Legal Briefs

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.

1 Global Capital’s Carl Ruderman Consents To Judgment With The SEC

August 10, 2019
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Update 10/4/19: According to the docket, Ruderman has satisfied the judgment in full, with only the sale of his condo remaining.

CourtroomThe SEC’s lawsuit against Carl Ruderman, the former CEO of Hallandale Beach-based 1 Global Capital, has come to an end. He has consented to judgment in a settlement and the penalties are devastating, papers filed on friday with the Court show.

Specifically, Ruderman is liable for disgorgement of $32,587,166 representing profits gained as a result of the conduct alleged together with prejudgment interest on disgorgement of $1,517,273 and a civil penalty of $15,000,000. He must also sell his Condominium and disgorge 50% of the equity. Online real estate websites estimate his property to have 5 bedrooms, 8 bathrooms, and be worth in the range of $5,000,000 – $6,000,000.

1 Global Capital filed for bankruptcy last year after its business was hampered by investigations being conducted by the SEC and US Attorney’s Office. The SEC brought its case against Ruderman and his company a month later and alleged that it “fraudulently raised more than $287 million from more than 3,400 investors to fund its business offering short-term financing to small and medium-size businesses.” The investments were alleged to be unregistered securities and that millions of the funds raised from investors were misappropriated by Ruderman. The settlement stipulates that he does not admit or deny the allegations.

No criminal charges have been brought to date.

The SEC settlement was technically entered into in June but had to be reviewed and approved by the five SEC commissioners.

The unopposed motion for judgment was filed last week. It was signed by the judge on Monday, August 12th.

Loan Broker Busted In Advance Fee Loan Scam Faces Drug Charges

July 20, 2019
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Demetrios Boudourakis, who was arrested last month for operating an advance fee loan scheme that allegedly defrauded small business owners nationwide, is also facing federal drug charges. The criminal complaint, filed on June 14th, asks for an arrest warrant for conspiring to distribute controlled substances.

The complaint can be viewed here.

Star Fundraiser For 1 Global Capital Settles With The SEC

July 15, 2019
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United States Securities and Exchange commission SEC logo on entrance of DC building near H streetHenry J. “Trae” Wieniewitz, III was charged by the SEC on Monday for his role in allegedly selling unregistered securities in two companies, 1 Global Capital (the now defunct merchant cash advance provider) and Woodbridge Group of Companies (a purported real estate lending business revealed to be a $1.2 billion ponzi scheme).

“Wieniewitz and Wieniewitz Financial raised more than $11.4 million and reaped approximately $500,000 in commissions from unlawful sales of Woodbridge securities, and raised more than $53 million and obtained approximately $3 million in commissions from unlawful sales of 1 Global securities,” the SEC stated.

Wieniewitz was not a registered broker-dealer nor associated with a registered broker-dealer.

A settlement was announced simultaneously. “Wieniewitz and Wieniewitz Financial settled the SEC’s charges as to liability without admitting or denying the allegations, and agreed to be subject to injunctions, with the court to determine the amounts of disgorgement, interest, and penalties at a later date,” an SEC statement said.

Wieniewitz was not alone in selling investments in both 1 Global and Woodbridge.

Separately, the owner of Woodbridge and two former directors of the company were recently charged criminally.

No criminal charges have been brought to date in the 1 Global Capital saga. That could change. 1 Global Capital revealed in 2018 that it was being investigated by the US Attorney’s office. That along with the SEC investigation prompted the company to file for bankruptcy. The SEC subsequently brought civil charges.

Documents filed in the SEC case against 1 Global’s former owner, Carl Ruderman, have since revealed that at least one former employee had been approached by the FBI about the operations of 1 Global.

Last month, it appeared Ruderman and the SEC were heading towards a settlement.

One notable fact about 1 Global Capital is that the company participated in the largest merchant cash advance in history at $40 million. That transaction has become a point of significant controversy and litigation. The recipient of those funds, a conglomerate of car dealerships in California, have shut their doors.

Federal Lawmakers Not Convinced NY Confession of Judgment Ban is Enough

June 25, 2019
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capitol hill

The recent New York State law that effectively ended the era of Confessions of Judgment in the small business finance industry is apparently not enough to satiate the outrage of some federal lawmakers. This morning, Rep. Nydia M. Velázquez (D-NY) and Rep. Roger Marshall (R-KS) introduced the “Small Business Lending Fairness Act” that would outlaw confessions of judgment in small business financing transactions nationwide.

Given the impact the New York law is expected to have, the effort may appear to be duplicative. But not quite. The New York law prohibits COJs from being filed in New York against out-of-state debtors. As New York had the friendliest commercial COJ process, financial companies were using New York courts to file COJs against debtors in all 50 states whether there was a nexus to New York or not. By requiring the debtor be in New York, as the new law requires, the utility of COJs in the New York courts for the other 49 states has been eliminated.


That doesn’t mean that courts in other states don’t allow commercial COJs to be filed in their home states. Some do, such as California and Pennsylvania, for example, but the process isn’t as friendly or as easy as New York’s. (See an analysis of California’s and Pennsylvania’s COJ process here)

Rep. Nydia M. Velázquez (D-NY)

That is where the proposed federal law would have the most reach and why a federal bill is not merely an academic exercise at this stage.

The federal bill’s language is not new. It mirrors a bill introduced by Senators Sherrod Brown and Marco Rubio in December. No movement has been made on it since but they reportedly intend to move forward with it.

Velázquez intends to keep the momentum going.

“I was appalled to find out that New York State has become an epicenter for dishonest lenders seeking to swindle small businesses around the country,” Velázquez said. “That’s why I’m proud to introduce this legislation and will be leading a hearing this week to further expose these abusive practices.”

The hearing she refers to is titled, “Crushed by Confessions of Judgement: The Small Business Story” and it’s being held tomorrow at 11:30am on Capitol Hill. It will be livestreamed here.

An alleged victim of predatory lending is among the guest speakers. Mr. Jerry Bush, who was featured in Bloomberg’s controversial series on merchant cash advances, is on the witness list. Bush reportedly lost his business after a series of unfortunate business dealings. Nobody from the small business finance industry is currently appearing to offer any opposing testimony on the matter of COJs. If that changes, deBanked will provide an update.

The hearing will be livestreamed on the deBanked homepage.

The Industrial Hemp and CBD Industries, and the Potential Risks for Merchant Cash Advance Funders

June 22, 2019
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Hemp FarmAuthored by Josh Herndon of Global Legal Law Firm

It seems that we are constantly being bombarded by news of the growing industrial hemp and cannabidiol (more commonly known as “CBD”) industries. Indeed, industrial hemp (and products derived therefrom, such as CBD) is now legal, and these industries have experienced substantial growth that is expected to continue into the foreseeable future. As such, the businesses in these industries seem to be ideal candidates for merchant cash advances (an “MCA”, or “MCAs”), as such businesses seem more than capable of repaying an MCA.

However, businesses in the industrial hemp and CBD industries are still subject to federal law, and their ability to sell their product can be impacted by enforcement of federal law by federal agencies. MCA funders partnered with such businesses may be harmed by if those businesses are unable to generate the sales needed to repay MCAs. Nevertheless, the possibility of an enforcement action by a federal agency doesn’t mean that all activities in which a business in the industrial hemp and CBD industries could engage would be a violation of federal law. Indeed, there are industrial hemp-related and CBD-related business- activities that likely would not violate federal law.

In sum, MCA funders considering MCAs to businesses in the industrial hemp and CBD industries need to be aware of all risks associated with such MCAs before making an informed decision about whether to make such MCAs.

Background Regarding The Industrial Hemp And CBD Industries.

A fast-growing, sustainable and inexpensively produced plant, industrial hemp is a variety of cannabis sativa L. that contains less than 0.3 percent plant chemical delta-9 tetrahydrocannabinol (more commonly known as “THC”). Unlike marijuana (which, like industrial hemp, is derived from cannabis), which is cultivated to yield psychoactive THC, industrial hemp yields more than 25,000 oil and fibrous products that are embraced by farmers as a hedge against lower-value soy, cotton and alfalfa crops.

Industrial hemp was legalized late last year pursuant to the Agricultural Improvement Act of 2018 (also commonly known as the “Farm Bill”). Related thereto, production of industrial hemp skyrocketed in 2018, with 112,000 acres licensed for cultivation, 3,546 cultivation licenses issued, 78,176 total acres cultivated, and 40 universities conducting research.

Numerous products are derived from industrial hemp including CBD, which is an oil-based product that has uses as a nutritional supplement and food additive In fact, seventy-eight percent of all industrial hemp grown in 2018 was for CBD. The market for CBD has exploded, and is expected to continue exploding. According to the Brightfield Group, industrial hemp-based CBD sales hit $170 million in 2016, and it is anticipated that a 55% compound annual growth rate over the five years thereafter will cause the market for industrial hemp-based CBD to crack the billion-dollar mark.

In addition to legalizing industrial hemp, the Farm Bill also guarantees that industrial hemp and industrial hemp-derived products can be imported, exported and transported from state to state like any other crops. The Farm Bill also allows industrial hemp businesses to access insurance and banking.

The FDA And Its Role With Respect To The Industrial Hemp And CBD Industries.

Although the Farm Bill legalized industrial hemp, industrial hemp and CBD businesses do not have carte blanche to take whatever actions they want with respect to their products. That is because the United States Food and Drug Administration (the “FDA”) is responsible for protecting and promoting public health through controlling and supervising food safety, tobacco products, dietary supplements, prescription and over-the-counter pharmaceutical drugs, cosmetics, animal foods and feed and veterinary products.

cbd signThe FDA has stressed that although industrial hemp is no longer an illegal substance under federal law, it will continue to regulate cannabis products under the Food, Drug, and Cosmetic Act (the “FD&C Act”) and Section 351 of the Public Health Service Act. That means that any cannabis product (such as CBD) that is marketed with a claim of therapeutic benefit, regardless of whether it is hemp-derived, must be approved by the FDA before it can be sold. In fact, the FDA has specifically cited deceptive marketing practices as one of its chief concerns, and it has clearly established that selling unapproved products with a therapeutic claim is unlawful.

The FDA has also confirmed that the addition of CBD to food products and dietary supplements is unlawful, even if the CBD is derived from industrial hemp. The FDA’s rationale is that CBD is an active ingredient in FDA-approved drugs, and its addition to the food supply and dietary supplements is illegal under the FD&C Act.

Recent FDA Actions Involving The Industrial Hemp And CBD Industries, And The Impact On Those Industries.

The FDA recently, and dramatically, showed how it will exercise its authority over industrial hemp and CBD products on March 28, 2019, when it (along with the Federal Trade Commission) issued warning letters to three businesses who sell CBD products alleging false, unfounded, unsubstantiated, and egregious health claims about (without sufficient evidence or FDA approval) their products’ ability to limit, treat or cure. The three businesses had advertised a range of CBD-containing supplements, and boasted the ability of those supplements to effectively treat diseases (including cancer, Alzheimer’s and fibromyalgia) and “neuropsychiatric disorders” in both humans and animals. The FDA threatened the three businesses with product seizures, injunctions and sales proceeds reimbursement.

fda websiteThe above actions by the FDA understandably sent shockwaves through the industrial hemp industry, and those actions underscore the risks faced by industrial hemp and CBD companies. For instance, virtually all CBD products that make health and wellness claims, or are deemed a food or drug, are potentially subject to scrutiny from the FDA because such products are mostly sold over the internet and enter the “stream of interstate commerce”. However, it is such health and wellness applications, and food and beverage infusion, that makes CBD and other oil-based hemp derived products attractive to the consumers who are the target market of CBD companies. As such, industrial hemp companies that sell CBD products almost inevitably invite FDA scrutiny as a result of their efforts to market their products to their customers, and potentially imperil their ability to sell their products to those customers.

A Cautionary Tale For MCA Funders.

Although the industrial hemp and CBD industries seem to be ideal markets for MCA as a result of their past and anticipated future growth, the recent actions of the FDA described above highlight the very real perils faced by businesses in those industries. At first glance, businesses in those industries seem to be ideal candidates for repaying MCAs because of what appears to be bountiful future sales. However, product seizures and/or injunctions ordered by the FDA obviously could prevent businesses in those industries from selling their product and generating receivables from such sales. An MCA funder partnered with such a business would obviously be harmed if the business couldn’t generate the receivables needed to repay an MCA.

Fortunately, there are circumstances under which businesses in the industrial hemp and CBD industries can likely operate without fear of an enforcement action by the FDA. For instance, the FDA allows cannabis and cannabis-derived products to be introduced into interstate commerce where it approves such products (such as with the FDA’s approval of Epidiolex, a seizure medication containing CBD, in 2018). Moreover, the FDA has identified three lawful hemp derivatives (including hulled hemp seeds, hemp seed protein, and hemp seed oil) that can be marketed legally as long as they are not promoted with a therapeutic claim.

Based on the above, the circumstances under which an MCA funder should, or should not, make an MCA to a business in the industrial hemp and CBD industries can be very confusing. MCA funders need an insight into the industrial hemp and CBD industries, and the very real risks faced by those industries as described above, before making MCAs to businesses in those industries.

Fortunately, competent legal counsel versed in the MCA industry, as well as the industrial hemp and CBD industries, can provide such insight, and legal advice related thereto. As a practical matter, an MCA funder should not make an MCA to a business in the industrial hemp or CBD industries without first getting advice from such legal counsel so that the MCA funder can fully understand the risks involved in making such an MCA, and the circumstances in which such an MCA should, or should not, be made.

Mr. Herndon is an attorney at the Global Legal Law Firm, whose attorneys are well recognized as top industry experts. Mr. Herndon works in the compliance field helping electronic payment processing companies avoid getting fined, arrested, violate rules, or get sued from internal or external threats. Mr. Herndon is also involved in litigation in the payments space, including defending and pursuing electronic payments companies.

SEC Secures Judgment Against Direct Lending Investments

June 20, 2019
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Without admitting or denying the allegations of the complaint, Direct Lending Investments, a defunct online lending hedge fund, consented to judgment by the SEC on Tuesday. They will be required to pay a disgorgement of ill-gotten gains, prejudgment interest, and a civil penalty that has yet to be determined.

Read the full judgment here

SEC, Ruderman Heading to Settlement

June 16, 2019
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The Securities and Exchange Commission’s motion for summary judgment against Carl Ruderman for his role in the 1 Global Capital case is likely to be stayed as the parties head toward a settlement.

On June 14, the SEC informed the Court that “as a result of mediation and ensuing discussions, the Commission staff and Defendant Carl Ruderman have agreed on a proposed settlement of all claims and relief the Commission seeks against Ruderman.” The settlement has to be approved, however, by the five SEC Commissioners. “If the Commissioners approve Ruderman’s signed settlement agreement, it will resolve the Commission’s litigation against him,” the SEC contends.

The SEC is asking for a 90-day stay.

SEC Seeks Partial Summary Judgment Against Ruderman in 1 Global Capital Case

June 10, 2019
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The SEC filed a motion for summary judgment against defendant Carl Ruderman last week as part of its ongoing lawsuit against 1 Global Capital and related parties. The motion applies to Ruderman on Count 1 of the SEC’s amended complaint alleging violations of 5(a) and (c) of the Securities Act of 1933 in addition to summary judgment on Ruderman’s second affirmative defense alleging the instruments he and Defendant 1 Global Capital LLC sold were not securities.

Ruderman has until June 18th to file his opposition to the motion.

MCA Company Files 15 COJs Against a Medical Practice, Dispute Arises Over Alleged Forgery

May 29, 2019
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New York Supreme CourtA New Jersey physician was one day going about his usual business, and the next day found himself an unwitting judgment debtor for almost $2,000,000 based on more than a dozen forged Confessions of Judgment (COJs) of which he had no knowledge. That’s the scenario described in papers by the physician’s attorney suing New York-based Itria Ventures, LLC. Itria is a subsidiary of its more well known parent company Biz2Credit.

In the span of 19 months, Itria funded a medical practice 19 times (an average of once a month), putting the practice on the hook for millions of dollars in purchased receivables. In March 2017, Itria declared one of those agreements to be in default and filed a COJ in the Supreme Court of New York, successfully securing a judgment in the amount of $245,114. Despite this, Itria continued to enter into at least 3 more funding contracts with them after defaulting.

The relationship would sour as Itria attempted to enforce its New York judgment in New Jersey with vigor. According to Court papers filed in Bergen County, Itria sought to have a judgment debtor, a doctor, arrested after he allegedly did not respond to an information subpoena or attend a deposition. In September 2018, a judge denied Itria’s application for an arrest warrant as the parties were reportedly in discussions to resolve.

When those discussions failed, Itria claimed that 14 more of the 19 contracts were also in default as they went ahead and filed 14 new COJs against the medical practice parties in March 2019. All told, Itria’s judgments add up to around $1.9 million. And just as Itria had previously, they began the procedure to enforce them.

But there’s a twist. The COJs and the contracts might have forged signatures for one of the parties.

On April 18th, Itria Ventures was sued by the very same doctor they sought to have arrested.

“Those confessions of judgment appear to bear my signature and have been filed against me but are fraudulent and forgeries because I did not sign them and the signature on them is not mine,” the plaintiff argued. Itria is a co-defendant alongside several entities that make up the medical practice, two notaries, Itria’s attorneys, and the plaintiff’s own brother, who is also a doctor.

Plaintiff’s claims of forgeries are onerous given that notaries were present, but the evidence is compelling given that on several contracts a notary attested that he appeared before her to sign it when there is surprisingly no signature there at all.

“This is a fraud even the most sophisticated lawyers would have trouble spinning in their favor. This fraud is shocking to the conscience,” the plaintiff’s attorney argued.

In instances where plaintiff’s signature is present, plaintiff alleges that his brother forged his signature and that the notaries fraudulently went along with it. In addition to the alarming variations in his signature, the plaintiff’s attorney pointed out an instance where a signature appears to be not only forged but a photocopied forgery.

Accordingly, the plaintiff is seeking to have all the judgments as they pertain to him personally, vacated.

Itria wasn’t convinced the allegations held weight given that it was the first time forgery had been raised in 2 years of communications. Documents filed appear to show there have been discussions to resolve for some time. They separately pressed forward on May 13th to have a Court appoint a post-judgment receiver over the medical practice.

Itria has relayed to deBanked that their enforcement efforts have been in compliance with all laws and court rules and that they’ve worked with these debtors in a cooperative fashion to attempt to provide them with the opportunity to resolve their financial difficulties. For example, Itria says they (a) provided these debtors with a reduced/modified payment plan, (b) provided them, for an extended period of time, with a de facto forbearance from enforcement to allow them to ‘catch their breaths,’ and to attempt to resolve their financial difficulties by seeking financing elsewhere or otherwise , and (c) at the debtor’s request, assisted them in attempting to obtain alternate financing for many of their business needs, not just to make Plaintiffs whole.

On May 29th, the judge ordered a preliminary injunction enjoining Itria from enforcing the 15 judgments against the plaintiff only and any other judgments “purportedly executed by plaintiff.” The catch is that the plaintiff must post a $1.3 million bond by June 7th. If it’s ultimately determined that the injunction was not warranted, the plaintiff will be responsible for all of Itria’s costs and damages related to the injunction. Itria is not enjoined, however, from enforcing the judgments against any of the plaintiff’s co-defendants.

The case is listed under Index Number 154067/2019 in The New York County Supreme Court.

Lawyers: Earn CLE Credits While Learning About Alternative Finance

May 23, 2019
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June 13 Sessions June 14 Sessions
Case Law Updates Regulatory Download: The Complete Picture
TCPA: Defining ATDS, Exploring the TCPA and How Emails are Covered Legislation, Business and Lobbying: How does it work and Does it work at all?
Bankruptcy Updates Future Invoice Factoring and Traditional Factoring: Can’t We All Just Get Along?
Securities: A Lesson from Bitcoin and Recent Industry Case Law Clean Contracts: Merchant Agreements, Inter-Creditor Agreements and ISO Agreements: What you MUST know to keep up with the times
Inside the UCC with Bob Zadek
Collections in a Post Bloomberg World
Ethics: Conflicts of Interest
*Evening Social event at Lucky Strike in Manhattan Food, drinks and bowling! 7:00pm – 9:00pm* *Rooftop Cocktail Reception, Castell Rooftop Lounge 3:00pm – 5:00pm*

Admission Price List:
Admission for Members: $75

2-Day Ticket Includes:

  • Day One: breakfast and lunch during the full day of panels. Evening at Lucky Strike with food and drinks.
  • Day Two : Three panel discussions, lunch and cocktail hour immediately to follow.

Non-Member Attorneys $250.00 for the 2 day ticket
Non-Member Attorneys $150.00 for a 1 day ticket
(may only attend one of the two days.)

Corporate Guests (Day Two only) $150.00

Featuring the Following Speakers:

  • Christopher Murray, Esq.
  • Patrick Siegfried, Esq.
  • William Molinski, Esq.
  • Natalie Nahabet, Esq.
  • David Fuad, Esq.
  • Kate Fisher, Esq.
  • Jamie Polon, Esq.
  • Thomas Telesca, Esq.
  • Richard J. Zack, Esq.
  • Robert Zadek, Esq.
  • Richard Simon, Esq.
  • Anthony Giuliano, Esq.
  • Mark Dabertin, Esq.
  • Gregory Nowak, Esq.

Email Lindsey Rohan:


Download the AFBA’s promotional flyer here

Injunction Sought Against MCA Company, NYC Marshal

May 16, 2019
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Update 6/24: The matter between the parties resulted in a settlement

Update 5/29: Itria now contends to the Court that the petitioner’s lien was actually terminated on October 25, 2018, thus relinquishing petitioner’s security interest. Consequentially, Itria requests that Blue Elephant withdraw its “improperly obtained” TRO as it is Itria that is the true superior lienholder, according to a letter and new cross-motion filed with the Court.

Update Late 5/16: Blue elephant was successful in obtaining a temporary restraining order.

Blue Elephant Financing, LLC is seeking an injunction and a temporary restraining order against Itria Ventures, LLC (a subsidiary of Biz2Credit) and New York City Marshal Stephen Biegel, according to court records.

In February, Itria Ventures entered a confession of judgment in Kings County, New York against an out-of-state business. Itria Ventures is a merchant cash advance company. In March, Itria relied on New York City Marshal Stephen Biegel to attempt to enforce the judgment and seize funds owed to the small business that were being held by a company with a New York office.

The funds the Marshal tried to seize, however, were collateral belonging to Blue Elephant Financing, LLC, the petitioner claims. Blue Elephant alleges that Itria willfully and maliciously tortiously interfered with its Senior Secured Creditor’s priority and senior secured rights by directing a New York City Marshal to levy its collateral and that it refused to withdraw the levy despite notice and demand of its perfected, senior first priority security interest.

“Respondent Itria Ventures LLC has wrongfully directed the City Marshal to levy upon the Collateral even though it knew that the Judgment Debtor was not the true owner,” the petitioner states. “Respondent Itria Ventures LLC failed to and refused to withdraw the Levy and Demand despite notice and demand by Petitioner Senior Secured Creditor.”

The petition was filed in the New York Supreme Court under Index number: 154941/2019

DLI Receiver Requests Emergency Relief to Liquidate Feeder Fund Entity

May 14, 2019
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cayman islands court house at george town
The Court House at George Town in Grand Cayman

The Receiver for Direct Lending Investments is racing against the clock to protect and preserve the assets of the Cayman Islands-based vehicle used to receive foreign investments, US court records show. The commencement of a voluntary liquidation of the Cayman-entity is required before the deadline to preserve avoidance claims for over $4 million passes. A liquidation, which the Receiver can’t facilitate without permission from the Court, would also shield the company from any litigation moving forward by imposing an automatic stay.

In a normal situation, the Receiver informed the Court, the liquidation process would be carried out by the directors of the Cayman-based entity, but the only remaining director resigned on May 1st, leaving the company without any leadership whatsoever. Thus, the Receiver appointed in the US is asking for extraordinary relief to assist in the affairs of the Cayman entity and enter into liquidation to best protect its assets.

The Receiver’s concerns over litigation in the Cayman Islands are heightened because he’s reportedly received detailed inquiries from overseas investors wanting to know what’s going on and at this time, he’s not able to confidently answer them.

Given the relief sought and the ex-parte nature of the request, the US court is expected to issue an order on the matter very soon.

Update: The US court approved the Receiver to commence a voluntary liquidation of the Cayman entity

Another COJ Bill In New York Added To The Pile

May 14, 2019
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cojsThree members of the New York State Assembly want to make it illegal for a confession of judgment to be entered in the state against non-New York debtors. The debtor would also be required to be a resident of the county in which the COJ is filed. The authors behind Bill A07500, introduced on May 7th, plainly state that it is a reaction to stories that were published in Bloomberg Businessweek. (Questionable stories at that: See deBanked coverage)

“This measure is in response to recent press reports regarding creditors that execute confessions of judgment in New York State even though the associated agreement or debtor have no nexus to the State,” a memo attached to the bill states. Sign Here to Lose Everything, the Businessweek series authored by Zachary R. Mider and Zeke Faux, are cited in the footnotes.

The measure is merely the latest weapon unveiled in a wave of proposed legislation aimed at small business financing in New York this year. Here’s a recap of what’s pending now:

  • A07500 – Seeks to ban COJs being entered against non-New York debtors.
  • A03636 – Seeks to ban COJs from financial contracts.
  • A03637 – Seeks to classify merchant cash advances as loans.
  • A03646 – Seeks to establish a task force to investigate New York City marshals and their connection to “predatory lenders” and consider the feasibility of abolishing the city marshal program.
  • A03638 – Seeks to apply consumer usury protections to small businesses.