Legal Briefs
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:
Brendan Ross Sentenced to 40 Months in Prison
July 9, 2025Brendan Ross, once the darling hedge fund manager of alternative small business lending, has been sentenced to 40 months in prison after pleading guilty to wire fraud. Ross was indicted five years ago in 2020 for a scheme he carried out through his firm Direct Lending Investments.
“Ross allegedly caused the monthly asset values of the funds to be cumulatively inflated by over $300 million over the course of about four years,” the original indictment stated. “By fraudulently inflating the value of the funds, Ross was able to collect millions of dollars in fees he otherwise would not have been able to charge to clients, according to the indictment.”
Ironically, clues about Ross’s scheme surfaced in a 2017 tell-all book authored by an entrepreneur that had borrowed money from his fund. When the author broke the news that his lending business was going bust, Ross reportedly told him: “I am like, literally staring over the edge. My life is over.”
Approximately one year later, Ross resigned from his own firm and the company went into receivership.
North Dakota Law Regulates “Alternative Financing” as a “Loan”
May 30, 2025The state legislature in North Dakota recently passed House Bill 1127. This bill made a simple amendment to a 1970s-era law called the Money Brokers Act (“MBA”).
Despite its name, the MBA is not limited to brokers. It is the primary law regulating consumer and commercial lending in North Dakota. It applies to any person engaged in the act of arranging or providing loans. Such persons are called “money brokers” in the MBA.
This amendment adds a two-sentence definition of the word “loan”. When this amendment takes effect, the MBA will define “loan” as follows:
“Loan” means a contract by which one delivers a sum of money to another and the latter agrees to return at a future time a sum equivalent to that which the person borrowed. This includes alternative financing products as identified by the commissioner through the issuance of an order.
Is this is a big deal? Yes. Here’s why.
Until now, the MBA has always defined the term “money brokering” to include the act of providing “loans” but has never defined the term “loan”. As a result, forms of business financing that are not typically considered loans – such as factoring or revenue-based financing (also sometimes called “merchant cash advance”) would not be subject to the MBA. Adding this new definition of “loan” to the MBA creates significant risk that alternative forms of business financing will become subject to the regulatory burdens impose by MBA.
Those burdens are significant. The MBA requires money brokers to obtain a license from the North Dakota Department of Financial Institutions (“DFI”). The MBA also caps the maximum amount of fees and charges that can be impose by a money broker at a rate of 36% per year.
With this new definition, the North Dakota Department of Financial Institutions (“DFI”) can now issue an order designating any financing product as a loan subject to the MBA. Does the DFI intend to regulate revenue-based financing? That’s unknown at this time. The Commissioner of Financial Institutions provided a memorandum to the legislature stating that the new definition would allow DFI to ensure that North Dakota’s citizens “will have access to new lending products, without sacrificing safeguards”. It is possible that the Commissioner is intending to focus on consumer financing products and not commercial financing. Even if that’s the case, that’s small comfort.
There is still a problem with this law because the first sentence of the definition is simply too broad. It states that a “loan” includes a transaction with the following two features:
1. There is a contract by which a sum of money is delivered to another.
- A typical revenue-based financing is structured as a purchase of a merchant’s future revenue at a discounted purchase price. The purchase price is a sum of money delivered to the merchant.
- Invoice factoring transactions also involve a delivery of funds in the amount of the face value of the invoice minus a discount and/or a reserve.
2. At a future time, the person receiving that money agrees to return an “equivalent” sum.
- In revenue-based financing, the merchant agrees to deliver the purchased amount based on an agreed-upon percentage of the merchant’s revenue stream. Arguably this is a “sum of money” equivalent to the purchase price advanced to the merchant.
- Factoring is a bit more complicated. In recourse factoring, a factoring client sometimes is required to repurchase an invoice from the factor if the invoice is not paid on time. The repurchase price is based on the face value of the invoice. Arguably this is a “sum of money” equivalent to the face value of the invoice minus a discount and/or a reserve.
Even if the DFI does not order that revenue-based financing or factoring are loans, a North Dakota court could take the position that the definition of “loan” is now so broad that these products are already loans under the revised MBA. No DFI order is needed.
If a North Dakota court concludes these products are now subject to regulation under the MBA, including its 36% rate cap, then this opens the door for North Dakota businesses that obtain financing to sue any provider that imposes charges that effectively exceed that rate cap.
It’s not clear whether the North Dakota legislature understands what it just did. This amendment was part of a legislative package that was primarily focused on data security. The addition of the “loan” definition would be difficult to find if you weren’t looking for it. House Bill 1127 passed with almost unanimous support. Did all those legislators understand that this law could drive away products that offer working capital to businesses that badly need liquidity and don’t have access to a bank line of credit? I doubt it.
Does this mean that providers of alternative financing should stop funding in North Dakota? That’s a business decision. We’ll certainly be watching to see if the DFI provides any guidance on any kind of “alternative financing” product it considers to be a loan. But providers of revenue-based financing and factoring should start thinking about whether they might need an MBA license North Dakota and whether they can live with the MBA’s 36% rate cap.
According to the North Dakota legislature’s website, this change in the MBA is likely to take effect on August 1, 2025. That gives you some time to think about whether North Dakota is still a viable market for your financial products.
Another Arrest Made in Advance Fee Business Loan Scheme
May 24, 2025Federal agents have arrested a third individual in connection with an advance fee business loan scheme that was busted last year. In the original scheme, two defendants were alleged to have induced merchants to make payments towards large lines of credit that never actually materialized. One of the defendants pleaded guilty last July. More recently, however, a third member of the scheme, Samuel Selmar, has been arrested for his role in it. Selmar has pleaded guilty to one count of Conspiracy to Commit Wire Fraud. The US Attorney for the Southern District of New York stated that the unlawfully obtained funds from the scheme were wired to a bank account that Selmar’s name was on.
In a public statement, Secret Service Special Agent in Charge Patrick J. Freaney said: “The deliberate chicanery allegedly carried out by this defendant has had a dire impact on the lives of his victims. By-and-large, these are private citizens who cannot afford to lose a few thousand dollars each. I want to commend the dedication of our Secret Service investigators and the prosecutors at the Southern District of New York for disrupting this insidious operation, and building a strong case that goes a long way toward delivering accountability.”
