SEC Says Florida Woman Referred To As "Mother Theresa" Ran $70 Million Ponzi Scheme Promising 120% Annual Returns
The Securities and Exchange Commission has filed an emergency enforcement action alleging that a Florida woman and her two companies used the promise of 120% annual returns to operate a massive Ponzi scheme that raised at least $70 million from over 2,000 investors. Johanna Garcia, MJ Capital Funding, LLC (“MJ Capital”) and MJ Taxes and More (“MJ Taxes”) were named as Defendants in a complaint filed in the Southern District of Florida alleging violations of federal securities laws. The Complaint indicates that Garcia and her companies managed to raise at least $70 million (and as much as $120 million) in just over a year, and that the companies went to great lengths to keep the scheme going - including filing a lawsuit against a third party that questioned their returns. In addition to seeking injunctive relief, disgorgement of ill-gotten gains, and civil monetary penalties, the Commission also obtained the appointment of a receiver to assume control over MJ Capital and MJ Taxes (the “MJ Companies”). It also appears that an FBI undercover agent was involved in the underlying investigation.
The Scheme
According to the Complaint, Garcia formed MJ Capital in June 2020 - months after the onset of the COVID-19 pandemic - and claimed that the company was in the business of funding merchant cash advances to businesses throughout the United States. According to MJ Capital, these merchant cash advances consisted of providing a loan to small business owners in exchange for the entitlement to receive a percentage of the business’s income over a specified period of time.
Initially, MJ Taxes allegedly solicited prospective investors to fund these merchant cash advances, promising monthly returns of 10% (which equated to annual returns of 120%) for six-month investments. MJ Capital soon became the primary vehicle to recruit investors, entering into agreements providing that investor funds would be used to fund the cash advances. An investor would not only sign a written agreement memorializing the investment terms, but would also be registered to enter into a non-disclosure agreement, a non-compete agreement, and a referral program agreement providing for a referral bonus for each person referred to MJ Capital.
The Complaint indicates that an undercover agent with the Federal Bureau of Investigation, posing as a prospective investor, visited the company’s Pompano Beach office in June 2021. The agent spoke with MJ Capital’s office manager who explained that any investment would be used to purchase future sales or profits of companies and promising the investor a 10% monthly return. The undercover agent later returned and made a $10,000 investment, receiving an initial 10% interest payment in July 2021.
But according to the Commission, Garcia and her companies only funded a few merchant cash advances and instead achieved the touted returns by running a massive Ponzi scheme. Between June 2020 and April 2021, the Commission alleges that the MJ Companies raised between $51 million and $67 million from investors, yet of that amount less than $3 million was used to fund merchant cash advances. Instead, more than $27 million of investor funds were paid to various entities, of which a substantial portion was used to compensate sales agents for soliciting investors. Another $20 million was used to pay the sky-high returns to existing investors - a hallmark of a Ponzi scheme. Garcia is also accused of diverting investor funds by making cash withdrawals. The pace of investments appears to have increased just before the action was brought, as the Complaint alleged that between $20 million and $62 million was raised just between May 1, 2021 and June 30, 2021.
The “Cover-Up”
In an odd twist, the Complaint details how an unidentified individual apparently registered a domain name similar to MJ Capital’s website that was used to publish allegations in April 2021 that MJ Capital was operating a Ponzi scheme. In addition to publishing a rebuttal on its own webpage, MJ Capital apparently viewed the existence of this domain name as “problematic” and filed a lawsuit against this unnamed individual alleging defamation and violations of the anti-cybersquatting consumer protection act. The lawsuit details an “extortion attempt” in which the purported website owner demanded $150,000 for the purchase of the domain name. MJ Capital, with the assistance of counsel, was in the process of seeking a default judgment against an individual it believed was the owner of the website at the time the Commission filed its enforcement action. Notably, it appears that Garcia herself recently filed a declaration (under penalty of perjury) in which she not only testifies that MJ Capital hired a company to “bury or lower Defendant’s website in search results for consumers searching for ‘MJ Capital Funds…,” but also that MJ Capital “funds millions of dollars in merchant capital loans on a monthly basis, with the amount of such funding having steadily increased every month since Plaintiff’s inception in 2020.” A copy of the Garcia declaration is available here. It remains unclear how the lawsuit will proceed given the allegations. The lawsuit is available below:
The ‘“Mother Teresa” of Her Community
MJ Capital’s website has a "blog” section where, in addition to articles touting the business and the concept of merchant cash advances, an article introduces the reader to “MJ Capital Funding’s CEO: Johanna Garcia.” The article indicates that Garcia - who “has always been known as a hardworking woman that has had her priorities in line” - owned a number of companies and was “often referred to as ‘Mother Teresa’ in her community.“ The article is below:
Based on the Commission’s allegations, the Court entered an Order appointing Corali Lopez-Castro as Receiver over the MJ Companies. As Receiver, Ms. Lopez-Castro is authorized to conduct an investigation into how the MJ Companies were operated, to identify and secure assets for the benefit of victims, and to fashion a claims process to return funds to defrauded victims.
A copy of the Commission’s Complaint is below: