Lending Act (TILA), potentially causing confusion among merchants. The DFPI moved for summary judgment to dismiss the complaint.

Updates and Nuances: Recent Ruling on SBFA vs. DFPI

On December 4, 2023, the trial level judge ruled in favor of the DFPI, granting their motion for summary judgment and dismissing the case.

First Amendment Argument: The judge disagreed with SBFA, concluding that the disclosures would help small businesses understand the costs and were neither misleading nor unduly burdensome.

Federal Preemption Argument: The judge deferred to the Consumer Financial Protection Bureau (CFPB)‘s authority to resolve preemption issues. In March 2023, the CFPB ruled that the Commercial Financing Disclosure Law (CFDL) does not conflict with TILA.

The SFBA has filed an appeal of the lower court’s grant of summary judgment with the United States Court of Appeals for the Ninth Circuit. On May 28, 2024, SBFA filed their appellate brief setting forth the facts on the record on summary judgment and their specific legal arguments, emphasizing the reversible errors made by the district court, particularly regarding the false and misleading nature of the compelled disclosures, the controversy surrounding the use of APR metrics on products (like receivables-based funding transactions) that APR was not designed to properly describe, and the lack of justification for the regulations. The preemption argument is not being raised on appeal. Following this, on June 6, 2024, the Appellee DFPI’s unopposed motion for an extension of time to file the answering brief was granted. The answering brief of the DFPI is now due on August 30, 2024.

Given these developments, SBFA’s challenge continues to underscore significant constitutional, substantive, and procedural issues within California’s regulatory framework.

The People v. Richmond Capital Group: Uncovering Predatory Practices

In the case of The People v. Richmond Capital Group, 195 N.Y.S.3d 637 (N.Y. Sup. Ct. 2023, unpublished slip copy), allegations of predatory practices have uncovered crucial legal considerations for revenue-based financing providers. Initially filed by the People in 2020, the court ultimately found for the People, holding that the Defendants in that case were “predatory lenders” making thinly disguised loans with usurious interest. The keys to this decision were the reconciliation duty (which was allegedly never performed by the Defendants despite the mandatory contract provisions and requirement that merchants submit bank statements to Defendants on a monthly basis), the fact that the transactions were explicitly based upon fixed repayment amounts with fixed repayment timeframes (as opposed to revenue based funding products, where remittance of the purchased receivables may vary in amount and duration along with the merchant’s revenue stream), contract provisions such as making a few missed payments or declaration of bankruptcy events of default (shifting the risk of loss off of the funder), and the fact that Defendants always referred to their products as loans, and not a bona fide purchase and sale of future receipts. The reprehensible conduct of certain Defendants who harassed, bullied, and made numerous fraudulent statements to their merchant customers certainly did not help their cause. In September 2023 and February 2024, the court issued further decisions addressing accounting and disgorgement of funds, but the core principles related to reconciliation and data remain the same. It’s unclear if Richmond Capital Group appealed any of these rulings.

U.S. Info Group, LLC v. EBF Holdings: Implications for ISO Behavior and Funder Accountability

2023 WL 6198803 (S.D.N.Y., 2003), a case out of the Southern District of New York involving New York law, involves allegations by a Plaintiff against a receivables-based funder similar to those in Richmond Capital, but with a very different set of facts, and a different outcome. U.S. Info Group attempted a civil Racketeer Influenced and Corrupt Organizations Act (RICO) claim against EBF Holdings, alleging that the receivables-based funding transaction at issue was a disguised usurious loan under New York law.

In September 2023, the court dismissed the case entirely on the funder’s motion to dismiss the third amended complaint. The judge ruled that U.S. Info Group failed to adequately allege facts demonstrating a “RICO enterprise” or widespread fraud scheme involving EBF Holdings and their affiliates. In addition, the Court re-iterated the major hallmarks of a true purchase and sale receivables-based funding transaction: (i) that the contract contained a reconciliation provision (and that the funder actually preforms reconciliations where warranted such that the provision is not illusory); (ii) that the risk of non-performance due to bankruptcy or declined revenue of the merchant always rests with the funder; and (iii) that there is no finite, fixed repayment term, which would be typical of a loan.

Legal Recommendations for Funders

Funders should consult with knowledgeable and capable attorneys in this area of law to establish and effectuate clear provisions in their contracts along with steadfast adherence to their contract terms and best practices.
As for the DFPI and California’s disclosure requirements, they remain the law of the land unless the final, unappealable decision of a court states otherwise. Thus, funders should consult with their attorneys to ensure strict compliance with California’s disclosure law and regulations.

In conclusion, the recent legal battles involving the revenue-based financing industry underscore the need for continuous vigilance, genuine commitment to proper contract terms and best practices in servicing those contracts, and adaptation to emerging regulatory paradigms, in order to ensure sustainable growth and legal compliance within this dynamic sector.

15 Months in Prison for Fake LOC Scam Run by “Funder”

December 17, 2024
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Yisroel (“Scott”) Heber was sentenced to 15 months in prison for his role in a fake LOC scam, followed by 3 years of supervised release. Prosecutors said he lured small business victims into making upfront loan payments in exchange for getting a large loan afterwards, which wouldn’t come. As part of the sentencing Heber was also ordered to pay $921,594.75 in restitution, forfeit $240,000, and pay a fine of $25,000.

First Criminal Charges in MJ Capital Funding Saga

September 6, 2022
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DOJCriminal charges have finally been introduced to the MJ Capital Funding ponzi scheme saga. Last week, 29-year-old Pavel Ramon Ruiz Hernandez was charged by federal prosecutors with Conspiracy to Commit Wire Fraud. According to the allegations, Hernandez helped manage the operations of MJ Capital and oversaw significant fundraising efforts for the company while knowing that the business was a ponzi scheme. All told, it’s alleged that he and his co-conspirators defrauded investors out of $42 million.

MJ Capital Funding pretended to be an MCA provider but did not actually operate an MCA business, nor was the company known within the MCA industry.

Much of the investigations have focused on Johanna M. Garcia, the CEO of the company, but to date she has not been criminally charged.

If Ruiz Hernandez is convicted, he faces a maximum penalty of 20 years in prison, the DOJ states. The MJ Capital ponzi scheme is reported to have affected over 9,000 investors.