SEC Alleges Ponzi Scheme Defrauding Investors of Over $70 Million

In the midst of the COVID-19 pandemic, Ponzi schemes have continued to pose a serious threat to unsuspecting investors here in Florida and around the world. On August 9, 2021, the Securities and Exchange Commission (SEC) filed a complaint in federal court against Johanna Garcia, of Broward County, and two companies she owns, MJ Capital Funding, LLC and MJ Taxes and More, for an alleged Ponzi scheme. [1]

The complaint alleges that Garcia has been operating a Ponzi scheme in which she has taken upwards of $70 million from over 2,000 investors under the guise that the investments funded Merchant Cash Advances (MCAs) for small businesses in need. Instead, the complaint alleges, the investments are being used in a “classic Ponzi scheme fashion” not to fund MCAs, but to pay the “returns” of investors before them. [2]

While MJ Taxes has been in existence since 2016, MJ Capital Funding was formed in June 2020, after the COVID-19 pandemic had already taken hold. From June until October 2020, MJ Taxes solicited six-month investments which typically promised a 10% monthly return, extrapolated out to substantial 120% annual returns. MJ Capital took over in October 2020, continuing to advertise as a source for MCAs while promising investors large and consistent returns.

MCAs provide small businesses who may not otherwise be able to obtain loans with quick access to needed funds. The MCA provides a set amount of money to the small business in exchange for a percentage of their daily income over a stipulated period of time. Considering the difficulties posed by the COVID-19 pandemic on small businesses, MJ Capital’s investors may well have represented a sympathetic group, hoping to offer a hand to small businesses in need while benefiting from exorbitant returns for themselves.

The SEC’s complaint alleges that MJ Capital has funded only a minimal number of MCAs since June 2020, instead using its investors money to both pay off existing investors and to pay for marketing and sales agents which advertise the company’s purported operations.

Situations like this one pose a unique danger to retail investors, one that the SEC is well aware of and has pledged to diligently investigate. While the SEC was granted emergency relief following the filing of their complaint, they are also seeking permanent injunctions and a civil penalty from the defendants, among other forms of relief. The complaint alleges eight federal counts against the defendants – five violations of the Securities Act and three violations of the Exchange Act. [1]

Florida has long been a hotspot for Ponzi schemes, and its important for all interested investors to keep a careful eye on how their hard-earned money is being invested. To protect yourself from potential Ponzi schemes, there are a few factors to be aware of. Typically, when an investment sounds too good to be true, i.e. offering very high and consistent returns, it likely is too good to be true. Be wary of such investment offers and consider soliciting advice from a trusted and unbiased professional.

It is also important to be on the lookout for investment opportunities that promise to make a lot of money without properly explaining how that money will be made. These situations may be another red flag of a potential Ponzi scheme and warrant careful consultation with your trusted advisor or attorney.

If you have any questions or think your investments may have been impacted by a Ponzi scheme, our attorneys are here to advise. Please reach out for a consultation.

Sources:

[1] https://www.sec.gov/litigation/complaints/2021/comp-pr2021-151.pdf

[2] https://www.sec.gov/news/press-release/2021-151