MJ Capital Funding CEO Consents to Asset Freeze
September 9, 2021The primary defendant in the MJ Capital Funding case agreed to an extended asset freeze, court records show. Her consent is not an admission of guilt to the civil charges. The SEC has already sufficiently demonstrated its strength of prevailing in the case, which is why the judge ordered the companies be placed into receivership from the outset.
The consent order, entered on the 8th, covers 9 bank accounts held at both Wells Fargo and JPMorgan Chase, in addition to ten credit cards. MJ Capital’s CEO agreed to live off of income derived from two unrelated businesses known as MJ Remodeling and MJ Realty to the tune of $72,800 a year combined. That could change, however, if the SEC determines those businesses are also connected with the alleged scheme. $100,000 that was paid to her lawyer in advance will stand and can be used for her legal defense.
The only unusual bank record disclosed in the papers is a purported account at a small cryptocurrency hedge fund.
Nearly 2,900 people have signed an online petition voicing support for MJ Capital accused’s CEO.
The Receiver is providing regular court filing updates at: https://kttlaw.com/mjcapital/
MJ Capital Funding CEO Pleads The Fifth in Response to SEC’s Lawsuit
September 2, 2021
The CEO of MJ Capital Funding, the Florida-based finance company accused by the SEC of being a ponzi scheme, formally lodged an answer to the lawsuit on Thursday. In it, her attorneys state that she has no choice but to assert her Fifth Amendment rights on the basis that a parallel federal criminal investigation is currently being conducted, but “that no negative inference should be drawn from her exercise” of these rights.
Notably, her lawyers say that she might change her mind later if she believes it is appropriate to do so, which would include an event that “she obtains immunity from the US Attorney […] or otherwise receives appropriate safeguards to protect her against criminal prosecution.”
That’s the substance of the response, which at this stage would only require that a defendant admit or deny a list of itemized facts stated by the plaintiff.
More than 2,800 people have come out in support of the accused CEO via a petition on change.org.
A court hearing is scheduled for September 8th at 1:30pm ET via Zoom. Update 9/8: the hearing has been cancelled.
MJ Capital Investors Allege Wells Fargo Knew MJ Capital Funding Was a Ponzi Scheme
August 24, 2021
A class action lawsuit filed in the Southern District of Florida on behalf of MJ Capital Funding’s investors is alleging that Wells Fargo knew that the company was a ponzi scheme.
“Wells Fargo knew based on its Know Your Customer inquiries that the MJ Companies were supposed to use investor monies to lend to small merchants, which would then repay the loans, the proceeds of which would be used to pay back investors. Wells Fargo monitored the MJ Companies’ accounts and saw that’s not what happened. Very little money that left the MJ Companies’ accounts went to merchants. Millions instead went to [the CEO’s] personal account at Wells Fargo, to MJ Companies’ sales agents or back to other investors.
Despite this knowledge, Wells Fargo substantially assisted the MJ Companies by allowing them to continue operating with Wells Fargo accounts, commingle investor funds and make payments via wire, transfer and check. Garcia and the MJ Companies’ banking activities at Wells Fargo were integral to her scheme to defraud investors.”
The claims are for aiding and abetting fraud, aiding and abetting breach of fiduciary duty, and unjust enrichment.
MJ Capital is estimated to have raised between $70M and $128M from investors over roughly one years time. The company is being sued by the SEC for securities fraud and its assets have been frozen pursuant to a court order.
The case # is: 0:21-cv-61749-RAR
How the MJ Capital Funding Alleged Ponzi Scheme Played Out in Real Time
August 18, 2021
After the SEC shut down Pompano Beach-based MJ Capital Funding for running what is believed to be a $100M ponzi scheme, more than 2,000 investors are now struggling to figure out what happens next. But in hindsight, could they have known the risks?
Apparently, questions about MJ Capital had been circulating for months. A thread on Reddit with nearly 700 comments is now one of the best preserved insights into the company’s investor community mindset during 2021. There, posters traded anonymous barbs and insults in a spirited debate that challenged the company’s legitimacy. Those that argued it was a ponzi scheme were shouted down with reassurances from people claiming to be paid regularly.
“Scared money makes no money” is a mantra that comes up repeatedly.
The comments are eye-opening in retrospect as posters claim to have invested their life savings or know people that did on the hope that they would make 10% interest on their investment EVERY MONTH. One poster claims that his friend quit his job to promote MJ Capital full time and that he shaved his head, bought a suit, rented an office in Miami “and became some investment f***ing guru even though he could barely explain what the company would do with my money if I gave it to him.”
At least one person said that a friend invested as little as $1,000 into the company, an astonishingly small sum for an operation that is alleged to have raised as much as $129M in little over a year’s time.
Even now with the company’s assets frozen and a receivership in place, some users are wondering if that means their monthly checks will be delayed. Others are confused as to what the SEC lawsuit and temporary restraining order even mean.
“I am out a significant amount of money,” one user wrote. “Literally, my life’s savings. I am scared shitless as I am unaware of what will happen and if I will get my money back. Does anyone know what the odds are for investors who have not received any of their investment back?”
Despite all this, at least one poster thought the SEC’s reference to an undercover FBI operation could work in MJ Capital’s favor since an FBI agent, who posed as an investor, not only made an investment but also got paid.
“Anyone can go to the SEC or FBI to file a complaint about a company to bring them down,” they said. “And of course they are going to look into it. But facts hold up in court. The case file it self says that the [Undercover Agent] made an investment and got paid, proving that the business isn’t a scam and it works. Nothing illegal about what the company does.”
Meanwhile, on instagram, those claiming to be victims have been busy tagging accounts of the people who promoted the investment to hold them accountable. Most of those tagged accounts have already been made private and are not publicly accessible.
To AltFinanceDaily’s knowledge, no criminal charges have been filed against anyone in connection with this case and it remains a civil matter with charges not proven.
Ponzi Schemer Continued to Run Ponzi Scheme From Prison Phone
July 22, 2024Don’t syndicate with New Beginning Global Funding LLC, New Beginning Capital Funding LLC, and Lion Heart Capital Group L.L.C.
That’s because these entities were just named in a federal plea agreement as belonging to Johanna Garcia, a now-convicted ponzi schemer currently serving time in Miami’s federal detention center. Readers might remember her as being the mastermind behind a fake MCA company known as MJ Capital Funding. Garcia raked in more than $190 million as part of a fake syndication/investment scheme from thousands of duped investors. The SEC shut the company down in 2021 and she was charged criminally last year.
She did not go down quietly. Apparently after the SEC shut down her entities she simply set up new entities and kept going. When she was finally arrested and jailed awaiting trial she continued the ponzi from the prison phone and email.
In a proffer signed by Garcia, it’s stated that “Garcia and her co-conspirators told investors that their money would be used to fund general contractors who worked on commercial and residential properties through merchant cash advance loans. In truth, bank records show that there was little to no merchant cash advance activity, and the money raised was used to pay off previous investors.”
Garcia, and those that participated in the scheme with her, used MCA as a cover for their scheme. She was not actually known to people in the industry nor actually worked in it.
Why I’m An Evangelist…. For Outside Accounting Firms in MCA
November 9, 2023David Roitblat is the founder and CEO of Better Accounting Solutions, an accounting firm based in New York City, and a leading authority in specialized accounting for merchant cash advance companies. To connect with David or schedule a call about working with Better Accounting Solutions, email david@betteraccountingsolutions.com.
For over a decade, since the explosion of the merchant cash advance industry in the United States, my team and I at Better Accounting Solutions have been working with a growing number of people and businesses involved in the industry, including brokers, funders, syndicators and investors. We’ve spent time meeting and mingling with you at industry events like Broker Fair and spent more hours talking on the phone advising you than we can bill for.
All this experience has led me to one conclusion, one reinforced the longer we work together with many of you: to thrive and be successful in the merchant cash advance industry, you need a third-party independent financial expert embedded in your business and books.
To declare the obvious context and biases up front: yes, this benefits businesses like mine and yes, I know this from working with many of you. But people become knowledgeable and experts in their own field that they’ve spent years studying and developing, which is why I feel qualified to discuss this.
In the ever-evolving world of merchant cash advance and its challenging relationship with transparency and ethics, trust with your business partners is a must.
Having independent third-party financial experts that report to both parties-for example between a funder and their syndicators- is the only way to ensure complete transparency without bias or conflict. It eliminates the possibility of the funder misappropriating the syndicator’s investment and skimming off what the investors are owed. Firms like ours excel in tracking the numbers to see the deals that are working and the ones that aren’t, and can demonstrate what is trending down to stop a bad deal from spiraling into a company-killing problem.
People often choose to rely on a single in-house accountant to manage their books because they want exclusive focus, but there are plenty of downsides to that as well. Not only are accountants hired from another corporate job rarely equipped to accurately track deals in the complicated world of cash advance, but they are also incentivized to make their reports as favorable as they can to their own company, which may scare syndicators and investors whom they have no obligations to. By outsourcing these critical functions to a specialized firm, MCA funders send a clear message to investors and syndicators: they take financial accountability seriously and they are a trustworthy and transparent business to work with, with open books for their partners to peer in.
Industry scandals that bring our profession into disrepute- such as the collapses of MJ Capital Funding, LLC and 1 Global Capital– were able to happen because the investors pouring money into what they thought were legitimate MCA businesses weren’t given access to the companies books until it was too late and hundreds of millions of dollars were forever lost.
Obviously, you should be wise about people’s motives, even mine as the author of this article, but you should also take every piece of advice into consideration, particularly one that objectively suggests measures that fosters and promote trust and better business growth practices.
Remember, in the world of finance, trust is the most valuable asset of all.
Protecting Your Syndicated MCA Investments
August 24, 2023David Roitblat is the founder and CEO of Better Accounting Solutions, an accounting firm based in New York City, and a leading authority in specialized accounting for merchant cash advance companies.
To connect with David or schedule a call about working with Better Accounting Solutions, email david@betteraccountingsolutions.com.
An increasingly popular way for merchant cash advances businesses to raise capital is by offering syndicated deals. In theory, this structure is simple to understand and fulfill the terms of: in these scenarios, investors put a percentage of the funded deal and get a percentage of the returns. But, as we all know, our industry is dynamic and has inherent risks, and safeguarding one’s hard-earned investments takes on paramount importance.
We saw the pitfalls in the cases of MJ Capital Funding, LLC and 1 Global Capital, along with more recent cases earlier this year, where investors were fleeced of hundreds of millions of dollars that they invested into what they thought were legitimate MCA funding companies.
What happened there is unfortunately investors did not see or understand the importance of having a third party reporting back to the investors and syndicators about how their investment was going, and were misled until it was too late.
So how can investors protect their investments in syndicated MCA deals?
Know Where Your Money Is Going
Let’s start with the first thing you can do.
The landscape of MCAs is marred by tales of deceitful entities posing as legitimate funding companies, leaving investors and syndicators in dire financial straits when they are left to hold the bag.
From the outset, it is essential to ensure that the funds committed find their way into the intended bank account- one that is owned by the same entity as the MCA actually funding the merchants. The need for this is underscored by the unfortunate prevalence of fraudulent actors diverting funds to different accounts under deceptive entities. This manipulation obscures the money trail, making it harder to track and detect financial malfeasance, and leave investor funds vulnerable to exploitation.
Vigilance through Allocation Monitoring
To protect your investment against malicious machinations, it is crucial to exercise stringent vigilance and monitor your funds.
If one’s investment is tied to a specific percentage of MCA deals, a diligent verification process is necessary to confirm that the funds contributed align precisely with these deals. Ensuring the MCA business has a quality and comprehensive reporting and CRM system will provide a transparent window into the balance and distribution of funds across each deal. This transparency not only empowers investors but also safeguards their interests against any misallocation.
Additionally, investors should ask about and pay attention to when their portion of the syndication was added to a deal, to make sure you haven’t been added to a bad deal only once they have already started bouncing payments.
Finally, suppose the CRM system shows an available balance on your syndication for a certain amount. In that case, you can talk to the MCA funder about ensuring they always have that amount or more available in their bank account. If the available balance in the MCA’s bank account is less than your available liquid balance then essentially the funder is borrowing (and risking) your funds to fund deals without you benefitting.
Navigating Default Deception
Another way scammers try to fleece syndicators is by telling them deals that they have invested in have defaulted. Through shrewd tactics such as rerouting default payments to alternative accounts or manipulating reporting mechanisms, deceptive entities can evade investor scrutiny and keep their money.
To counteract these tactics, a collaborative partnership with a transparent and independent accounting firm is indispensable. This partnership acts as a source of clarity for both parties: unraveling intricate payment webs and ensuring that defaults are tracked while investors receive accurate insights into their investments’ actual performance that cannot be manipulated by the unscrupulous funder.
A Solution…
The scale of risks are glaringly evident. So what can you do about it?
The message is clear: vigilance is paramount. Minor inconsistencies can snowball into severe financial pitfalls, making it imperative to maintain an unwavering, watchful eye.
But it’s difficult for syndicators to do that, both because they have limited insights as syndicators and because they have their own jobs to worry about without the added stress.
That’s why Better Accounting Solutions encourages all our clients in the merchant cash advance industry to employ this protective framework:
When we come onboard to do accounting for business or investors, we encourage both parties to obtain explicit consent from MCA entities to share all information with the syndicator. Without formal authorization, firms like Better Accounting Solutions are legally bound from sharing crucial information. Trust and transparency rests upon this explicit approval, serving as the conduit for open dialogues and proactive measures. With this permission granted, the accountants can regularly produce independent and up-to-date reports ensuring both parties are on the same page and share a mutual trust. That’s the benefit of third party oversight: nothing is happening in the dark, without anyone’s knowledge.
Encouraging and working towards an honest merchant cash advance industry is a virtue that safeguards investments, draws more investors, and bolsters the credibility of our entire industry.
MCA “Funder” Was a $100M Ponzi Scheme, SEC Alleges
August 18, 2021
It was all a ponzi scheme, the SEC alleged about MJ Capital Funding, LLC in a recently unsealed complaint. A purported MCA funding company in South Florida run by a woman named Johanna M. Garcia, is said to have raised between $70M and $129M from over 2,150 investors in roughly one years time.
According to the SEC, MJ Capital promised annual returns of 120% to 180% to syndicate in merchant cash advances and guaranteed the return of principal if the merchants defaulted.
Literally thousands of investors lined up to give their money, despite a similar scheme having just ripped through the community.
MJ Capital only funded between $588,561 and $2.9M worth of deals with the money, the SEC claims, while $27.4M was paid out to various entities including to sales agents for promoting the investment opportunity.
When someone tried to blow the whistle, MJ Capital responded by suing the whistleblower, “a cover-up effort” the SEC said was actually successful.
That is until an undercover FBI agent went to the company’s office in June and pretended to be an investor. The FBI successfully invested $10,000 into purported deals, and MJ Capital unknowingly made payments to the FBI as promised.
“Once the supply of new investors was exhausted, the MJ Companies would be unable to pay the promised returns to existing investors,” the SEC says.
Two companies are charged: MJ Capital Funding, LLC and MJ Taxes and More, Inc. in addition to Johanna M. Garcia personally. The SEC has already obtained emergency relief by securing a temporary restraining order and an asset freeze.
