The Allegations
On August 9th, The Securities and Exchange Commission (“SEC”) filed a lawsuit against Johanna M. Garcia; MJ Capital Funding, LLC; and MJ Taxes and More Inc in the United States District Court for the Southern District of Florida. The complaint alleges that Johanna M. Garcia has been running a Ponzi scheme since at least June 2020, using her Pompano Beach based companies to take in between $70.9 million and $128.8 million from over 2,150 investors. The investors were led to believe that they were funding loans to small businesses, but their “returns” were actually funded with money obtained from new investors. The SEC alleged that Garcia and her companies violated numerous provisions of the Securities Act and Exchange Act.
MJ Taxes began soliciting investments promising high annual returns, typically 120% for six-month investments. MJ Capital became the primary investment vehicle and represented that it would use investor money to fund small business loans known as Merchant Cash Advances, or MCAs. The MJ Companies earned little revenue and rarely invested funds to make MCAs. To date, they have been able to pay the promised returns through new investors and convincing existing investors to renew their investments.
MJ Capital’s website stated that Garcia is often referred to as “Mother Theresa” in her community, that she found a way to help hardworking individuals make money, and that she helps her merchant clients get the financing they need. The website claimed that MJ Capital had a team of underwriters who review loan applicants’ bank statements, tax returns, and P&L sheet in detail before disbursing funds. MJ Capital made similar representations on social media.
In April 2021, an individual registered a domain name similar to MJ Capital and published content alleging that MJ Capital was operating a Ponzi Scheme and questioning how MJ Capital can pay such high rates of return. MJ Capital characterized the claim as false and sued the individual for loss of business. In its complaint, MJ Capital denied that it was operating a Ponzi scheme or offering a guarantee return on investment and maintained that it was in the business of providing MCAs to businesses. As part of the lawsuit, Garcia made a Declaration repeating these statements. The cover-up was successful; MJ Capital continued to raise investor money in the following months.
Takeaway
We are following this lawsuit closely and extend our sympathies to any defrauded investors. Florida has always been a hotspot for Ponzi schemes. You should always keep an eye on how their money is being invested. Typically, when an investment sounds too good to be true, (offering very high, consistent returns), it is too good to be true. Contracts should be professionally written and properly explain how returns will be generated. Always seek the advice of a trusted professional before entering into an agreement.
