Legal Briefs

Man Who Defrauded MCA Companies Indicted

April 19, 2022
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in handcuffsAn alleged fraud executed five years ago against merchant cash advance companies did not go unnoticed. A grand jury indicted an El Dorado Hills resident named Suneet Singal on April 7th under seal. The Department of Justice announced it yesterday morning.

According to the Grand Jury, Singal engaged in a scheme to fraudulently induce financing companies to provide merchant cash advances to a company he had previously sold and no longer owned. In doing so, Singal allegedly received six wires from four financing companies between April 12 and May 22, 2017 in the amounts of $197,370, $112,308, $48,500, $294,946, $96,970, and $43,975. The indictment did not cite any of the companies by name. Allegedly, Singal used those funds for various expenses, and the company he did not own was forced to file for bankruptcy. Singal was indicted on 10 counts.

The DOJ did not publish the full indictment but it can viewed in its entirety here. Despite the “sealed” stamp at the top, the court ordered it be unsealed upon Singal’s arrest and is public record.

Maryland’s Commercial Financing Disclosure Bill Failed to Move Forward

April 12, 2022
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Annapolis, MDMaryland’s commercial financing bill, propelled by bi-partisan support, failed to overcome the final hurdle before the State’s 2022 legislative session adjourned sine die yesterday. SB 825 passed the Senate in March and became the subject of much debate in the House of Delegates on the 30th. Testimony from 17 people was considered, much of it oral.

The bill’s lofty idyllic intent is perhaps what contributed to its demise. Despite legislative enthusiasm for applying consumer style protections to commercial finance transactions, regulators tasked with its actual implementation were amongst its harshest critics.

The Consumer Protection Division of the State’s Attorney General’s Office said “the bill makes a violation an unfair, abusive or deceptive practice in violation of the Consumer Protection Act. With limited exceptions, violations of the Consumer Protection Act are limited to consumer transactions, i.e., transactions that are primarily for personal, family or household use, and expanding the CPA to cover business-to business transactions would open a door that could lead to a significant increase in the number of complaints received by the Division, requiring the Division to add corresponding resources.” The Division gave an official thumbs down on the bill.

Maryland’s Department of Labor stated that the requirements of the bill would make it “difficult to operationalize from a monitoring, investigatory and enforcement perspective” and that there would be too much uncertainty given that New York, a state that passed a similar law, has been unable to effectively implement their own version. “Maryland small businesses, lenders and borrowers alike, may be negatively impacted if the rollout of the system in New York is significantly delayed or New York enacts systems or procedures not appropriate to or anticipated by Maryland businesses,” it concluded.

Other states, like California, have encountered similar problems with commercial financing disclosure legislation. The bill it passed in 2018 still has not been implemented over lingering disputes over how to do the math it mandates.

Proponents and critics alike picked away at each other’s arguments in Maryland, but when the session ended late late Monday evening to a hail of confetti and balloons, SB 825 had not been called. This was the third year in a row that a commercial financing bill has failed. Another version will likely be introduced when the legislature eventually returns.

MJ Capital Had Thousands More Investors Than Previously Believed

March 28, 2022
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secAn amended complaint filed last week by the SEC against MJ Capital Funding, LLC et al. revealed a shocking new assessment, that the alleged ponzi scheme attracted more than four times the amount of investors originally believed. With more than 9,000 investors now accounted for, the number has continued to shoot up since the case was first filed last August.

Between them all, MJ Capital collected $194.1M in investor funds, the amended complaint states. $56M of it was allegedly misused through payments made to various entities, “a substantial portion of which represent payments to sales agents for promoting the investments in the MJ Companies.” Another $64M was paid back to investors as purported returns from the company’s business operations.

Those operations were minuscule, the SEC claims. MJ Capital is alleged to have only allocated $872,000 towards the line of work it claimed to be operating in.

Possessing the hallmarks of a classic ponzi scheme, the SEC further said that “the only way the MJ Companies could honor their obligations to investors would be by successful continuation of their fraudulent scheme. Once the supply of new investors was exhausted, the MJ Companies would be unable to pay the promised returns to existing investors.”

Planned Auction of “Personal Property” in MJ Capital Case

March 19, 2022
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An auctioneer is being introduced into the MJ Capital saga to auction off surrendered personal property related to the scheme. Given how large the alleged ponzi was ($200M+), the value of the personal property at stake hardly reaches the same level of excess.

The inventory so far only includes:

  • 1 2018 Mercedes Benz CLA 250
  • 8 Watches (6 Rolex, 1 Michelle, 1 Gucci)
  • 1 Gucci Backpack
  • 2 Purses (Luis Vuitton and Christian Dior)
  • 1 Louis Vuitton Bag
  • 3 rings
  • 1 pair of earrings

Additional property could be added, court records indicate. The date, time, and location of the auction has not yet been decided.

PPP Lender Arrested on Fraud Charges Also Allegedly Reversed PPP ACHs, Separate Civil Lawsuit States

March 14, 2022
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New York Supreme CourtIt’s not just criminal fraud charges that the CEO of MBE Capital Partners is facing. Rafael Martinez, who was arrested two weeks ago for allegedly lying to financial institutions and the government about MBE’s size in order to fraudulently obtain PPP lender status, is also facing a civil suit in New York where more than four dozen co-plaintiffs are suing his company. In it, several of the plaintiffs have alleged that MBE unexpectedly and without notice debited out the full balance of the PPP loans from their accounts weeks or even months after they got funded them in the first place.

“Since a majority of these [Plaintiffs] had already properly used their PPP proceeds at the time of Defendants reclamation reversal, in a majority of instances the funds withdrawn from each account consisted, in whole or in part, of non-PPP funds,” the lawsuit states.

Plaintiffs contend that MBE had taken this step because MBE had wrongly suspected some type of fraud on the part of the borrowers, and that nevertheless did not have the authority to reverse the ACHs even if it were true. MBE in its public reply denied the allegations and filed a counterclaim against a single individual that had purportedly assisted the plaintiffs in filing their PPP applications.

While the government has brought hundreds of claims against PPP borrowers, this is the first known instance of a PPP lender taking a vigilante approach to suspected fraud by just allegedly debiting back the entirety of the PPP funds. Plaintiffs claim that when MBE did so, that they weren’t even under any kind of investigation by the SBA.

The civil suit in New York is unrelated to the fraud that MBE Capital CEO Rafael Martinez was arrested for. Federally, Martinez is accused of using misrepresentations to trick his way into becoming an authorized PPP lender that helped him pocket $71 million in lender fees in the process. With that Martinez reportedly bought a villa in the Dominican Republic, a Ferrari, and private jets.

The civil suit in New York, meanwhile, can be found under Index Number: 652786/2021

PPP Fraud Case Reports Collusion Between Loan Broker and IRS Supervisor

February 2, 2022
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DOJIn a PPP scheme that saw twenty-two people get brought up on charges like conspiracy and wire fraud, a federal indictment also alleges collusion between a Supervisory Individual Tax Advisory Specialist with the IRS named Melissa Myrick, and an Atlanta business loan broker named Mark Mason, who was president of Atlanta Business Capital.

According to the DOJ, Mason and Myrick worked together to falsify PPP applications by leaving sections like average monthly payroll and number of employees blank. Between May 12 and May 26 of 2020, Myrick signed off on over $280,000 in altered loan applications while also being an active employee with the IRS.

The indictment also says that merchants who received the funding were in on the scam. “Purported business owners communicated with Mason about the fraudulent PPP loan applications, as well as the amounts to include on the Forms 941 and purported payroll spreadsheets submitted with the applications.” 

Mason pleaded guilty on January 4 to one count of wire fraud and one count of money laundering in connection with his involvement with the PPP fraud mentioned in the indictment.

The report claims that on top of altering documents to get the government-backed funds, Mason charged ‘success fees’ to the merchants he was working with. While pleading guilty, Mason admitted to funneling fraudulent deals totaling between $3.5M and $9.5M

Mason seemed to attract clients with notoriety onto his scam. Public figures mentioned in the indictment include actress Ion Overman who appeared in Desperate Housewives, music producer Carlos “Clos” Stephens who has worked with hip-hop guru Master P, and actor Dale Godboldo who appeared in The People v. O.J. Simpson.

MJ Capital Investors May Face Tough Road Ahead

January 31, 2022
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lawsuit over moneyThe second interim report, filed by MJ Capital’s Receiver, offered some discouraging news for investors holding out hope that the business had been legitimate all along. That is if it can even be determined who all the investors are.

“No such comprehensive investor list was located in the books and records of the Receivership Defendants,” the Receiver stated.

To date, it is believed that there were more than 5,500 total investors who invested more than $200 million altogether. The Receiver says that it has already received estimated loss claims of $150 million.

The challenge with so large a figure is that the business only has $11 million on hand even after cash has been recovered and third parties have surrendered assets. In companies comparable to what MJ Capital purported to be, a recovery of investor capital would be made possible by the gradual collection of customer receivables as the portfolio was wound down. MJ Capital, in alleged ponzi fashion, did not even have a portfolio.

What little business it did have on its books, appears to have been falsified, the Receiver states.

“The Receiver’s ongoing investigation continues to indicate that many of the MCA agreements are forgeries where the supposed customer never signed any document and never received from or paid to the Receivership Defendants any money.”

Many of the affected investors placed their life savings into MJ Capital, the Receiver has learned.

The SEC and MJ Capital’s former CEO, Johanna Garcia, are scheduled to attend Court-ordered mediation on February 28, 2022.

Trial For Brendan Ross in Direct Lending Investments Case Postponed

January 7, 2022
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The criminal trial of Brendan Ross, the former alternative lending hedge fund operator accused of wire fraud, has been postponed to July 26, 2022. Ross has been out on bond. He has pled not guilty.