Legal Briefs
PAR Funding SEC Case Ends Mostly in Settlements
December 1, 2021Several defendants in the PAR Funding SEC case settled with the SEC prior to trial, court records reveal. The settlements require defendants to “pay disgorgement of ill-gotten gains, prejudgment interest of disgorgement, and a civil penalty.” Those amounts will be determined by the Court.
Two other defendants have elected to go to trial.
MJ Capital Now Alleged to Be $200M+ Ponzi Scheme
November 22, 2021
Ever since the SEC sued MJ Capital Funding, LLC in August, more information has been revealed about the potential size and scope of the alleged fraud. It was originally estimated that between $70M – $129M was raised by MJ Capital from over 2,150 investors. But now with access to the books and records, investigators believe it is much much higher.
“From the Receiver’s preliminary investigation, it appears that at least 5,500 investors were induced by Johanna Garcia and over 400 promoters to invest as much as $200,000,000 in this Ponzi scheme,” Court filings state.
If true, that would likely make it the largest fraud in the industry’s history. And it’s been a mess trying to recover the funds, it seems.
“Though several individuals have agreed to return funds and other assets to the Receiver, many others have not, and several continue to mislead the victims by counseling them not to register their claims on the Receiver’s website and advising them that the Receivership Defendants’ business will reopen and that is how they will be repaid.”
The loyalty that many investors feel towards MJ Capital’s former CEO is evident by the raw number of signatures attached to a Change.org petition to offer her sympathy and support. 3,243 names say they support her and her mission to unfreeze the money, which is not going to happen.
Those impacted appear confused as to why the company is in trouble in the first place simply because checks were still being sent out to investors at the time the SEC action took place.
The Receiver says that it’s because MJ Capital “had little in the way of actual MCA business, and could not possibly sustain the promised repayments to investors plus the ‘referral fees’ to promoters. Rather, they were paying these amounts with funds raised from new investors, in classic Ponzi scheme fashion.”
In other words, the checks were bound to stop coming eventually, because there was no actual underlying business.
The alleged fraud is now so large that the SEC has asked the Court for time to file an amended lawsuit. The judge has given them until February to file the documents.
New York’s Fourth Judicial Department Affirms Its Settled Law That MCA Agreements Are Not Usurious
November 16, 2021
New York’s Appellate Division for the Fourth Judicial Department in the Supreme Court of New York issued a landmark decision for the merchant cash advance industry on November 12th.
By affirming the original decision issued in Kennard Law P.C. DBA Kennard Law and Alfonso Kennard v High Speed Capital LLC (Index No: 805626/2020), the Appellate Division agreed that among other things that it is settled law in New York that the underlying purchase and sale of future receivables agreement at issue in the case is not a usurious loan.
On June 10, 2020, plaintiffs filed their lawsuit against the defendant, asking the Court to vacate a confession of judgment on the basis that the defendant’s underlying contract dated back on August 24, 2017 was really an unenforceable criminally usurious loan.
The defendant moved to dismiss and the judge granted the motion, holding that:
1. Plaintiffs’ claim of usury is barred by the one-year statute of limitations applicable to usury based claims.
2. Plaintiffs have failed to plead a cognizable cause of action upon which to seek relief.
3. Plaintiffs have no recoverable damages.
4. Plaintiffs’ claims are barred by documentary evidence and settled law in New York holding that the parties’ underlying agreement was not a usurious loan.
Plaintiffs appealed, hoping that the Fourth Department would be persuaded by their arguments that the agreement was usurious. It wasn’t. Instead the Appellate Division unmistakably and unanimously affirmed the original judgment.
The decision demonstrates that there is consensus across judicial departments. Kennard in the Fourth Department (Western New York) is similar to Champion Auto Sales, LLC et al. v Pearl Beta Funding, LLC in the First Department (Manhattan and the Bronx) circa 2018.
Coincidentally, the attorney representing the losing parties, Amos Weinberg, is the same in both landmark cases.
The attorney representing High Speed Capital was Christopher Murray of Stein Adler Dabah & Zelkowitz, LLP.
Man Arrested at Money 20/20 By Feds Has Been Indicted
October 30, 2021
When plainclothes law enforcement agents escorted an unnamed person through the Venetian away from the Money 20/20 conference in Las Vegas last week, a deBanked reporter followed the entire encounter. Though we were able to make a positive identification as to who the man was at the time, cross-checks with federal court records and a local jail turned up nothing.
That all changed the day after deBanked ran the story about the encounter as federal authorities unsealed an indictment of one Jianxiang Shi aka Morgan Shi aka Long Niu. Indicted for using fraudulently obtained Visas, Shi had been at the conference as an exhibitor.
“Jianxiang Shi was arrested this week at a convention in Las Vegas, Nevada where he was promoting a cryptocurrency venture,” the Department of Justice announced. “He made his first federal court appearance yesterday before a magistrate judge in Las Vegas. During the appearance, the federal magistrate judge ordered Shi detained pending his trial in Miami, finding that Shi presents a risk of flight if released. Future court proceedings will occur in the Southern District of Florida.”
Shi was the subject of a Wall Street Journal exposé in 2019 that named him as one of China’s top most-wanted economic fugitives for allegedly masterminding an illegal $5.8 billion Ponzi-like fundraising scheme where $2.3 billion is missing.
The authorities state that an indictment is only an accusation and that defendants are presumed innocent unless and until proven guilty.
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.
