Legal Briefs
MJ Capital Funding Had More Than 5,000 Investors
October 8, 2021Investigations carried out by the Receiver for Pompano-based MJ Capital Funding, have revealed that the number of investors in the alleged ponzi is more than double than originally believed.
In August, the SEC successfully persuaded a judge to place MJ Capital in Receivership after providing a convincing argument that the company was engaged in an active securities fraud and that the assets should be preserved. At the time, the SEC estimated that there were as many as 2,150 investors and that the amount raised ranged somewhere between $70M and $129M.
Now with better access to the internal workings of the business, the Receiver says that there are actually more than 5,000 investors and that they expect this number to increase, according to recent court filings.
Also revealed is that more than 400 individuals were tasked with recruiting investors.
“While MJ Capital claimed to use investor funds to provide small business loans called Merchant Cash Advances, the Receiver’s investigation to date has revealed virtually no evidence of legitimate business activity involving the funding and collection of Merchant Cash Advances which proceeds could have funded the payments to investors,” the Receiver said in official papers.
The case is ongoing.
More than 3,200 people have come out in support of MJ Capital Funding’s CEO, believing that she is also a victim in what has befallen the company.
MJ Capital Funding’s Website Has Been Shut Down, Company’s Assets Being Auctioned Off
September 24, 2021
MJ Capital Funding investors holding out hope that a return to business as usual could be in the cards for the company accused of being a ponzi scheme, might find that outcome a little less likely.
The Receiver has agreed to auction off all of the assets at the company’s Pompano Beach offices on September 28, and everything must go, from the 60″ TV to the garbage cans to the houseplant.
Such powers afforded to the Receiver, a law firm partner named Corali Lopez-Castro, also gives her the ability to enter into binding legal agreements on behalf of the company, the latest ones being Consent Agreements with the SEC. In doing this, the two MJ companies (MJ Capital Funding, LLC and MJ Taxes and More Inc.), have agreed to disgorge of “ill-gotten gains,” accept a civil penalty, and be permanently restrained from continuing its former business. Such an arrangement is standard fare when companies are thrust into forced Receiverships like this one. The Receiver’s job will be to collect as much money as possible so that it can be distributed to afflicted investors.
The MJ Capital Funding Website has also been shut down. It now forwards to law firm Kozyak, Tropin, Throckmorton. Regular updates on the case are available for free at: https://kttlaw.com/mjcapital/.
The consent orders do not apply to former CEO Johanna M. Garcia individually, who lost control of the company and ability to act on the company’s behalf when it was placed into Receivership.
An astounding 3,160 people have signaled their support for Garcia in this case. That’s the number of signatures on the online petition for her located on change.org.
“Our goal with this petition is to get those funds unfrozen as soon as possible,” it says. “This is Johanna’s desire as well proving once again Johanna’s unwavering support for us and in building a strong team and community. Johanna has helped countless amounts of people and charities with the work she does local and worldwide.”
MJ Capital Funding CEO Consents to Asset Freeze
September 9, 2021The primary defendant in the MJ Capital Funding case agreed to an extended asset freeze, court records show. Her consent is not an admission of guilt to the civil charges. The SEC has already sufficiently demonstrated its strength of prevailing in the case, which is why the judge ordered the companies be placed into receivership from the outset.
The consent order, entered on the 8th, covers 9 bank accounts held at both Wells Fargo and JPMorgan Chase, in addition to ten credit cards. MJ Capital’s CEO agreed to live off of income derived from two unrelated businesses known as MJ Remodeling and MJ Realty to the tune of $72,800 a year combined. That could change, however, if the SEC determines those businesses are also connected with the alleged scheme. $100,000 that was paid to her lawyer in advance will stand and can be used for her legal defense.
The only unusual bank record disclosed in the papers is a purported account at a small cryptocurrency hedge fund.
Nearly 2,900 people have signed an online petition voicing support for MJ Capital accused’s CEO.
The Receiver is providing regular court filing updates at: https://kttlaw.com/mjcapital/
SEC Charges BitConnect With $2B Crypto Fraud
September 6, 2021
The SEC filed an action against BitConnect last week, accusing two of the firm’s executives for defrauding retail investors by offering a digital asset investment program — while fudging the numbers. The company is accused of cheating investors out of an estimated $2 billion.
“We allege that these defendants stole billions of dollars from retail investors around the world by exploiting their interest in digital assets,” said Lara Shalov Mehraban, Associate Regional Director of SEC’s New York Regional Office. “We will aggressively pursue and hold accountable those who engage in misconduct in the digital asset space.”
Stemming from a civil case in May, Bitconnect founder Satish Kumbhani is accused of lying about his company’s profits while also violating registration laws that are put in place to protect investors. The charges also extend to Glenn Arcaro and his firm Future Money Ltd, as they’re accused of receiving fraudulent commissions from BitConnect of up to $24 million for acting as their promoter.
According to the SEC, investors were told that BitConnect used a “volatility software trading bot” that promised returns of 40% per month while also being shown false returns depicting 3,700% annualized gains. The commission called BitConnect’s actions a “textbook Ponzi scheme” where they are being accused of paying old investors with new investor money.
Arcaro appeared before a judge last Wednesday, pleading guilty to a related criminal wire fraud conspiracy charge in California. He is to be sentenced on November 15. Kumbhani, an Indian citizen, is reportedly a fugitive.
According to the SEC’s report, two of the five promoters have already settled in a related action for promoting the BitConnect offering. The commission has also obtained judgments that require promoters Michael Noble, Joshua Jeppesen, and Jeppesen’s fiancé to pay over $3.5 million and 190 bitcoin.
The complaints seek injunctive relief, disgorgement plus interest, and civil penalties.
In internet pop culture, BitConnect achieved “meme status” in 2017 when an investor went wild at a BitConnect conference, was captured on video, and was viewed half a million times on youtube. He was not personally named in the SEC complaint.
MJ Capital Funding CEO Pleads The Fifth in Response to SEC’s Lawsuit
September 2, 2021
The CEO of MJ Capital Funding, the Florida-based finance company accused by the SEC of being a ponzi scheme, formally lodged an answer to the lawsuit on Thursday. In it, her attorneys state that she has no choice but to assert her Fifth Amendment rights on the basis that a parallel federal criminal investigation is currently being conducted, but “that no negative inference should be drawn from her exercise” of these rights.
Notably, her lawyers say that she might change her mind later if she believes it is appropriate to do so, which would include an event that “she obtains immunity from the US Attorney […] or otherwise receives appropriate safeguards to protect her against criminal prosecution.”
That’s the substance of the response, which at this stage would only require that a defendant admit or deny a list of itemized facts stated by the plaintiff.
More than 2,800 people have come out in support of the accused CEO via a petition on change.org.
A court hearing is scheduled for September 8th at 1:30pm ET via Zoom. Update 9/8: the hearing has been cancelled.
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
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.
NJ Resurrects Small Business Finance Disclosure Bill
July 28, 2021New Jersey’s legislature has revived its small business finance disclosure bill. Having languished since last January, the Senate Commerce Committee quietly gave it a favorable report this past June.
New Jersey’s bill is similar to the law that New York is putting into effect on January 1st. As part of it, non-loan products will be required to calculate an APR even if one cannot be mathematically calculated by “estimating” one.
Brokers would be impacted too:
A broker who charges any fees or commission that would be paid by the recipient of the financing shall provide, at the time of extending a specific offer for a commercial financing transaction and in a form and manner prescribed by the commissioner, a written disclosure, in a document separate from the provider’s contract with the recipient, stating the following, if the information is not contained within the disclosure offered by the provider directly to the recipient:
(1) a list of all fees or commissions that would be paid to the broker by the recipient in connection with the commercial financing;
(2) the total dollar amount of charges listed pursuant to the bill;
and
(3) any increase to the annual percentage rate due to the charges listed above and the resulting dollar cost.
You can read the Senate Commerce Committee’s report here.
