A Florida woman touted as a 'Mother Teresa' ran a $196 million Ponzi scheme, feds say
She said she worked miracles — not for charity, but for profit: Johanna M. Garcia connected investors with companies that needed short-term financing, promising robust returns on their money. But federal prosecutors say it wasn't a miracle; it was a lucrative Ponzi scheme.
The Florida woman is accused of perpetuating a $196 million fraud through MJ Capital Funding LLC, the company she started in the Fort Lauderdale area. Her business took in that large amount of money from more than 15,400 investors in just over a year, from June 2020 to August 2021, federal investigators say.
MJ Capital's website said Garcia was "often referred to as 'Mother Teresa' in her community." It describes her ability to help regular people generate wealth and also provide loans to small businesses through a tool known as a "merchant cash advance,'' or MCA. The website is no longer active; it is archived online.
But instead of supporting small businesses, the Securities & Exchange Commission says, MJ Capital siphoned millions of dollars to company insiders and used new investments to prop up bogus monthly "returns" of 10% — an annualized rate of 120%.
How people were convinced to invest money
Garcia's company promised to use the money to make MCA loans to businesses it carefully vetted. To prospective investors, it portrayed the process as "purchasing future receivables" — guaranteeing them a share of the recipient businesses' income for months to come.
In reality, MJ Capital used new investors' funds to make millions of dollars in payments to satisfy existing investors and fuel a Ponzi scheme, according to the SEC. In addition, the agency says, the company's insiders spent millions of dollars on items such as travel, luxury goods and clothing.
The SEC also alleges that MJ Capital used unlicensed brokers and sales agents to sell unregistered securities. Supporting the scheme, the authorities allege, was Pavel Ruiz, 29, an MJ Capital board member whose sales team of some 70 agents allegedly reeled in at least $46 million from more than 5,100 investors.
Ruiz reaped large rewards from his work, allegedly taking in $292,000 in commissions. But he also diverted some $7.7 million directly into his personal accounts or ones he controlled, according to the SEC. It says he used some of the money to "purchase crypto assets and a luxury vehicle."
The SEC filed its initial complaint against Garcia last year — leading a federal judge to freeze her companies' assets and order them into receivership.
But just last week, the SEC filed a second complaint, this one against Ruiz. And on the same day, the U.S. Attorney's Office in the Southern District of Florida announced criminal charges against Ruiz, accusing him of conspiracy to commit wire fraud. He faces up to 20 years in prison if convicted.
An undercover FBI agent visited the company
The alleged scheme showed signs of unraveling in April 2021, when someone created a website with a URL similar to MJ Capital's — but which publicly accused the company of running a Ponzi scheme. MJ Capital then took the extraordinary step of suing the site's creator in federal court, demanding a jury trial on defamation claims.
Two months later, an undercover FBI agent visited MJ Capital's office in Pompano Beach, Fla., posing as a potential investor. The agent gave the company $10,000, which they were told would generate a guaranteed 10% return for the next 12 months.
Garcia's name does not appear in the criminal filing against Ruiz; she is referred to only as "Co-conspirator 1," identified as the company's leader. When NPR asked the U.S. Attorney's Office if Garcia might also face criminal charges, a representative said on Monday, "Pursuant to DOJ policy, we can neither confirm nor deny the existence of an investigation."
Last week, the SEC and Garcia agreed to a partial settlement that would essentially put the agency's complaint against her on the back burner. They jointly asked Judge Raag Singhal to approve the deal, citing potential complications from what Garcia has called a "parallel federal criminal investigation."
The proposed wording of the order accepting the partial settlement states, "the SEC can address its request for monetary relief once criminal sentencing is concluded (in the event that the Defendant does not prevail at trial)."
The SEC says it has also reached a partial settlement with Ruiz that similarly postpones the question of monetary relief, citing the criminal charges against him. [Copyright 2022 NPR]
