New York Attorney General Letitia James has just filed a $77 million default judgement in a lawsuit seeking to stop three New York City-based companies - and the owners and managers of those companies - from continuing to cheat small businesses in New York and across the country out of millions of dollars each year by selling these small business owners “merchant cash advances,” or fraudulent, sky-high interest loans, FAA News has learned.
In the civil case filed in 2020 in New York State Supreme Court in New York County, Attorney General James charged the three companies — Richmond Capital Group, Ram Capital Funding, and Viceroy Capital Funding (the Richmond companies) — with illegally loaning money to small business owners at astronomically-high interest rates, fraudulently charging undisclosed fees, debiting excess amounts from merchants’ bank accounts, and obtaining judgments against merchants by filing false affidavits in New York State courts. Additionally, Richmond Capital and Ram Capital are being charged with harassing and threatening merchants with violence and legal action, in an attempt to force them to pay off the loans. The lawsuit — filed after an 18-month-long investigation — alleged that the companies have, since 2015, collected over $75 million on more than 1,900 fraudulent, illegal loans.
In addition to charging the three Richmond companies, the lawsuit also charged four of the companies’ principals: Robert Giardina, owner of Richmond and Viceroy; Tzvi “Steve” Reich, owner of Ram; Michelle Gregg, a director of Richmond and Viceroy; and Jonathan Braun, who worked closely with Giardina, Reich, and Gregg to lead the Richmond Companies’ merchant cash advance operations.
The merchant cash advances issued by Richmond, Ram, and Viceroy are a form of short-term, high-interest funding for small businesses. Merchant cash advances have grown in popularity in recent years, particularly for businesses that cannot get small-business loans from traditional banks. But, in the lawsuit, Attorney General James alleges that the Richmond companies’ merchant cash advances are in fact illegal, high-interest loans with astronomical and illegal rates. The companies charge and withdraw fixed daily amounts from merchant’s bank accounts, typically ranging from $149 to $14,999; and these amounts do not change from day to day. The Richmond companies also collect these loans over short repayment terms, such as 60 days. As a result, the annual interest rates of the loans regularly exceed 200 percent and many times exceed 1,000 percent — a clear violation of New York State’s usury laws, which dictate that annual interest rates cannot exceed 16 percent.
In fact, in one instance — alleged in the lawsuit — the Richmond companies loaned $10,000 to a merchant and required this small business and its owner to pay back $19,900 through only 10 daily payments of $1,999. As a result of the large daily payments and the short, 10-day repayment term, the annual interest rate for the merchant cash advance, including fees, came close to 4,000 percent — almost 250 times the legal interest rate.
Additionally, an affirmation filed with the lawsuit highlights the companies’ fraudulent and illegal conduct, including ways in which the respondents have harassed and threatened merchants that have been unable to afford these hefty daily payments. Braun has called business owners and has insulted, sworn at, and bullied them, demanding payment and making threats such as, “You have no idea what I’m going to do,” and “I will take your daughters from you.” Braun also threatened that he would come to one merchant’s synagogue in Brooklyn and physically beat him and “publicly embarrass him,” stating, “I am going to make you bleed.” He threatened another, “Be thankful you’re not in New York, because your family would find you floating in the Hudson.”
The lawsuit charges the Richmond companies with regularly misrepresenting the amounts of money they would provide as merchant cash advances, the existence and amount of the fees they would deduct from the cash advances, and the amounts they would deduct from merchants’ bank accounts as daily payments.
The Richmond companies also have required merchants to sign “confessions of judgment,” the lawsuit states, which are affidavits the companies then filed in New York courts to obtain immediate court judgments against the merchants — with no notice to the merchant, no review by judges, and no other evidence apart from the Richmond companies’ own affidavits. With New York court judgments in hand, the Richmond companies would then quickly seize money from merchants’ bank accounts. The lawsuit contends that the Richmond companies applied these tactics to obtain judgments against more than 400 merchants.
Many of the affidavits the Richmond companies have filed in court are false, as the suit alleges. The affidavits have misrepresented the nature of the merchant cash advances — passing them off as transactions with varying, contingent repayment amounts, instead of illegal loans with fixed daily payments — and have falsified the amounts paid by merchants and the amounts still due. Having relied on these false affidavits, New York courts have repeatedly issued judgments against the small businesses and in favor of the Richmond companies.
The lawsuit goes on to allege that the Richmond companies have destroyed small businesses and harmed their owners through their abusive practices. Merchants have been forced to take desperate measures to cope with debt from the Richmond companies’ merchant cash advances, including taking out new cash advances to pay off their existing debts. This cycle of debt has ruined businesses, including a plumbing business in Virginia that took out a cash advance from Richmond, paid off the debt by taking out additional cash advances, and eventually was forced to close its doors after being in business for 30 years.
Attorney General James’ lawsuit — filed in the Commercial Division of New York County State Supreme Court — seeks, among other relief, a court order barring the Richmond companies from continuing their fraudulent and illegal conduct, restitution and damages for merchants injured as a result in the amount of at least $77 million, and an order canceling all ongoing merchant cash advance agreements with the Richmond companies.
The lawsuit alleges that the Richmond companies have committed civil and criminal usury, in violation of General Obligation Law § 5(501) and Penal Law § 190.40; issued high-interest loans and charged excessive interest without a license, in violation of Banking Law §§ 340 and 356; engaged in fraud and caused merchants to enter unconscionable agreements, in violation of Executive Law § 63(12); and engaged in harassment in the second degree and aggravated harassment in the second degree, in violation of Penal Law § 240.26.
In addition to all the charges against the Richmond companies, the lawsuit alleges that Braun managed the companies in their illegal scheme while he was under the supervision of the United States Probation Department. Braun was convicted of felony drug trafficking and conspiracy charges in federal court in Brooklyn in 2011, but he remained free under federal government supervision in the years that followed. In January 2020, Braun finally began a 10-year sentence at the federal prison in Otisville, New York.
The Attorney General has just filed for default judgement upon the grounds that the Defaulting Respondents failed to answer.
The petition, which will be presented for settlement to the Hon. Andrew Borrok on September 20, 2023, seeks an Order from the Court that the companies and employees are permanently enjoined from engaging in any and all of the fraudulent and illegal acts and practices alleged; including but not limited to engaging or causing the following acts:
a. Marketing, issuing, servicing, and collecting upon unlicensed loans at usurious interest rates in violation of New York State usury law and Banking Law § 340;
b. Providing funding at annual interest rates in excess of 16% in the guise of “merchant cash advances” (MCAs), or purchases of merchants’ revenues or “receivables,” when such transactions are in fact (1) marketed as loans, (2) set to payment amounts not based on merchants’ actual revenues, (3) set to fixed payment amounts that are not subsequently reconciled based on such revenues, (4) set to fixed finite repayment terms, secured by assets beyond merchants’ “receivables,” or (5) secured by assets in addition to the merchants’ future revenues;
c. Misrepresenting the amounts that they will provide in funding or charge in fees or that they have collected in payments, or otherwise misrepresenting the manner in which MCAs will be issued, serviced, and collected upon;
d. Filing false affidavits in New York courts misrepresenting to courts facts related to MCAs;
e. Causing merchants to enter unconscionable agreements in violation of Executive Law § 63(12); and
f. Unlawfully harassing merchants to collect upon a debt.
Additionally, the companies are to be enjoined from collection of payments or other monies related to merchant cash advances.
In addition, all agreements entered into between these companies and any merchant in connection with a Merchant Cash Advance (including but not limited to each Merchant Agreement; Security Agreement and Guaranty; Authorization Agreement for Direct Deposit (ACH Credit) and Direct Payments (ACH Debits); Addendum to Secured Purchase and Sale of Future Receivables Agreement; and form providing Respondents with access to merchants’ bank accounts) are hereby rescinded.
Additionally, the companies shall dismiss with prejudice all pending actions brought by it to enforce or collect on a merchant cash advance, and apply for vacatur of all confessions filed by it and all judgments issued in its favor based on such filings, by all courts of this State that have issued such judgments, in papers acceptable to the NYAG; and they shall file papers sufficient to terminate all liens or security interest related to its merchant cash advances.
Likewise, the companies shall remove any negative information it has reported to credit bureaus concerning any recipients of merchant cash advances or their guarantors.
All marshals and/or sheriffs who hold executions under such judgments are stayed from executing or collecting upon those judgments.
The icing on the cake is that the companies are lable, jointly and severally, to the State of New York for restitution in the amount of $77,298,631, representing the total that they have illegally collected in Automated Clearinghouse (ACH) payments on the more than 3,000 fraudulent, usurious loans they have issued since 2015; and it is further. They are also liable for an additional allowance of $2,000.
These funds shall be docketed as a money judgment in favor of the People of the State of New York, by Letitia James, Attorney General of the State of New York, in the total amount of $77,298,631 plus interest. Money received from the judgment may be used to pay restitution and damages to any merchants injured by Respondent’s conduct.
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