Legal Briefs
Lawsuit Against Former MCC Executives Dismissed
February 12, 2021A lawsuit brought by various investment vehicles of Atalaya Capital Managment LP against former officers and/or senior management of Merchant Cash and Capital (later known as Bizfi), was dismissed on Tuesday.
In the judge’s decision, the Hon. Jennifer Schecter said that “plaintiffs seek to hold defendants, former officers and managers of Merchant Cash & Capital, LLC, liable for money plaintiffs lost by investing in the Company. […] Plaintiffs do not sue the Company for breach of contract; instead, they seek to hold the individual defendants liable for the Company’s deficient underwriting through causes of action for negligent mispresentation and fraud. Those claims fail.”
Bizfi failed in 2017 after a long run of being among the largest and earliest merchant cash advance funders in the US.
The case was in the NY Supreme Court under Index No: 655593/2019
Debt Settlement Scammer Set For Prison Release
February 1, 2021Sergiy Bezrukov, the mastermind behind a debt settlement scheme that wreaked havoc on merchants and MCA funders in 2015, is on pace to be released from prison on July 6, 2021, federal records say.
Bezrukov was sentenced to 66 months in prison starting in July 2019 and ordered to pay $1.2 million in restitution to victims.
Assistant U.S. Attorneys Wei Xiang and Mary Clare Kane, who worked on the case, stated at the time that Bezrukov “solicited small businesses across the United States that were operating with merchant cash advances to ‘restructure’ their ‘debt’ with him. The defendant fraudulently induced the businesses to stop paying their original obligations, and to pay him instead.”
He will have served a third of his sentence when he is released.
Outgoing President Trump Extends Clemency to Jonathan Braun
January 20, 2021
President Trump issued an executive grant of clemency to Jonathan Braun on Tuesday, commuting his sentence to time served. Braun checked into FCI Otisville last year to continue serving a sentence for a marijuana-related conviction in 2011.
The executive order requests that he be released as fast as possible.
A statement from the White House said that “upon his release, Mr. Braun will seek employment to support his wife and children.”
Greenbox Capital Comments on Landmark Florida Legal Victory
January 7, 2021
Greenbox Capital was the victor of a major lawsuit argued before Florida’s Third District Court of Appeal that conclusively established the legality of merchant cash advances in the state.
When asked for comment, Greenbox Capital® CEO Jordan Fein said:
“It’s been a long, arduous, and expensive battle over the last few years proving in a court of law that a Merchant Cash Advance is not a loan. Today, we celebrate a win for all Merchant Cash Advance companies in Florida and the entire United States who are dedicated to funding small businesses through ethical practices. Our hard work and commitment to helping small businesses grow was validated and we are thrilled with the final decision of the District Court of Appeal.”
The decision in Florida echoes a similiar opinion reached in New York in 2018.
It’s Official, Merchant Cash Advances Not Usurious in Florida
January 6, 2021
Big news in the State of Florida. The Third District Court of Appeal entered its order on January 6th to decide the fate of Craton Entertainment, LLC, et al., v Merchant Capital Group, LLC, et al..
Merchant Capital Group, LLC dba Greenbox Capital sued Craton in December 2016 over a default in a Purchase and Sale of Future Receivables transaction. In turn, Craton responded with various defenses and counterclaims that asserted the underlying transaction was really an unenforceable usurious loan.
The Circuit Court for Miami-Dade County sided with Greenbox in August 2019. The defendants appealed.
The District Court of Appeal decided the matter conclusively on January 6, holding that the original ruling was affirmed on the basis that:
- The transaction is not indicative of a loan where repayment obligation is not absolute but rather contingent or dependent upon the success of the underlying venture
- that the transactions in which a portion of the investment is at speculative risk are excluded from the usury statutes
- when the principal sum lent or any part of it is placed in hazard, the lender may lawfully require, in return for the risk, as large a sum as may be reasonable, provided it is done in good faith.
The decision can be viewed here.
The lawyers representing Appellee Greenbox Capital were Henderson, Franklin, Starnes & Holt, P.A., William Boltrek III, Shannon M. Puopolo and Douglas B. Szabo.
You should contact an attorney to discuss the implications of this ruling. Merchant Cash Advance contracts are not all the same.
This ruling is similar to a ruling in New York that was made in 2018.
States and DC Sue OCC Over True Lender Rule
January 5, 2021
A coalition of eight Attorneys General sued the Office of Comptroller of the Currency (OCC) over its recently finalized “True Lender Rule.” The group, including representatives from New York, California, and New Jersey, filed a complaint that alleges that the OCC’s rule is an attempt to unlawfully circumvent state lending laws.
“Rent-a-bank schemes undermine the civil and criminal usury laws New Jersey has put in place to protect our residents,” said New Jersey Division of Consumer Affairs Director Paul R. Rodríguez. “Our laws have kept unscrupulous lenders from gaining a foothold in our state, but this new rule undermines those protections and will make it easier for predatory payday and vehicle title lenders to profit at the expense of New Jersey consumers.”
Under the National Bank Act, banks licensed by the OCC function under extensive oversight but can charge interest rates at the maximum allowed in their “home” state anywhere in the country. The complaint alleges alternative lenders partner with national banks, “renting” their name.
This has been happening for years, but NJ Attorney General Grewal argues that these “Trump-era” policies must be reversed because “many families are struggling economically.”
The final rule from the OCC went into effect on Dec 29. Similar court battles have occurred at the state level, as in Colorado vs. alternative lenders Avant and Marlette and their banking partners. The case was settled.
New York Trial Court Rules MCA Funder’s Reconciliation Provision is Likely Illusory and Usurious
December 17, 2020
It may all depend on the definition of may.
Another New York Supreme Court judge has expressed his dislike of the word “may” in a reconciliation provision of a merchant cash advance agreement, as in “buyer [of the receivables] may adjust the weekly amount on a going-forward basis to more closely reflect the Seller’s actual Future Receipts times the Specified Percentage.”
In American Resources Corporation et al v C6 Capital, LLC et al, Supreme Court Judge Leon Ruchelsman held that such a provision is illusory because the language reserved C6 the right to reject a reconciliation request.
Ruchelsman cited a similar decision involving a similarly named company that found that “whether [the funder] was willing to reconcile is not relevant, however; the language of the agreement is controlling, and the agreement does not require [the funder] to agree to reconcile.” (italics added for emphasis). That defendant is appealing the decision.
The difference matters, the judge says, so much so that this interpretation creates likelihood that the plaintiffs will succeed on the merits that the underlying MCA agreement may be void because it is usurious.
The contract is distinguishable from Champion Auto Sales v Pearl Beta Funding LLC, a landmark decision in the Appellate Division that created a strong legal footing for MCA funding in New York State. Notably, the judge said the Pearl contract in that case was worded better because it did not give Pearl discretion to decide whether or not to grant a reconciliation if the merchant met the specified conditions.
Here, in American Resources Corporation, the outcome is that the plaintiffs successfully secured a preliminary injunction restraining enforcement of the judgment entered against them. The defendants simultaneously lost on their motion to dismiss the complaint.
The case will now move to the discovery phase. The case # is 518051/2020 in the New York Supreme Court. The decision can be viewed here.
Merchant Indicted For Sending Fake Bank Statements to Online Lenders
December 7, 2020
On December 17, 2018, the owner of a mexican restaurant in Springfield, Illinois, is alleged to have submitted altered bank statements to National Funding, Inc as part of a loan application to obtain $35,000. What he got in return was an indictment by a federal grand jury.
On Dec 2, 2020, the US District Court for the Central District of Illinois unveiled a seven-count indictment against Omar Hernandez-Lopez. Hernandez-Lopez is the owner of El Tapatio De Jalisco Inc DBA La Fiesta Grande.
Prosecutors say Hernandez-Lopez sent doctored PNC bank statements to two lenders, National Funding and Loan Depot in multiple instances. The actual charge is that the defendant knowingly made a false statement for the purpose of influencing the action of a lender in connection with a loan application.
Apparently, no falsehood is too small. For example, in one count the defendant is alleged to have changed a monthly ending bank statement balance of negative $72.91 to positive $131.90, a difference of $204.81. He is also said to have obscured the amount incurred in overdraft fees.
The penalty if found guilty on any one count? Up to 30 years in prison.
Prosecutors cite Title 18, United States Code,§ 1014.
Defendant is innocent until proven guilty. A copy of the indictment can be viewed here.
