In August, a federal grand jury indicted 6 Louisiana men on charges of conspiring to commit wire fraud and money laundering by creating shell companies to defraud a merchant cash advance (MCA) provider.
Federal prosecutors said in the indictments the defendants conspired to use several shell Louisiana companies with no assets to defraud a Georgia-based MCA provider. Four men posed as “owners” of existing corporations who created false vendor accounts, while the other two falsified bank statements for those shell corporations.
The lead defendant then used an alias to present himself as a broker for the bogus companies. He then provided the MCA company with false information to obtain funding. The MCA provider approved the advances and electronically advanced $6.4 million to the four men, who laundered a portion of the funds by paying kickbacks to other defendants.
All the defendants face a maximum sentence of 5 years for wire fraud and up to 20 years for money laundering. In addition, the wire fraud charges are punishable by fines of up to $250,000, while the money laundering counts also include probation and up to $500,000 in fines.
Finally, a federal grand jury indicted the lead defendant in October 2020 for conspiracy to commit bank fraud and money laundering and allegedly using ill-gotten gains to purchase a home in Louisiana and properties in Mississippi.
Why This Matters
While wrongdoing in the alternative funding market often centers on unscrupulous MCA providers, this story highlights how businesses can also engage in illegal conduct against funders.
Nonetheless, the merchant cash advance market remains largely unregulated, leaving businesses that take MCAs little recourse if a funder takes advantage of them. A merchant cash advance is not a loan but a type of funding known as an asset purchase. The funder advances a lump sum of cash to the business in exchange for a percentage of its future sales.
Merchant cash advances are best for small businesses that need fast access to working capital and have little or no credit history. If there is a business downturn and the owner cannot repay the advance, the funder can seize the owner’s business and personal assets.
Whether the defendants in this fraud and money laundering scheme will be convicted remains to be seen. In the meantime, talk to an experienced debt relief specialist if your business is struggling under the terms of an MCA agreement.