MJ Capital Now Alleged to Be $200M+ Ponzi Scheme
November 22, 2021
Ever since the SEC sued MJ Capital Funding, LLC in August, more information has been revealed about the potential size and scope of the alleged fraud. It was originally estimated that between $70M – $129M was raised by MJ Capital from over 2,150 investors. But now with access to the books and records, investigators believe it is much much higher.
“From the Receiver’s preliminary investigation, it appears that at least 5,500 investors were induced by Johanna Garcia and over 400 promoters to invest as much as $200,000,000 in this Ponzi scheme,” Court filings state.
If true, that would likely make it the largest fraud in the industry’s history. And it’s been a mess trying to recover the funds, it seems.
“Though several individuals have agreed to return funds and other assets to the Receiver, many others have not, and several continue to mislead the victims by counseling them not to register their claims on the Receiver’s website and advising them that the Receivership Defendants’ business will reopen and that is how they will be repaid.”
The loyalty that many investors feel towards MJ Capital’s former CEO is evident by the raw number of signatures attached to a Change.org petition to offer her sympathy and support. 3,243 names say they support her and her mission to unfreeze the money, which is not going to happen.
Those impacted appear confused as to why the company is in trouble in the first place simply because checks were still being sent out to investors at the time the SEC action took place.
The Receiver says that it’s because MJ Capital “had little in the way of actual MCA business, and could not possibly sustain the promised repayments to investors plus the ‘referral fees’ to promoters. Rather, they were paying these amounts with funds raised from new investors, in classic Ponzi scheme fashion.”
In other words, the checks were bound to stop coming eventually, because there was no actual underlying business.
The alleged fraud is now so large that the SEC has asked the Court for time to file an amended lawsuit. The judge has given them until February to file the documents.
IOU Financial Originates $52.2M in Q3
November 19, 2021
IOU Financial continued its growth trajectory this past quarter with $52.2M in small business funding originations. It was the company’s biggest month since inception.
“Our successful migration to a marketplace strategy has enabled IOU Financial to capture more volume in Q3 than would have previously been possible,” stated Robert Gloer, President and CEO in an official statement. “This has proven to be a win-win that has in turn given us the financial latitude to invest in growth initiatives and further reduce our corporate debt.”
The company was also profitable in Q3, though the company said this was “due in part to a reversal in its provision for loan losses and recoveries of loans previously written off, as well as a reduction in operating expenses due to the recognition of $1.5 million in employee retention credits.”
IOU’s customers have been in business for an average of 11.5 years and borrow $82,688 on average for a weighted average term of 11.9 months.
For the first 3 quarters of 2021, the company has originated $111.9M.
What Works in Marketing Financial Products
November 17, 2021
Social media was at the top of the list for many marketers that AltFinanceDaily spoke with, but there are certain formulas necessary to make it work, they say.
“It’s coming up with new ways to say ‘we want to fund your deals,’” said Cassandra Lund, Social Media Manager at Lendini, when asked what the hardest part of her job is. Being heavily involved in the marketing campaigns of a large small business funding company, Lund believes social media is a prime place for setting up brand legitimacy.
“[Social media] provides something that even other forms of marketing cannot,” said Lund. “It instantly connects you to your audience and allows them to ask questions right away, either through direct message or as a comment.”
Fintech companies are also strategically using social media to start getting their name out there. Jennifer Marshall, Marketing Manager at fraud and dispute software provider Quavo, praised the power of social media; especially platforms that provide a professional environment for both consumers and businesses.
“We see the most results on LinkedIn,” said Marshall, “from both paid and organic efforts. “LinkedIn can take [businesses] a long way if their marketing team leverages tagging and mentioning [on the platform]. In the early stages of a company, when brand awareness is the top priority, [businesses] should leverage their employees’ LinkedIn networks.”
While Marshall and Lund are marketing different financial products, they both agree on the inherent value of LinkedIn to their respective companies when it comes to a buttoned-up platform for connections and content.
“Just create a Linkedin and Instagram and start posting,” Lund said, when asked how a business could get their foot in the social media door. “You will find people in your industry, potential clients and information about what other businesses in your field are doing. Build out from there, and your business will thank you for it.”
With the opportunity social media provides comes responsibility, and some companies have let simple mistakes hurt the perception of their brand. Lund and Marshall both believe that a misguided or typo-littered social media presence can do a company more harm than good.
“Spelling errors and bad graphics, I see these [errors] a lot on social media as it becomes more and more important to small businesses,” said Lund. “There is nothing more important on social media than a first impression, and a spelling error or hugely pixelated photos is a major deterrent.”
Marshall stressed that companies not let “B2B vs B2C” marketing practices dictate their social media efforts. “In the end, you should want to reach people where they work and where they play. Once you understand that, the value of social media to all financial companies is crystal clear.”
With new members of the work force living most of their lives ingrained in social media, it appears its value in the business world is exponential. “The younger generations have used it for years, or since being born, and it’s not going anywhere in the near future,” said Lund. “Finding new clients, new customers and like-minded business professionals on [social media] helps build your brand and stake a claim in the industry. Anyone that doesn’t think social media is important in business in general is missing out.”
Marketing financial products, especially new or alternative fintech solutions can be difficult, however. When asked about how to market a financial product, Francesca Ligouri, Lead National Designer at Create with Chess, a national marketing company that works in a variety of industries, spoke about the values of traditional marketing materials on top of social media. She stressed the importance of putting a tangible item that explains your business model in the hands of a potential customer that may not fully understand the product being sold to them.
Ligouri spoke about networking materials, and how sometimes the explanation of a product is best done through tangible imagery.
“It’s about using infographics and icons [to help] create a storyline of what you’re trying to say, while keeping your demographic engaged,” said Ligouri. “Illustrative materials like brochures, folders, and mailers make people want to pick up your collateral and be like ‘oh cool, what is this all about?’ instead of printing a word document of all your info and expecting people to want to read through it.”
Whether it is printed or digital materials, innovation in finance isn’t just about the technology behind the products themselves, but also about how those brands and their products are introduced to potential customers.
LendingClub Finding It Pays to be a Bank
November 1, 2021
At $48.75, LendingClub stock recently surpassed the highest valuation it has had since January 2016.
Successfully becoming a bank earlier this year and dropping its peer-to-peer lending business for good, the company is showing the benefit of that by recording a net income of $27.2M in Q3.
And its loan business is still strong. LendingClub originated $3.1B in loans last quarter, up from the $2.7B in Q2.
“When we launched back in 2007, LendingClub’s vision was to leverage technology, data and our marketplace model to transform the banking industry,” said company CEO Scott Sanborn on the earnings call. “We began by bringing a traditional credit product, the installment loan into the digital age by moving it online, broadening access, lowering costs and delivering a fast and frictionless experience for borrowers, all while delivering attractive risk-adjusted returns for loan investors.”
In 2014, however, it was their designation as a “tech company” rather than as a financial company that saw their valuation surge to nearly 3x higher than what it is now. (Note: The company did a reverse 1:5 stock split in 2019). But now as a bank, that valuation is surging back.
“Now with the added funding benefit of our bank, we’re able to generate positive unit economics,” Sanborn said.
Slava Rubin, Founder of Indiegogo, to Keynote Broker Fair 2021
October 22, 2021
Broker Fair announced that Slava Rubin will be its keynote speaker for its 2021 conference on December 6th in New York City.
REGISTER HERE FOR BROKER FAIR 2021
Who is Slava Rubin?
Slava Rubin is an entrepreneur and innovator in the fintech space for nearly 20 years. Slava built an alternative investment platform, a venture fund, an equity crowdfunding platform, a perks crowdfunding platform, and an angel investment portfolio. Slava is a founder of Vincent, a company which has developed the largest database of alternative investments (crypto to NFTs, trading cards to art, real estate to venture and debt) and is changing how people access them. He is also founder & managing partner at humbition, a $30M early-stage operators venture fund built by founders, for founders. Slava also founded Indiegogo, a company dedicated to empowering people from all over the world to make their ideas a reality. As CEO for over 10 years from inception in 2006, Slava grew Indiegogo from an idea to over 500,000 campaigns and more than $1B distributed around the world. While at Indiegogo, Slava launched one of the nation’s first equity crowdfunding businesses. Slava’s angel portfolio includes 4 unicorns – Carta, Hedera, GOAT, & Turo. He is also a founding advisor to multiple companies including Hedera Hashgraph – a top 60 blockchain protocol.
Prior to Indiegogo, Slava was a strategy consultant working on behalf of clients such as MasterCard, Goldman Sachs and FedEx. He is also the founder of “Music Against Myeloma,” a charity that raises funds and awareness for cancer research in partnership with the International Myeloma Foundation. Slava is currently a member of the board for NYSE traded (WSO) Watsco Inc., and privately held, Indiegogo.
Slava represented the crowdfunding industry at the White House during the signing of the JOBS Act under the Obama administration and has helped navigate bringing equity crowdfunding to the American public. He also pioneered security tokens in the United States – having been a catalyst for selling fractionalized ownership of the St. Regis hotel in Aspen using blockchain technology. He has made many TV appearances including being a regular guest commentator on CNBC. He has also been often quoted in NYTimes and Wall Street Journal.
Slava has received numerous awards including Fortune 40 under 40, Observer 20 Heros under 40, and the Wharton Young Leadership award for 2015.
Slava holds a B.S.E. from the Wharton School of Business
Q&A with Isaac Wagschal on One Percent Ventures’ Intentions to Transform MCA
October 21, 2021One Percent Ventures, a loaded name with implications depending on who reads it, is the latest small business funding company to enter the fray. No, it’s not funding for the one percent, but rather the numerical percentage the company would make off first-time clients with near-perfect performance. They’d make just one percent…
The concept, which caught the attention of AltFinanceDaily, had to be explained in detail, especially when a merchant paying only $500 on a $50,000 advance was communicated as an example. Say what? The catch is in a rebate and the cost independent of the broker’s commission. Nevertheless, One Percent Ventures CEO Isaac Wagschal seems to be bringing in a new concept, one that was originally supposed to be 0%, he says, but he was already stuck with his company name. AltFinanceDaily did a Q&A to find out exactly how it all works.
– The Editor
Q&A
Q (Adam Zaki): Why did you choose the name One Percent Ventures?
A (Isaac Wagschal): The original idea for One Percent Ventures wasn’t to be a funding company that gives one percent deals. Originally, we were going to provide branding and marketing services to small businesses who do not have any marketing, but can benefit from it. Our compensation was to be a one percent partnership in the company. Then a situation came my way where I was able to form a team of people with extensive knowledge and experience in the MCA space. I grabbed the opportunity and switched from marketing to funding small business.
We designed the product with a rebate that refunds basically the entire cost of the first advance. I realized that if we changed the rebate where instead of refunding 100% of the 1st advance factor cost, we keep 1%, I wouldn’t have to change the name and logo of the company. This is the reason our merchants are now paying one percent. If I had not already determined the name, the merchants would have been paying zero instead of one percent.
Q: What was the most difficult part of the shift from marketing to funding?
A: Shifting from marketing to funding was very difficult because of the nature of the market which existed at that time. That difficult transition forced the creation of our unique product, which includes rebates and payment-pauses. I looked into the mainstream MCA product in-depth, and realized that from a marketing point of view the product is flawed, and cannot be marketed properly. The more I scrutinized the MCA industry, I realized that the problems are not just from a marketing perspective. There are existential problems that need to be addressed, or they will eventually cause the demise of the industry altogether. Default rates are so high that mathematically the industry is forced to charge extremely high prices. This makes the product unmarketable to merchants who are not in the absolutely highest risk bracket.
I knew that unless we remade the product to be more attractive and marketable to a larger market share, the funding industry had no tangible room for expansion. Why would we want to get into this market space in the first place? As a team, we agreed that instead of hiring ISO-reps and underwriters, we would first hire accountants, actuaries, and data analysts.
We applied the same psychological principles used in marketing, where you try to predict and manipulate people’s reactions. By doing that, we were able to redesign the old MCA product. We introduced a rebate system that gives the merchant an opportunity to potentially only pay a $500.00 factor cost on a $50k advance. In this way, we expanded the current market share, and turned it into a hot product. I hear from ISOs on a daily basis who recontacted old unsuccessful leads, and turned them into deals after they presented the OPV-rebate and payment-pause-award system. This proved that the OPV product is expanding the market share.
Q: What are your thoughts about the market share in MCA?
A: The current market share consists of the absolute highest risk merchants who are willing to pay such high prices. It is becoming harder and harder to maintain deal flow. This has forced the industry to slowly keep raising the standard with respect to how many positions we are willing to accept. If nothing happens, we will soon find ourselves talking about 10th and 15th positions. This is certainly not sustainable, and puts an amazing amount of stress on the ISOs who are working tirelessly to maintain deal flow. They see it all happening, but feel helpless because at the end of the day, they can only present a product that a funder puts on the table. The tiny market of willing and able merchants is also a source of stress, and a key factor to the mistrust that is largely present between ISOs and funders.
Q: What are your thoughts on a relationship with the ISOs and funders?
A: Let’s face it, the way the current ISO-Funder relationship is set up scientifically creates a conflict of interest. It is simple math – when a funder loses a renewal that carried a potential profit of 50k and thinks that the deal could have happened if not for the 14 points that is reserved for the ISO, there is a natural conflict of interest. You can be honest with your ISOs and even give Rolexes and call them your partners on paper, but the spreadsheet still calculates a conflict of interest at the end. The lavish gifts are nice, but they do not eliminate the scientific conflict of interest.
We have corrected this fundamental problem by designing our business model so that our ISOs are genuine partners. This too is simple math – when a funder’s product is designed to issue an unheard-of large rebate, and 3rd party costs are deducted from the final rebate amount, the merchant will obviously be super happy because of the astronomic refund. More importantly, by using this model, the conflict of interests between ISO and funder is erased because mathematically the merchant paid the commission, not the funder!
Q: How does OPV make money? How do merchants qualify for all of your incentives? What are these incentives?
A: Let me first answer the latter part and explain how our product works and then I’ll come back to answer how we make money.
Our typical product is a ninety-day term at 1.49 sell rate. At mid-term, if the merchant didn’t miss any payments, they are eligible for an add-on, largely known as a renewal. At this phase, we begin to issue an OPV-Pause award after each cycle of four consecutive successfully completed payments. The pause awards can be submitted smoothly on our automated online system either one at a time, or they can be saved and initiate a pause for an entire week. After the final payment, if the merchant didn’t miss more than three payments, excluding the pauses, we refund the entire factor cost of the first advance except for 3rd party fees, processing fees, and 1% of the advance, which gives us only $500 profit on a 50k advance.
Every merchant that qualifies for funding, automatically qualifies for all the incentives. The OPV funding model is actually designed to perform better when more merchants actually receive the rebate. Why? Because that also means there has been a drop in the default rates. If every merchant was to qualify for the rebate, it would mean we had a zero percent default rate, which would allow us to make a healthy return, even if we made profit only on the 2nd advance.
This is precisely the reason we added the OPV-Pause awards. It is in our best interest to keep the merchant motivated to stay current on their payments, in order to qualify for the rebate. We even added a condition that in the event a merchant doesn’t have an unused pause award, they can purchase an OPV-Pause for 20% the daily payment. The goal must be to lower default rates so that we can lower the end cost. In this way we can expand the market share and keep the MCA industry alive. The OPV product is designed to do just that.
Q: What are your immediate goals for OPV? How about long term?
A: Phase I was designing the product and building the platform. Now in phase II, we plan to fund deals for at least a year before making any significant changes. We want to build relationships and earn trust by being transparent and honest, even when it hurts. At phase III we will analyze the data and make tweaks we deem necessary. At phase IV, given that the canary returned from the coal mine, we will share our intelligence, and license the OPV platform to reputable funders throughout the MCA industry.
Q: What is your outlook on the future of the non-bank small business funding/lending sphere?
A: In an effort to truly make a constructive change towards preserving the MCA industry, I will speak openly about the elephant in the room. We are all aware of the unfavorable new laws and regulations that constantly threaten our existence. As long as there are politicians who need to win elections, they will be on the hunt for “do-good projects.” There will always be a lobbyist that is looking for deal-flow, who is willing to provide the perfect “do-good” project. One of those will be – “Let’s save the poor merchant from the greedy funder.” The politician can only succeed because the nature of the MCA industry is such that our funders share only the good news. The bad news is confidential, so there is a stigma of excess profit in the MCA sphere. If we can successfully change that stigma, then we will be a thriving industry for many years to come.
SBA Task Force Set to Begin Campaign
October 19, 2021
In response to an unprecedented economic situation, a mixed group of regulators, bankers, small business owners, funders, attorneys, and social media representatives are coming together in a task force to work with the SBA, members of Congress, small businesses and entrepreneurs to transition small business into a “new phase.”
Dubbed the SBA Task Force at last week’s Bipartisan Committee summit on small business recovery, the group’s goals are to address the state of small business in the U.S., how the current economical and political climate is impacting the practices of merchants across the country, and to address concerns from interested parties directly to the federal government.
“The SBA is at a crucial moment: its laudable performance during the COVID crisis has thrust upon the agency new expectations and new responsibilities,” said Pradeep Belur, former COO of the SBA and co-chair of the committee. “To fulfill those, [the] SBA needs not only enhanced capacity but also modernization to enable it to execute effectively. I’m honored to help chair this task force and pursue measures that will support the agency and help the heart of America’s economy.”
Alongside Belur as co-chair of the committee is Ann Marie Mehlum, a Senior Advisor at FS Vector with almost four decades of experience in banking. Much like Belur, Mehlum is committed to continue the largely unfinished project of improving the operating conditions for small businesses.
“The work of assisting small businesses is never finished—the SBA has continually sought to respond to new needs and reach more types of small companies,” Mehlum said. “The members of this task force, which I’m delighted to help chair, are committed to working with the agency and Congress to improve the ways in which that work is carried out.”
The founder of the committee, Angela McIver, is the owner of an after-school math program for children based in Philadelphia. When faced with pandemic related troubles, McIver pivoted her business from a brick and mortar learning program into a fully virtual, nation-wide learning platform.
“One of the smartest things I did was develop a relationship with a community bank” said McIver, when asked what advice she would give to small businesses at the BPC’s summit. “We didn’t have a lot of the challenges that small businesses had because we had a relationship with a small bank that knew who we were, knew our challenges, and [they] were able to step in when it was necessary.”
Other members of note on the force are Christopher R. Upperman, a Manager & Team Lead in the Governance Organization at Facebook, Jessica Johnson-Cope, President, Johnson Security Bureau and co-chair of the 10,000 Small Businesses Voices National Leadership Council, and Ryan Metcalf, Head of U.S. Public Policy and Global Social Impact at Funding Circle.
“Our participation in the BPC’s task force reflects our ongoing commitment to advocate for government policies that are in the best interest of small business owners” said Metcalf, exclusively to AltFinanceDaily. “We truly believe that the strongest path forward for the SBA involves leveraging the proven capabilities of fintechs to quickly and efficiently reach typically underserved communities through a modernized approach to government-backed small business lending.”
Metcalf and his company seemed to be excited to take part in the committee, having a direct impact on the space in which their business operates. “On behalf of Funding Circle, I look forward to working with stakeholders across the lending landscape to support an effective bipartisan SBA reauthorization that best prepares the agency to help small business owners,” he said.
Members of the committee are confident that the group will help modernize the practices of the SBA while also empowering them. “The government agency dedicated to supporting [small businesses] must do the same and adapt its systems and programs to support that evolution,” said BPC Board Member and former Senator and Chair of the Committee on Small Business and Entrepreneurship Olympia Snowe. “I’m confident that this task force will successfully develop ideas and recommendations to enable the SBA to do that.”
Pandemic-Induced Pivot Results in Innovative Lending Software
October 15, 2021
“What the hell are we going to do now?”
Kunal Bhasin, CEO of 1West, saw the light at the end of the tunnel for his business in March of 2020. Instead of closing his doors and pursuing other options in finance, Bhasin held strong and began developing a product that was merely an idea prior to his business’s abrupt halt.
“I made the decision at that point when everyone was running, I hired two full time engineers. I said hey, I’ve had this idea for a long time, the whole company has had this idea for a long time, we just never had the time to implement, and then all we had is time because we [weren’t] closing that many deals.”
The idea, a software called ABLE (Automated Business Lending Engine) is a platform that minimizes the lapsed time that occurs in the funding process. “There were deals all over the place in different people’s inboxes. And then those people would have to put those deals into our processors, which created huge gaps of time,” said Bhasin.
“We needed to centralize the deal flow. Whether the deal is coming from a partner, or the deal is coming from a customer, [we needed] a centralized place where a customer could land and start completing the process.”
With the help of his former college roommate, engineers, and staff, Bhasin put his idea to fruition— and ABLE took off. “We rolled up our sleeves and spent the better part of the last 16 months building it, and now the largest percentage of my time devoted to running 1West is on the software and the platform.”
Bhasin claims that his product gives his company a huge competitive advantage, as he is able to use AI to evaluate, process, and determine the type of funding and through which lender is best on an individual basis.
“[ABLE] really shrinks that entire gap time so when the lenders get in early morning, when the funders get in early morning, our stuff is always in queue, and it’s created really nice returns on the amount of customers we’re getting and the amount of deals we’re funding.”
The automation of the application process has allowed potential borrowers to not only find the ideal package for their needs, but allows them to apply for different types of capital streams, something that would take tons of manpower and time without the ABLE software.
“Greater than 90% of the customers who come into ABLE apply for more than one product,” said Bhasin.
When asked about if there were any plans to license the product in the future, Bhasin was hesitant to give a definite answer for the future of his creation. ABLE is already white labeled by 1West for brokers.
“Maybe,” he said, I want 1West to reap the benefits of it for 6-12 months and fix all the tweaks we have to make. We have a lot going on.”
