Pot Kingpin Sued by New York for Predatory Loans Charging 1,000%

(Bloomberg) -- Jonathan Braun, a marijuana trafficker turned business-loan impresario, was sued by New York’s attorney general for allegedly cheating small businesses with false promises, threats of violence and interest rates many times the legal limit.

Braun’s firms collected more than $77 million in payments on illegal loans, sometimes charging more than 1,000% interest, according to a civil lawsuit filed Wednesday in Manhattan state court. The filing says he told one borrower, “Be thankful you’re not in New York, because your family would find you floating in the Hudson,” and threatened another, saying, “I will take your daughters from you.”

The U.S. Federal Trade Commission also sued Braun on Wednesday, in federal court in Manhattan, alleging misrepresentations to customers and illegal debt-collection practices.

Braun didn’t operate out of a back alley -– he advanced money to small businesses across the country from the Manhattan offices of Richmond Capital Group LLC and used the state court system to collect his debts. New York Attorney General Letitia James said in a statement that her office started its investigation after a 2018 Bloomberg News series about Braun and other small-business lenders.

“It is unconscionable that these modern-day loan sharks not only preyed on hardworking business owners with fake loans, but threatened violence and kidnapping,” James said in the statement.

In addition to Braun, New York is suing three companies that it says are associated with Braun -- Richmond Capital, Ram Capital Funding and Viceroy Capital Funding. It’s also suing three other people: Robert Giardina, owner of Richmond and Viceroy; Steve Reich, Ram’s owner; and Michelle Gregg, a director of Richmond and Viceroy.

The state is seeking restitution and damages of at least $77 million and the cancellation of all outstanding Richmond loans. The FTC is also seeking restitution for customers.

John Meringolo, a lawyer who has represented Braun, declined to comment, and other lawyers who have worked for him didn’t immediately respond to messages. Lawyers for Reich, Giardina and Gregg didn’t immediately return calls and emails.

Braun, 37, built his business while out on bail on marijuana trafficking charges and wearing an electronic monitoring bracelet. He had pleaded guilty in 2011 but remained free for eight years. Prosecutors kept allowing delays for reasons they didn’t explain in open court. Rivals said Braun often bragged that he would never go to prison. In May 2019, he received a 10-year sentence in the marijuana case, and in January he reported to federal prison in Otisville, New York.

Braun’s industry calls itself merchant cash advance. Almost completely unregulated, it has grown to an estimated $15 billion a year. New York State caps annual interest rates at 16%. Cash-advance companies get around that by saying they’re not making loans but buying a business’s future revenue at a discount.

In the lawsuit, New York says that loophole won’t protect Braun because his advances were really loans. Braun and the companies made more than 3,000 illegal loans since 2015, while he was under the supervision of probation officers, according to the filing. On one $10,000 loan, the lawsuit says, he required $19,900 in payments over 10 days, which amounts to an interest rate of almost 4,000%, 250 times the legal rate.

Braun berated borrowers in vulgar rants, the lawsuit says. One episode not mentioned in the filing was captured in a video passed around the cash-advance industry last year. It’s unclear when it was filmed or whether Braun knew he was being recorded.

Pot Kingpin Sued by New York for Predatory Loans Charging 1,000%

“Tell everybody that your wife is for f---ing sale,” Braun says on the video, two Red Bulls sitting on his desk. “I don’t care what you do. Go get the f---ing money.”

One of the tactics Braun used to collect his debts was called a confession of judgment. Borrowers are often required to sign one before getting a cash advance. And by signing, they agree to lose if there’s a court dispute with the lender.

Armed with this paper, lenders can go to court, secure judgments against borrowers without telling them and then seize their assets. Richmond Capital’s representatives made false court filings to secure judgments, according to the New York lawsuit. State lawmakers prohibited New York’s court system from accepting confessions of judgment against out-of-state borrowers in 2019 after the Bloomberg News articles.

Richmond, Viceroy and Ram were all said to be winding down operations last year, according to an affidavit filed in July 2019 by Giardina, who was challenging a subpoena from the attorney general. He also said in the affidavit that state and federal criminal investigations were targeting Richmond employees as of last year. He didn’t say which agencies.

Braun was “terminated” from Richmond Capital in December 2018, according to a separate affidavit filed by Giardina in an unrelated case. But he didn’t leave the cash-advance industry. According to a lawsuit filed against Braun by a rival last year, he resurfaced at a new company, High Five Group LLC.

High Five was apparently still in business as of last week. That’s when it filed a confession of judgment against a borrower in Rockland County. A lawyer for High Five had no immediate comment.

©2020 Bloomberg L.P.

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