Legal Briefs

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.

PAR Funding SEC Case Ends Mostly in Settlements

December 1, 2021
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Several 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
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SEC BuildingEver 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.

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