Legal Briefs

New York Appellate Court Overturns QFC, LLC v Iron Centurian, LLC

February 7, 2020
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The Appellate Division, 2nd Department of The Supreme Court of New York, overturned QFC, LLC v Iron Centurian, LLC and Mohamed Sadiqui last month, granting victory to a merchant cash advance company. The case can be summed up as follows:

A Confession of Judgment (COJ) was filed by plaintiff against defendants for breach of contract. Defendants argued by way of motion that the COJ should be vacated and agreement voided because the underlying transaction was really a criminally usurious loan. The trial court concurred and ruled in favor of defendants, vacating the COJ and voiding the “illegal” merchant cash advance transaction.

Plaintiffs appealed.

On January 29, 2020, the Appellate Division unanimously sided with the plaintiffs and overturned the lower court’s decision. Similar to two other rulings issued the same day (Volunteer Pharmacy, Micromanos), the Court said that a COJ cannot be vacated in the manner in which defendants sought it.

Lender Ranking Website Accused By FTC Of Misleading Rankings

February 6, 2020
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United States Federal Trade CommissionLendEDU, a Hoboken-based company that lists and ranks loan providers, came under fire this week after the FTC filed a complaint detailing how LendEDU charged businesses for higher positions in its rankings of lenders and promoted fake testimonials. Providing ratings for student loan refinancing, personal loans, and mortgage lenders, it is the first of these loan types that is in the spotlight.

While LendEDU initially denied that it received any compensation for its lists, saying, “ratings are comparatively objective and not influenced by compensation in anyway” and that “research, news, ratings, and assessments are scrutinized using strict editorial integrity,” this assertion was disproved by the FTC’s investigation.

Emails were discovered which featured CEO Nathaniel Matherson and Vice President of Products Alexander Coleman discussing with a business the pricing per click to hold the #1 spot on the best student loan refinancing company list, as well as what sort of traffic could be expected at this ranking. Accompanying this was a contract between LendEDU and a student loan refinancing company, revealing that in return for compensation the company would drop “[n]o lower than position three” in the rankings. It was also found that if businesses who were already in the rankings refused to pay for the clicks they received, they would drop down in the list.

The testimonials that featured prominently on LendEDU’s homepage, which noted alleged consumers’ names, colleges, and years of graduation, were found to be wholly false, with the people portrayed in them being nonexistent.

And the reviews of LendEDU that were found on Trustpilot and subsequently posted to the company’s own website, were also shown to be fake. Of the 126 reviews, 123 were found to be 5-stars; and only 11 were proven to be from customers (this was confirmed as the emails matched those used by customers), the other 115 were deigned to be written by friends, family members, and associates of LendEDU members, as well as by LendEDU employee’s themselves under false names.

All this is coming after LendEDU landed in hot water following a controversy in 2018 that saw Matherson admit to working with others to create a fictitious expert on student loans, named Drew Cloud, who would give interviews and comments to publications, creating a pro-student loan refinancing discourse. According to Matherson, Cloud “was created as a way to connect with our readers (ex. people struggling to repay student debt) and give us the technical ability to post content to the WordPress website.” Cloud was even given a pixelated face and backstory that extended into high school, imbuing him with a passion for journalism even in his teenage years. Neither Matherson’s comments on Cloud nor his fictional biography do anything to explain how or why his creators decided to give him a name that is quite clearly fake.

LendEDU promptly agreed to settle the charges and pay $350,000 while not admitting or denying the allegations. The public has 30 days to comment on the settlement prior to it becoming final.

Appellate Court Affirms Decision in Merchant Funding Services, LLC v Micromanos Corporation etc.

February 1, 2020
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On January 29th, 2020 the Appellate Division, 2nd Department, of the Supreme Court of New York, upheld the original decision issued in Merchant Funding Services, LLC v Micromanos, etc. et al.. The case concerns a Confession of Judgment (COJ) filed following Micromanos’ default on a merchant cash advance contract. The defendants sought to vacate the COJ on the basis that the underlying agreement was allegedly a criminally usurious loan but the original judge ruled in favor of the plaintiffs.

The case was so notable that deBanked published a summary of the decision three years ago. Of particular interest is that the defendants not only lost but were accused by the judge of attempting to mislead the Court. Despite that, the defendants appealed.

The defendants have now lost again. The underlying case law they had relied on to support their arguments, Volunteer Pharmacy, was overturned the same day this decision was issued, leaving little room to wonder why the Appellate Division ruled accordingly.

One Of The Most Devastating Court Decisions Against Merchant Cash Advances Has Been Overturned

January 29, 2020
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gavelMerchant Cash Advances have sat on comfortable legal footing in New York ever since an appellate court ruled in favor of Pearl Beta Funding, LLC against Champion Auto Sales, LLC in 2018, but even so, it hasn’t stopped lawyers from trying to invalidate merchant cash advance (MCA) contracts on behalf of aggrieved customers.

That’s because an MCA provided by New York-based Merchant Funding Services LLC to a business known as Volunteer Pharmacy in 2016 was ruled by New York Supreme Court Judge David F Everett to be so “criminally usurious on its face” that the normal process required to vacate a Confession of Judgment could simply be bypassed without even having to evaluate the merits of each side’s arguments and the matter automatically won in favor of Volunteer Pharmacy. The judge’s written decision, which voided the MCA contract ab initio, was replete with a scathing opinion of MFS’s business model.

The decision quietly stunned the merchant cash advance industry. MFS understandably appealed.

Dozens of lawsuits against MCA companies in the ensuing years went on to cite Judge Everett’s decision in Volunteer Pharmacy with limited success. And while the industry sat around to find out what would happen in that case, Pearl Beta Funding, a rival to Merchant Funding Services, won an appeal of its own, the landmark usury case in March 2018 that seemingly solidified once and for all the commonly held understanding that such MCA agreements were not usurious.

Despite this, the uncertainty of Volunteer Pharmacy still lingered in the background, that is until now.

On January 29th, 2020 the Appellate Division, 2nd Department, of the Supreme Court of New York, overturned Judge Everett’s decision and ruled in favor of Merchant Funding Services. The panel of judges said they need not even weigh a lot of Everett’s contentions because he was wrong on the underlying procedural issue, that a judgment by confession could be vacated in such an instance without having to go through the normal legal process.

The ruling ultimately provides clarity on the process that determines how a judgment by confession can be vacated. One major impact is that lawyers seeking to invalidate merchant cash advance agreements will no longer have Volunteer Pharmacy as a crutch to rely on.

Former 1 Global Capital CFO Alan Heide Sentenced to 5 Years in Prison

January 17, 2020
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Alan Heide, the former CFO of defunct Hallandale Beach-based 1 Global Capital, was sentenced to 5 years in prison earlier this week for his role in the company’s securities fraud. He is one of three individuals that have pled guilty so far and the first to be sentenced.

The other individuals, attorney Jan Douglas Atlas and former 1 Global COO Steven Allen Schwartz are awaiting their sentencing.

Additional individuals are still expected to be charged.

SEC, US Attorney Charge Steven A. Schwartz in 1 Global Capital Case

January 6, 2020
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handcuffs and moneyNew criminal and civil charges have been filed against an individual in the 1 Global Capital case. This time it’s Steven A. Schwartz, who served as 1 Global’s Director and Chief Operating Officer.

The SEC alleges that Schwartz aided and abetted former CEO Carl Ruderman in carrying out a securities fraud.

The US Attorney for the Southern District of Florida separately alleged that Schwartz engaged in a conspiracy to commit wire fraud and securities fraud.

Schwartz is the third person to be charged criminally in connection with 1 Global Capital’s scheme. Alan Heide and Jan Atlas already pled guilty to their roles in the fraud.

The SEC said of its case against Schwartz:

The complaint further alleges that Schwartz became trustee of a Ruderman family trust in June 2014, and that shortly afterwards, Ruderman had Schwartz execute an agreement conveying ownership of 1 Global to the trust. As alleged, until 1 Global declared bankruptcy in July 2018, Schwartz allowed Ruderman to use the trust to misappropriate several million dollars in investor funds to pay for Ruderman’s luxury lifestyle.

Sentencings in 1 Global Capital Criminal Cases Delayed

December 18, 2019
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The sentencing dates for the two individuals that pled guilty for their part in the the 1 Global Capital mess, have been delayed. Jan Douglas Atlas’s sentencing has been pushed back until March 2020 with a date to be determined, while Alan Heide’s has been rescheduled to Jan 14, 2020.

More Individuals Expected to Be Criminally Charged in 1 Global Capital Case

November 30, 2019
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Hallandale BeachFederal prosecutors have asked a Court to consolidate criminal cases against 1 Global Capital defendants Alan Heide and Jan D. Atlas on the basis that there is substantial overlap between them and that additional individuals are expected to be charged. “Considerable judicial resources may be conserved if, going forward, a single judge is chosen to preside over all 1 Global-related cases,” prosecutors argue. The number of forthcoming defendants was not revealed but has been described as “multiple additional co-conspirators.”

The case, far from over, is being characterized as an active investigation.

Heide, 1 Global’s former CFO, pled guilty on August 23, 2019. He is scheduled to be sentenced on December 18th. Atlas, an attorney who provided fraudulent legal cover for 1 Global via knowingly false opinion letters, pled guilty to 1 count of securities fraud in October. He is scheduled to be sentenced on January 10th.

Hallandale Beach-based 1 Global Capital was once ranked among the largest alternative small business funders by deBanked. That all changed in July 2018 with a sudden bankruptcy filing that revealed concurrent investigations being carried out by the SEC and a US Attorney’s Office.

Prosecutors are calling the company a multi-faceted securities fraud and Ponzi scheme that victimized at least 3,600 investors across the country. While the company took in more than $330 million, $100 million of it is expected to be returned to investors through a bankruptcy court liquidation.

The company’s former chairman and CEO has already consented to judgment with the SEC and agreed to be liable for disgorgement of $32,587,166 + $1,517,273 in interest and a civil penalty of $15,000,000. Shortly thereafter, the SEC reported that he had satisfied the judgment in full with the exception of the stipulation that he sell his condo. Although he has not been criminally charged, prosecutors say that Heide and Atlas both ultimately took direction from, and reported to the company’s former chairman and CEO.

Individuals familiar with the firm may recall that 1 Global Capital was previously reported as being named 1st Global Capital. However, another company bearing the same name sued them for trademark infringment. Since then, news related to the South Florida ponzi scheme have referred to the company by its legal name, 1 Global Capital, LLC.

OCC Believes It’s Time To Fix Madden Issue Once And For All

November 18, 2019
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OCC SealIf a bank makes a legal loan to a consumer and then later sells the debt to a third party, the terms of the loan are still legal right?

“Yes” should be the obvious answer, but in 2015 a federal appeals court said “no.” The case was Madden v. Midland Funding LLC, which started as a credit card debt owed by a consumer to Bank of America at 27% interest and ended as an allegedly illegal loan once the debt was sold to Midland Funding.

The ruling, which deBanked has covered extensively, shook the consumer and business loan markets in New York, Connecticut, and Vermont with its jurisdictional reach. Midland Funding appealed the ruling to the United States Supreme Court but the Court declined to hear the case.

Congress attempted to bring clarity to the lawfulness of the practice with a bill called the Protecting Consumers’ Access to Credit Act of 2017 but failed when the approved House bill never even came up for a vote in the Senate.

On Monday, the Office of the Comptroller of the Currency (OCC) proposed a rule to clarify the “Valid When Made” Doctrine that had been pierced in Madden. “This proposal will address confusion about the effect of a transfer on a loan’s valid interest rate, including confusion resulting from a recent decision from the U.S. Court of Appeals for the Second Circuit (Madden v. Midland Funding, LLC),” OCC wrote in a statement.

A 60-day public comment period will be open once the proposal is published in the Federal Register. To find out how to comment on the rule, click here.

Direct Lending Investments’ Ability to Collect From Largest Debtor Looks Uncertain

October 30, 2019
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satellite dishWhen Direct Lending Investments (DLI), one of the largest online lending hedge funds, went bust, many were surprised to learn that the fund had discreetly gambled heavily in the international telecom market.

At present, a company called VOIP Guardian Partners I owes DLI $203 million. There’s a problem with recovery in that VOIP declared Chapter 7 bankruptcy this past March with little hope to repay because it itself re-loaned out DLI’s funds to telecom companies around the world and were supposedly never paid back.

VOIP is wholly owned by an individual named Rodney Omanoff, a former Hollywood talent agent. There is currently a criminal investigation into Omanoff for money laundering and “other criminal claims,” DLI’s receiver stated in a recent October report. Tens of millions of dollars potentially recoverable by DLI from VOIP are currently in the custody of The Netherlands while the investigation is being conducted.

Meanwhile, deBanked previously determined that VOIP had made bad loans of $158 million to companies purportedly in Hong Kong and United Arab Emirates, funds that came from DLI. The websites for both companies, Telacme Ltd. and Najd Technologies, Ltd, have gone offline.

The bizarre telecom investments in what was perceived to be a hedge fund focused almost entirely on the US online lending market, are not alone. DLI recently revealed that it also loaned millions to a company that put up the mineral rights for 6 oil and gas wells as collateral. It also loaned more than $25 million against a distressed commercial real estate property and a note backed by a VC investment in a cloud-based billing service company.

DLI’s receiver is not confident that it will collect the par amount of receivables on its books.

“Without providing individualized loan/portfolio assessments, the Receiver’s general assessment as of the date of this Report is that recoveries on the remaining loan/investment portfolio are likely to be far less than the $672.5 million in par value stated on the receivership books and records as of September 30, 2019. In fact, in connection with the filing of the 2018 tax returns the Receiver recorded a write down for tax purposes in the approximate amount of 40% of the par value of assets at December 31, 2018.”

Separately, the receiver wrote that most of DLI’s outstanding loan and investment portfolios are in “some form of financial distress or subject to disputes that may affect the timing and extent of recoveries on those portfolios.” It has attempted to keep the identity of those investments confidential so as not to cause any outside interference in those companies’ ability to repay.

Attorney Pleads Guilty In 1 Global Capital Securities Fraud Mess

October 25, 2019
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arrest handcuffsJan Douglas Atlas, a Florida attorney that was arrested last month for his role in the 1 Global Capital debacle, entered a plea of guilty on Wednesday to 1 count of securities fraud. 74-year-old Atlas also agreed to be disbarred.

The charges stem from his willingness to sign an opinion letter that claimed investment opportunities being offered by 1 Global were not securities when he knew that they actually were.

1 Global collapsed last year amid investigations by the SEC and US Attorney’s office and the discovery of a massive discrepancy in the company’s accounting records. Atlas is the 2nd person to be criminally convicted. 1 Global’s chairman consented to judgment with the SEC but has not been criminally charged. Court records indicate he has already satisfied the vast majority of the SEC’s judgment.

The set of facts established by prosecutors and Atlas in his guilty plea suggest that additional individuals could still be criminally charged.

You can read his guilty plea here

Federal Judge Rules New York’s “Win” Against OCC’s Fintech Charter Nullifies The Fintech Charter Concept Entirely

October 21, 2019
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OCC SealThe Office of the Comptroller of The Currency took a gamble with a federal judge in a lawsuit brought by the New York Department of Financial Services (DFS) and lost. On Monday, Judge Victor Marrero ruled that the OCC must “set aside” its special purpose (fintech) national bank charters entirely, not just for those with a nexus to New York.

The outcome is a byproduct of a ruling issued on May 2nd where the OCC had sought to dismiss the challenge from the onset. DFS was somewhat victorious then in that the case was allowed to proceed, be litigated, and eventually tried. But the OCC felt the case was lost before it had begun because “the Court [had already] ruled on the issue of the law at the heart of the case: whether, under the National Bank Act, OCC has the authority to issue special purpose national bank charters to financial technology companies that do not accept deposits.”

NY DFS v OCCThe Court made it clear, that “OCC does not have the authority because the relevant language in the National Bank Act unambiguously defines ‘the business of banking to include deposit-taking.”

As a result, OCC negotiated with DFS to reach an agreed upon final judgment in DFS’s favor. The only remaining question was to what level of defeat the OCC would concede. OCC argued a judgment should preclude only New York companies from applying for a fintech charter while the DFS argued it should apply beyond New York’s borders to all 50 states.

On Monday, the judge went with DFS’s version, pointing out that ordinarily prevailing on an Administrative Procedure Act claim, as OCC had indeed consented to judgment on, would mean that the agency’s order would be vacated, not that the plaintiff would win some special relief.

It is hereby ordered, adjudged and decreed that:
OCC’s regulation 5 C.F.R. 5.20(e)(1)(i), is set aside with respect to all fintech applicants seeking a national bank charter that do not accept deposits.

DFS Superintendent Linda A. Lacewell issued an official comment on the ruling:

This decision makes the financial well-being of consumers from New York and around the country a priority. It reflects the rational conclusion that DFS and other state banking regulators have the expertise to provide the strict supervisory oversight and enforcement of anti-money laundering and consumer protection statutes and regulations that non-depository financial service providers are required to follow. The decision stops OCC’s attempt to usurp state authority by establishing a federal fintech regulatory framework at the expense of consumers. Going forward, DFS will continue to be a fierce advocate for consumers in New York and nationwide.

YOU CAN DOWNLOAD THE DECISION AND ORDER HERE

YOU CAN DOWNLOAD THE FINAL JUDGMENT HERE

New York Attorney General Secures Judgment Against Cardis Enterprises International

October 11, 2019
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AG-NYNew York Attorney General Letitia James announced today that she had secured default judgments against numerous entities and individuals involved in a $30 million fraud.

In December 2018, the New York Attorney General’s Office filed suit against Cardis and company personnel Aaron Fischman, Stephen Brown, Steven Hoffman, and Seth Rosenblatt for participating in the fraudulent marketing of Cardis to investors. The complaint further alleged that, while Cardis was raising significant investor funds, Fischman was fraudulently diverting much of the proceeds to enrich himself, family members, and his favored charities.

Default judgments were entered against Cardis Enterprises International N.V., Cardis Enterprises International (U.S.A.) Inc., Cardis Enterprises International B.V., and Chosen Israel LLC, along with several individuals related to Aaron Fischman as relief defendants.

“The case remains ongoing with several motions pending,” the AG wrote in a public statement, “including a motion for leave to amend the complaint to re-plead claims against Stephen Brown (who was previously dismissed from the case) and the remaining defendants.”

Subprime: Business Owners That Won Bitter Lawsuit Against Marcus Lemonis, Indicted

September 25, 2019
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hamburgersA pair of business owners whose appearance on CNBC’s The Profit ended in a legal battle with celebrity investor Marcus Lemonis, are back in the spotlight. Howard Mora and Alan Buxbaum, co-owners of defunct New York-based A. Stein Meat Products, Inc., were arrested Tuesday for using counterfeit USDA Stamps on their meat. A Septemer 13th indictment was simultaneously unsealed.

According to the DOJ, the pair purchased meat “graded Choice quality meat by graders employed by the USDA Agricultural Marketing Service and directed their employees to carve off the Choice markings and re-stamp them as Prime, using counterfeit stamps. The meat was then sold at inflated prices to customers in the New York City metropolitan area.”

More than 5 years ago, Mora and Buxbaum sought to save their struggling business by selling their Brooklyn Burger brand to Marcus Lemonis in exchange for $190,000. Marcus allegedly coughed up the dough but the two didn’t turn over the brand. Lemonis followed up with a lawsuit which was dismissed on the grounts that a verbal contract on a reality TV show was not valid under New York law. The feud reportedly resulted in a confidential settlement rather than get dragged on by the appeals process.

Lemonis was quick to share news of the indictment on social media despite how much time has passed.

The allegations take place between 2011-2014 during the show’s filming. Stein Meat reportedly went out of business shortly thereafter.

“The integrity of USDA’s food processing systems and the security of the nation’s food supply is of the utmost importance to the Office of Inspector General, and we will continue to dedicate resources to the investigation of matters where it is called into question,” Stated USDA-OIG Special Agent-in-Charge Dinkins.

Head of MyPayrollHR Charged in Massive Nine-Year Bank Fraud

September 23, 2019
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DOJWhen MyPayrollHR left thousands of companies and their employees high and dry without their paychecks earlier this month, suspicion grew that the company’s rather mysterious owner, Michael Mann, may have been involved in some unsavory business. New information has emerged that around that time, Mann voluntarily checked in to the US Attorney’s office in Albany and admitted to a fraud he’d been running for 9 long years.

Since then, according to the Department of Justice, “Mann fraudulently obtained at least $70 million in loans from banks and other financial institutions. He created companies that had no purpose other than to be used in the fraud; fraudulently represented to banks and financing companies that his fake businesses had certain receivables that they did not have; and obtained loans and lines of credit by borrowing against these non-existent receivables.”

He has not paid them back. By the end, Mann resorted to kiting checks, the DOJ claims, in that he wrote checks back and forth to himself at different backs to inflate the balance of one or more accounts.

His largest creditor, Pioneer Bank, is owed tens of millions. Earlier this month, Mann attempted to route funds meant for his customers’ payrolls to an account at Pioneer Bank. Pioneer Bank responded by freezing all of the funds, causing all of MyPayrollHR’s clients to get caught in the crossfire.

Mann is charged with Bank fraud. If convicted, he faces up to 30 years in prison and a maximum $1 million fine.

Gone with the Wind: $35 Million Missing as Payroll Company Closes and President’s Home Raided

September 18, 2019
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Views of the Adirondack from the top of a mountainKnocking on the door of a lake-view house in Edinburg, NY last week, reporters from both the Times Union and Daily Mail were met with pleas from a woman to leave her property and notice that she would call 911 if they continued. This week the FBI come knocking instead.

The woman is assumed to be Kim Mann, wife to Michael Mann, President of ValueWise Corp, who has recently vanished following the sudden closure of MyPayrollHR, a company belonging to ValueWise, and the disappearance of an estimated $35 million from employers who were using the company’s payroll services.

With his location currently unknown, Mann is at the center of a search for clarity as to what happened with the missing funds. Both the media, FBI, and victims of MYPayrollHR’s seeming misappropriation of funds are discussing his absence, with the last of these taking place in a Facebook group for those affected by the scandal.

The alarm bells began to ring on September 5th, when customers of MyPayrollHR were abruptly informed that the company would be shutting down that day. And they continued to ring when employers began receiving reports that their workers bank accounts had been docked the amount that should have been deposited for that pay period. Some victims have reported that they were credited twice for the same amount, and one employer has claimed that one of her employee’s had $1 million withdrawn from her account. The names on these transactions are a mix of the victims’ employers; MyPayrollHR; and Cachet Financial Service, a payroll processor that had been working with MyPayrollHR for twelve years.

Over 4,000 companies have been affected, with the number of employees impacted being in the tens of thousands. The unwarranted withdrawals have left many victims with negative balances, resulting in overdraft and late repayment fees.

Cachet similarly claims to be a victim, asserting that it risked losses of $26 million. Wendy Slavkin, General Counsel for Cachet, said last week in a Times Union interview that “as it stands today … the biggest victim, and really the only victim and victims, is Cachet … The employers are getting back their money, we are not.” This week it became clear that Cachet was responsible for withdrawing wages due from employers and depositing these in a holdings account, and that because of what Slavkin described as “manipulation,” these funds were deposited in accounts under Mann’s control. Cachet, realizing that it was now down $26 million, withdrew the amounts due to employees from their accounts.

Slavkin’s claim of Cachet being the singular victim has been decried by members of the Facebook group ‘victims of MyPayrollHR and CachetFS,’ which over 2,000 have joined. “How can you be general counsel for a bank that specializes in payroll and not understand how banking or payroll work?” Asked one user. “What is wrong with Wendy Slavkin?!” Asked another. And “Cachet Banq is just as scummy as MyPayrollHR has turned out to be,” asserted a third. One member of the group also stated their intentions to file a lawsuit against Cachet this week.

Meanwhile, other payroll companies have been active within the group. DailyPay has set up a $25,000 relief fund to aid victims pay off their overdraft and late fees, and Paylionce has been privately messaging members of the group offering their payroll services.

Vocal members have urged others to report their cases to the National Automated Clearing House Association, saying that they have helped with the recovery of their wages, especially those who are with Bank of America. While others have claimed that Cachet has partially refunded what was credited, restoring the first withdrawal to the account but not the second.

Currently, uncertainty remains as to what exactly happened with the $35 million that has gone missing. Michael Mann is seemingly nowhere to be found and no media outlet has been able to produce a photo of either Michael or his wife Kim. The former’s LinkedIn profile is sparse except for two entries in his work history as well as endorsements for, among other things, strategic planning and customer relationship management.

All that there is to work off is a panicked call that Mann made to the Edinburg Building Department on September 5th, in which he asked about a permit he had received the previous year to build a two-car garage with a bedroom and bathroom above it onto his home in Adirondack Park, which he noted might have to be sold.

Prominent Attorney Criminally Charged In 1 Global Capital Mess

September 17, 2019
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Department of JusticeAnother individual has been criminally charged in connection with the 1 Global Capital securities case. 74-year-old Jan Douglas Atlas, a securities attorney, was charged with 1 count of securities fraud by the US Attorney in South Florida on Tuesday for authoring opinion letters in 2016 that falsely described that the investments were not securities nor subject to federal securities laws or registration requirements.

The charges allege that Atlas “came to understand” that individuals representing 1 Global were not interested in accurate legal advice based on real facts and that they instead wanted false legal cover that would advance the desired outcome to continue to profit from 1 Global. He allegedly made false and misleading statements despite knowing the true nature of how the investments worked and that they were in fact securities as defined under federal securities laws.

“Atlas’s opinion letters were used and relied upon by 1 Global employees and agents to continue to raise money illegally,” the Department of Justice said in an announcement.

Atlas was also compensated by receiving a percentage of the commissions generated from the fundraising scheme to the tune of $627,000 paid to his personal checking account. These payments were not disclosed to his employer, Kopelowitz Ostrow, as required.

View the US Attorney’s complaint here

Atlas was also separately charged by the SEC.

His employer was not charged with any wrongdoing in either action. Atlas was previously listed as a partner at the firm but is no longer on the firm’s website.

Atlas is the second individual to be criminally charged in connection with 1 Global Capital. The first individual, Alan Heide, who served as 1 Global Capital’s CFO, pleaded guilty to conspiracy to commit securities fraud. He is scheduled to be sentenced on December 12th.

Online Lender Wins Massive Arbitration Award After Retailer Challenged The “True Lender” Of The Loans

September 13, 2019
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business refereeAn arbitrator was unconvinced by a retailer’s arguments that business loans it obtained from Celtic Bank via Kabbage were responsible for the business’s eventual failure.

In 2017, NRO Boston, LLC and Alice Indelicato filed a lawsuit against Kabbage Inc. and Celtic Bank Corporation for allegedly violating Massachussetts’ usury law when the parties engaged in financing transactions years earlier. The complaint alleged that Kabbage’s relationship with Utah-based Celtic Bank was a “rent-a-bank” scheme that enabled Kabbage, as part of a sham, to piggyback off of Celtic Bank’s exemption from state usury laws. State chartered banks are typically not subject to state usury laws even in other states. The usurious loans it obtained from the parties, NRO argued, caused severe mental anguish, emotional distress, and financial strain which forced them to obtain even more loans from other lenders.

At the time, the National Law Review said this case exemplified the litigation risk inherent in using bank partnerships and that it was the latest example in the burgeoning area of “true lender” litigation.

Kabbage responded to the suit by enforcing its arbitration provision and the underlying litigation was stayed. The arbitration process proved to be extensive and expensive and tallied up more than 800 exhibits and 12 witnesses. On July 24, 2019, the arbitrator announced his decision, and it didn’t bode well for NRO Boston.

The difficulties the retailer encountered, the arbitrator wrote in his written decision, were caused by the owners’ inexperience, mismanagement of the business, the rapid expansion of the business, the assumption of millions of dollars of debt, and excessive owner compensation. NRO’s F rating with the BBB and the fact that the owners had paid themselves a whopping $1.3 million from 2010 – 2013, well in excess of industry averages, were reasons the business failed, the arbitrator wrote. Furthermore, Kabbage and Celtic Bank only accounted for 2.3% of NRO’s debt.

“The obvious conclusion, and I so find, is that Celtic and Kabbage and their business arrangement had nothing to do with the demise of NRO.”

More to the point, the arbitrator concluded that there was no merit to the allegation that Kabbage’s relationship with Celtic Bank was a “rent-a-bank” scheme.

As a result, Celtic Bank was awarded a grand total of nearly $3.3 million in legal fees, costs & expenses, and the outstanding balance owed on the loans.

On September 9, NRO filed a petition in federal court to vacate the arbitration award, in part because they believe the arbitrator engaged in a manifest disregard of the law. The matter is currently pending.

Four Plead Guilty In Fake Business Loan Scheme

September 11, 2019
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CourtroomFour of the five loan brokers indicted in a fake business loan scheme have pled guilty to charges.

Toplica and his co-conspirators were alleged to have duped an Ohio victim out of hundreds of thousands of dollars in upfront fees, the title to 55 vehicles including a Ford Mustang, several dump trucks, several tractors, several restored classic vehicles, a Freightliner motor home, and trailers. The ruse was that the money was going towards upfront fees to secure a loan and the vehicles were to serve as collateral. In reality there was no loan.

Haki Toplica, the group’s ringleader, pled guilty to 4 counts of wire fraud and 1 count of conspiracy.

Kathryn De La Torre, Luisa Goris, and Robert Russo also pled guilty to various charges. The case against co-defendant Haider Islam is still ongoing. Sentencing for the 4 defendants is expected to happen in January.

Princeton Alternative Income Fund Saga Devolves Into SEC Investigation, RICO Lawsuit

August 18, 2019
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The demise of the Princeton Alternative Income Fund has resulted in several ugly twists and turns. In addition to a slew of lawsuits, the bankrupt hedge fund is also being investigated by the Securities and Exchange Commission. Matthew Cantor, who is serving as the bankruptcy Trustee, cited the SEC’s probe as one of many reasons he filed a RICO lawsuit late last month against individuals and businesses formerly involved with the hedge fund.

You can download the lawsuit here

Princeton’s trouble snowballed after the very public collapse of Argon Credit of which Princeton was a major investor. That in turn created a conflict with Ranger Direct Lending, a UK fund that had invested in Princeton. The end result is that Argon and Princeton filed for bankruptcy while Ranger was wound down.