US: Former Cash Advance CEO Charged in $190 Million Ponzi Scheme
A U.S. federal grand jury charged Friday the former CEO of a merchant cash advance company with multiple counts of fraud and money laundering, in connection to her alleged role as head of a Ponzi scheme that defrauded investors of more than US$190 million.
Johanna Michely Garcia, 40, formerly the CEO of MJ Capital Funding, LLC, was indicted by a South Florida federal grand jury for allegedly running a $190.7 million Ponzi scheme between October 2020 and August 2021.
According to investigators, MJ Capital advertised itself as a short-term financing company for small and medium-sized businesses. While investors were led to believe that their money would be used to provide these businesses with cash advances, prosecutors allege that Garcia instead misappropriated their investments to fund MJ Capital.
Garcia further lied to her investors, prosecutors alleged, when she told them that they would see returns on their initial investments from the profits of the businesses supported by MJ Capital.
These annualized “returns,” were advertised to be as high as 120% to 180%, according to the original complaint filed by the U.S. Securities and Exchange Commission (SEC).
Upon signing on as an investor, MJ Capital required them to sign a non-disclosure agreement, in addition to a non-compete agreement, where they would agree not to engage in any business that could be said to compete with MJ Capital for two years.
However, investigators said that Garcia's business model ultimately did not result in returns for the company, and that investor returns instead were funded by the money solicited from new investors — a textbook example of a Ponzi scheme.
Millions of dollars in capital raised by investors, meanwhile, were misappropriated by members of the conspiracy for personal use, according to an indictment filed against co-conspirator Pavel Ramon Ruiz Hernandez in August last year.
Hernandez pleaded guilty in April 2023 and is set to be sentenced on September 7.
Recruits brought into the scheme, who were tasked with soliciting prospective investors for additional funds, were paid a commission of 10 percent for what they brought in. Authorities did not comment if these recruits did so knowing the true nature of MJ Capital’s business practices.
As for Garcia, she faces several counts of wire fraud, mail fraud, and money laundering. Each of the fraud charges come with a maximum penalty of 20 years in prison, while each money laundering charge could see her receive an additional 10 years in prison.