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DOC. NO.
NO. 185
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SUPREME COURT OF THE STATE OF NEW YORK
COUNTY OF NEW YORK
X Index No: /2018
JAMES DAVIS II and MEDISALE, INC.,
Plaintiffs,
-against-
RICHMOND CAPITAL GROUP, LLC; INFLUX
CAPITAL GROUP, LLC, a/k/a/ INFLUX CAPITAL,
LLC; GTR SOURCE, LLC; ADDY SOURCE, LLC;
YES CAPITAL FUNDING GROUP, LLC, d/b/a/ YES SUMMONS
FUND1NG SERVICES, LLC; JONATHAN BRAUN;
MICHELLE GREGG; TZVI REICH a/k/a STEVE
REICH; ROBERT GIARDINA; BRYAN BAKER
d/b/a BAKER CAP FUNDING d/b/a BAKER
CAPITAL FUNDING; REBAR CAPITAL, LLC;
AZRIEL 1NZELBUCH a/k/a DAVID B FRANK;
and TSVI DAVIS a/k/a STEVEN DAVIS,
Defendants.
X
SUMMONS FILED: December , 2018.
Defendants'
Venue is designated as New York County, based upon principle place of business
and the location of the incidents complained of.
TO THE ABOVE NAMED DEFENDANTS:
PLEASE TAKE NOTICE THAT YOU ARE SUMMONED to answer the complaint
of the Plaintiffs herein, and to serve a copy of your answer on the attorneys for Plaintiffs at the
address indicated below within 20 days after service of this Summons (not counting the day of
service itself), or within 30 days after service is complete if the Surnmons is not delivered
personally to you within the State of New York.
YOU ARE HEREBY NOTIFIED THAT should you fail to answer, a judgment will be
entered against you be default for the relief demanded herein.
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Dated: December 18, 2018
Yours, etc.,
Grimble & LoGuidice, LC
Attorneys for Plaintiffs
217 Broadway, Suite 304
New York, NY 10007
(212) 349-0450
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SUPREME COURT OF THE STATE OF NEW YORK
COUNTY OF NEW YORK
X Index No: /2018
JAMES DAVIS IIand MEDISALE, INC.,
Plaintiffs,
-against-
RICHMOND CAPITAL GROUP, LLC; INFLUX
CAPITAL GROUP, LLC, a/k/a/ INFLUX CAPITAL,
LLC; GTR SOURCE, LLC; ADDY SOURCE, LLC;
YES CAPITAL FUNDING GROUP, LLC, d/b/a/ YES VERIFIED
FUNDING SERVICES, LLC; JONATHAN BRAUN; COMPLAINT
MICHELLE GREGG; TZVI REICH a/k/a STEVE
REICH; ROBERT GIARDINA; BRYAN BAKER
d/b/a BAKER CAP FUNDING d/b/a BAKER
CAPITAL FUNDING; REBAR CAPITAL, LLC;
AZRIEL INZELBUCH a/k/a DAVID B FRANK;
and TSVI DAVIS a/k/a STEVEN DAVIS,
Defendants.
PLEASE TAKE NOTICE that Plaintiffs hereby appear by Grimble & LoGuidice, LLC, and
complain of Defendants as follows:
INTRODUCTION
1. Plaintiffs own a small business.
2. Plaintiffs entered into a series of Merchant Cash Advance ("MCA") agreements with
Defendants.
3. In inducing Plaintiffs to enter into said agreements Defêñdañts engaged in overreaching
conduct, made misleading, false and fraudulent claims; conected sums in excess of those
agreed to; failed to account for excess sums collected; and sought and achieved an
unlawfully high return on minimal investment.
4. Defendants, acting in concert, induced Plaintiff to make early payoffs of funds advanced,
including the entire profit, based, in part, upon the time value of the funds advanced, by
make unlawful and false representations.
5. Defendants fraudulantly inflated pay-off amounts of outstanding obligatiers.
6. Defendants imposed charges that did not represent actual expenses incurred by
Defendants, which falsely represented that the expenses had been incurred.
1
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7. Defêñdants acted in concert with regard to the tortious activity alleged hereiñbelow.
8. Defêñdañts utilized and disseminated, without permissions, confidential fir±ñcial
information including social security numbers and tax ID numbers, and other sensitive
financial information.
Plaintiffs'
9. Defendants misused access to the bank accounts and disseminated information
Plaintiffs'
obtained from bank accounts.
10. Upon information and belief, performed unlawful credit checks, in order to further their
unlawful schemes.
11. Said unlawful activity is,inter alia, in violation of the Racketeer Influenced and Corrupt
Organizations Act ("RICO") statutes.
JURISDICTION
12. Jurisdiction is proper in the State of New York, County of New York, based upon the
Defendants'
residences, place of business, and transaction of business in New York.
PARTIES
13. Plaintiff MEDISALES, INC. ("MEDISALES") is a Florida corporation having offices
located at 10151 Deerwood Park, B1dg 200, Suite 250, Taehnnville Florida 32256
14. Plaintiff James Davis, II is the principal of Medisales, and is a co-obligor on corJessions
Medisales'
of judgment as alleged below, and a guarantor of payment as to obligations to
the MCA Defendants.
15. Defendant INFLUX CAPITAL GROUP, LLC ("Influx") is,upon information and belief,
a domestic limited liability company with offices at 111 John Street, New York, NY.
16. Defendant GTR SOURCE, LLC ("GTR"); is,upon information and belief, a New Jersey
limited liability company, licensed to do b÷ss in the State of New York, having a
principal place of business at 111 John Street, New York, NY.
17. Upon information and belief, GTR was first licensed to do business in New York, on or
about February 5, 2018.
18. Upon information and belief, GTR was formed on or about August 14, 2017.
19. Upon information and belief, GTR also maintains an office at 1006 Monmouth Avenue,
Lakewood, NY 08701.
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20. Defendant ADDY SOURCE, LLC ("Addy") is,upon information and belief, a New
Jersey limited liability company formed on or about March 26, 2018.
21. Defendant SPG ADVANCE, LLC ("SPG") is,upon information and and belief, a
domestic limited liability company having a designated principal place of business as
1221 McDonald Avenue, Brooklyn, NY, 11230, and/or c/o Lazer Preizler-Burech
Weinstock, 5306 New Utrecht Avenue, Brooklyn, NY 11219.
22. Upon information and belief, SPG uses the trade name/trademark $PG, without any
registration thereof.
23. Upon information and belief, SPG is also owned or controlled by Defendants Braun,
Reich and Davis.
24. Upon information and belief, SPG also maiñtaiñs an office at 111 John Street, New York,
New York.
25. Defendant YES CAPITAL FUNDING GROUP, LLC, d/b/a/ YES FUNDING
SERVICES, LLC ("YFS") is,upon information and belief, a domestic limited liability
company having offices at 111 John Street, New York, NY.
26. RICHMOND CAPITAL GROUP, LLC ("RCG") is,upon information and belief, a
domestic limited liability company having offices at 111 John Street, New York, NY.
27. Upon information and belief, RCG was formed on or about August 25, 2013, by
Defendants Braun and Reich.
28. Upon information and belief, RCG uses the d/b/a Richmond Capital Group without
authority from the New York State Department of State, hiding itsidentity as a limited
liability company.
29. Upon information and belief, the use of the trade name YES FUNDING SERVICES,
LLC, by YSF is unlawful in that no such entity has been formed in any state of the
United States.
30. Defendant JONATHAN BRAUN ("Braun") is an individual residing at 39 Washington
Ave., Staten Island, NY 10314.
31. Upon information and belief, Braun maintains a principal place of business at 111 John
Street, New York, NY.
32. Defendant Braun's conduct of his various MCA businesses as well as his prior criminal
"A."
history is noted in the articles annexed as Exhibit
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33. Upon information and belief, based in part upon the news article recited below, Braun is
a convicted felon with ties to organized crime, who has, as alleged below, violated the
civil RICO statutes in collusion with the other named Defendants.
34. STEVE REICH a/1da/ Tzvi Reich ("Reich") is,upon information and belief, a co-owner
and/or principal and/or partner of Influx, GTR, ADDY, SPG, RCG and YSF.
35. Upon information and belief, Reich maintains a place of business at 111 John Street, New
York, NY.
36. Defendant MICHELLE GREGG ("Gregg") is an individual who has executed various
fraudulent and false documents for court filings on behalf of the MCA companies
Defeñdañts, and who is,upon information and belief, a partial owner of some or all of the
corporate Defendants.
37. Gregg has been held by Courts in this jurisdiction to file false affidavits in coreection
with MCA agreements and associated judgments.
38. Upon information and belief, Gregg maintains a principal place of business at 111 John
Street, New York, NY.
39. Upon information and belief, Gregg resides at 4415 43rd Avenue, Apartment N5,
Sunnyside, NY 11104.
40. ROBERT GIARDINA ("Giardina") is,upon information and belief, an individual with a
principal place of business at 111 John Street, New York, NY.
41. Giardina is,upon information and belief the managing partner of RCG, Influx, GTR,
Addy, and YCF, and share in the profits thereof.
42. Giardina has claimed to be the principal officer of RCG, although other Defeñdants
allege tbat Reich and Braun are the individuals in control.
43. BRIAN BAKER ("Baker") is,upon information and belief, an individual employed by
the corporatized Defendants, as an account manager, and who shares in other Defendants
illegal profits, as set forth more fully below.
44. Baker has an office at 111 John Street, New York, NY, which office is an office in
common with RCG, Braun, Reich, Davis, Influx, YFS, Addy, Girardina, and other
Defendants.
45. Baker uses, without governmental authority or regi*ah, the trade name, "Baker
Funding," Funding,"
Capital and "Bakercap which latter name is reflected in his email.
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46. At alltimes relevant Baker held himelf out as a funder for the transactions
hereto,
alleged herein below, as an undisclosed agent of other Defendants.
47. REBAR CAPITAL, LLC ("Rebar"), is a New Jersey limited liability company that is
associated with Defendanta Braun and and which has acted in
closely Reich, Davis,
concert with said individual Defendañts and their respective business entities as alleged
below.
48. Defeñdants AZRIEL INZELBUCH a/k/a David B Frank ("Frank") is an owner or partial
owner, an individual having control of, and sharing the income and profits of Rebar.
49. Tsvi Davis a/k/a Steven Davis ("Davis") is an individual residing at 2201 Avenue M,
Brooklyn, New York.
50. With regard to the allegations of this Complaint, SCF has acted, through Rebar, Baker,
Frank, Braun, and Recieh as an undisclosed agent of Reich and Braun, and the various
business entities named as Defendants herein, as set forth more fully below.
FACTS COMMON TO ALL CLAIMS
The Nature of MCA Agreements
51. An MCA is a transaction whereby a funder agrees to advance funds to small business
entities ("merchants") in transactions that are structured as purchases of future
receivables to provide a short-term source of cash flow to small busesses, which would
not otherwise qualify for traditional finañciñg.
52. Most jurisdictions consider MCA agreements to be factoring agreements and not loans,
and therefore not subject to usury restrictions.
53. MCA funders provide short term financing that is often otherwise unavailable to small
businesses.
54. However, the recent widespread abuses of MCA agreements bave caused increased
scrutiny of the practice of underfunding and weaponizing of confessions of judgment.
55. The structure of the transaction should be simple. An MCA funding company purchases
a portion of the merchant's future receivables, at a discounted price.
52. Then, the fimding company debits the merchant's account in an agreed upon amount,
amount"
either daily or weekly, until the "purchased of receivables are remitted to the
funding company.
53. These periodic payments are generally debited by the MCA funder via ACH transfer.
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54. The amount of the periodic debit is calculated by the funding compey's underwriters. It
is set up as a percentage (usually 8% to 15%) of the merchant's estimated average daily
or weeldy receivables.
55. Accordingly, MCA agreements specify three specific dollar amounts: a) the "funded
amount,"
which is the amount that the merchant receives from the MCA funding
company; b) the daily (or other periodic) payment amoüñt; and c) the "purchased
amount," "RTR,"
also called the which is the total amount that the MCA is to receive in
return for advancing the funded amount.
56. If there is a change in the merchant's business, the MCA Agreements generally state that
the merchant can request to adjust the periodic payment amount to more accurately
merchants'
reflect the intended percentage of the issues. This process is often referred to
"reconciliation."
as
57. For legitimate and honest MCA companies, a reconciliation extends the duration of the
merchant's payment schedule, by reducing the periodic remittances.
58. If the merchant has been timely paying and requires additional funding, the MCA funder
may fund additional sums in a new agreement and roll over any sums stilldue under the
original agreement into the new agreement.
59. In this case, as set forth below, the process of rolling over prior balances was perverted to
generate more income for the corporate Defendants. Defendants inflated the balances
due under prior agreements, to increase what they receive from the merchant without
additional consideration.
60. Generally, merchants in need of MCA financing must fill out an application containing
personal and business confidential financial information, including such sensitive items
as social security number, birth date and address.
61. The application must also provide business tax returns, financial reports, and business
history. The application also usually contains names and contact information of referrals
and references, that are used to verify the principal's identity and merchant's business
history.
62. The application is often made through a broker, referred to as an individual sales office
("ISO"), who then finds an MCA funder.
63. MCA funders may seek to merchants through in-house contractors or employees.
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64. The merchant's application gives the ISO a limited authority to divulge the information
contained therein to MCA funding companies, in order to obtain the best deal for the
merchant.
65. Once a funding company accepts the application from the ISO, the funding company runs
a credit check, to determine if itwants to enter into an MCA agreement with the
merchant.
66. MCA companies also require merchants to execute automated clearing house ("ACH")
authorizations that let the MCA company withdraw funds from the merchant's account
upon the MCA company's direction.
67. These ACH payments authorizations are used to withdraw the daily payment amounts.
68. In this action, the Defendants wrongfully took ACH payments to which the Defendants
were not entitled.
69. MCA agreements also require personal guaranties of the merchant's principal, in this
case, James Davis II, are parties to the confessions of judgment.
70. It has become common practice for MCA companies to require merchants to execute a
confession of judgment the MCA agreement.
71. The confession of judgment is meant to act as a surety and should only be filed upon a
default.
72. In order to file a confession of judgment, the funder must submit an affidavit on personal
knowledge of an agent of the funding company. This affidavit should set forth the terms
of the agreement, the amount funded, and the date of that funding, the amounts paid, and
the date and form of the merchant's default. The affidavit should be accompanied by a
copy of the MCA Agreement and, ideally, a payment ledger to corroborate the sworn
statements of the affidavit.
Potential Abuse
73. There are serious opportunities for abuse and overreaching in MCA transactions.
74. The Defendants in this action, acting jointly and severally, engaged in unfair and
unconscionable practices concerning the MCA agreements alleged herein.
75. Plaintiff ceded a great deal of power and control of its financial affairs to the Defendants.
76. Almost universally, and specifically in the transactions that are alleged in this action, an
merchants'
MCA company requires direct access to the bank accounts, enabling the
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MCA to see what funds the merchant has, or had, and what the merchants expenses and
income are.
77. This also enables the MCA company easily to note any pattern of daily ACH transactions
that would innate
funding by other MCA companies to the same merchant (a practice
"stacking"
called in the MCA industry)
78. The MCA company will have access to the Merchant's tax identification number and
social security number of itsprincipal, as well as dates of birth and other information
typically provided in regard to credit checks.
79. The daily payments that are made under an MCA agreement are ACH payments, which
are taken directly from the Merchant's bank account upon demand by the MCA
company. The Merchant, in effect, has to trust the MCA company not to take excessive
ACH withdrawals.
80. The Merchant will execute a confession of judgment ("COJ") as security for the payment
of the obligations under the MCA agreement and the merchant relies on the MCA
company's good faith not to filethe COJ and get a judgment when there is no default or
obtain a judgment for more than the outstanding obligation.
81. Often the COJ form will contain provisions that are far harsher than the terms of the
MCA agreement itself,and will be used, upon default or even upon a false allegation of a
default where no default occurs, to extort large sums of money from merchants.
82. MCA agreements will have personal guarantees and the merchant's principal will be on
the COJ.
83. The MCA agreement obligations may also be secured by a UCC-1 filing.
84. This leaves the merchant and itsprincipal, such as the Plaintiffs in this action, open to
unscrupulous MCA funders, like the Defendants.
85. The degree of control ceded to an MCA funder requires good faith on the part of the
funder, and abuses of COJs, UCC-1 filings, and ACH withdrawals can be devastating to
the merchant.
86. Other abuses of the MCA model include imposing exorbitant fees or expenses which are
not actually incurred, either deducting them from the financed amount, or simply taking it
from the merchants bank account.
87. In many cases, after the merchant has executed the MCA agreement and accompanying
documents, the MCA company funds less than promised by the MCA agreement,
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Preview
FILED: FILED : NEW NEW YORK YORK COUNTY COUNTY CLERK CLERK 07/15/2019 12 / 2 0 / 2 018 01:17 10 :2 9 PM AM| INDEX INDEX NO. NO. 656346/2018 656346/2018 NYSCEF NYSCEF DOC. DOC. NO. NO. 185 1 RECEIVED RECEIVED NYSCEF: NYSCEF: 07/15/2019 12/20/2018 SUPREME COURT OF THE STATE OF NEW YORK COUNTY OF NEW YORK X Index No: /2018 JAMES DAVIS II and MEDISALE, INC., Plaintiffs, -against- RICHMOND CAPITAL GROUP, LLC; INFLUX CAPITAL GROUP, LLC, a/k/a/ INFLUX CAPITAL, LLC; GTR SOURCE, LLC; ADDY SOURCE, LLC; YES CAPITAL FUNDING GROUP, LLC, d/b/a/ YES SUMMONS FUND1NG SERVICES, LLC; JONATHAN BRAUN; MICHELLE GREGG; TZVI REICH a/k/a STEVE REICH; ROBERT GIARDINA; BRYAN BAKER d/b/a BAKER CAP FUNDING d/b/a BAKER CAPITAL FUNDING; REBAR CAPITAL, LLC; AZRIEL 1NZELBUCH a/k/a DAVID B FRANK; and TSVI DAVIS a/k/a STEVEN DAVIS, Defendants. X SUMMONS FILED: December , 2018. Defendants' Venue is designated as New York County, based upon principle place of business and the location of the incidents complained of. TO THE ABOVE NAMED DEFENDANTS: PLEASE TAKE NOTICE THAT YOU ARE SUMMONED to answer the complaint of the Plaintiffs herein, and to serve a copy of your answer on the attorneys for Plaintiffs at the address indicated below within 20 days after service of this Summons (not counting the day of service itself), or within 30 days after service is complete if the Surnmons is not delivered personally to you within the State of New York. YOU ARE HEREBY NOTIFIED THAT should you fail to answer, a judgment will be entered against you be default for the relief demanded herein. . . . 1 of 32 FILED: FILED : NEW NEW YORK YORK COUNTY COUNTY CLERK CLERK 07/15/2019 12/20/2018 01:17 10:29 PM AM| INDEX INDEX NO. NO. 656346/2018 656346/2018 NYSCEF NYSCEF DOC. DOC. NO. NO. 185 1 RECEIVED RECEIVED NYSCEF: NYSCEF: 07/15/2019 12/20/2018 Dated: December 18, 2018 Yours, etc., Grimble & LoGuidice, LC Attorneys for Plaintiffs 217 Broadway, Suite 304 New York, NY 10007 (212) 349-0450 FILED: FILED : NEW NEW YORK YORK COUNTY COUNTY CLERK CLERK 07/15/2019 12 / 2 0 / 2 018 01:17 10 :2 9 PM AM| INDEX INDEX NO. NO. 656346/2018 656346/2018 NYSCEF NYSCEF DOC. DOC. NO. NO. 185 1 RECEIVED RECEIVED NYSCEF: NYSCEF: 07/15/2019 12/20/2018 SUPREME COURT OF THE STATE OF NEW YORK COUNTY OF NEW YORK X Index No: /2018 JAMES DAVIS IIand MEDISALE, INC., Plaintiffs, -against- RICHMOND CAPITAL GROUP, LLC; INFLUX CAPITAL GROUP, LLC, a/k/a/ INFLUX CAPITAL, LLC; GTR SOURCE, LLC; ADDY SOURCE, LLC; YES CAPITAL FUNDING GROUP, LLC, d/b/a/ YES VERIFIED FUNDING SERVICES, LLC; JONATHAN BRAUN; COMPLAINT MICHELLE GREGG; TZVI REICH a/k/a STEVE REICH; ROBERT GIARDINA; BRYAN BAKER d/b/a BAKER CAP FUNDING d/b/a BAKER CAPITAL FUNDING; REBAR CAPITAL, LLC; AZRIEL INZELBUCH a/k/a DAVID B FRANK; and TSVI DAVIS a/k/a STEVEN DAVIS, Defendants. PLEASE TAKE NOTICE that Plaintiffs hereby appear by Grimble & LoGuidice, LLC, and complain of Defendants as follows: INTRODUCTION 1. Plaintiffs own a small business. 2. Plaintiffs entered into a series of Merchant Cash Advance ("MCA") agreements with Defendants. 3. In inducing Plaintiffs to enter into said agreements Defêñdañts engaged in overreaching conduct, made misleading, false and fraudulent claims; conected sums in excess of those agreed to; failed to account for excess sums collected; and sought and achieved an unlawfully high return on minimal investment. 4. Defendants, acting in concert, induced Plaintiff to make early payoffs of funds advanced, including the entire profit, based, in part, upon the time value of the funds advanced, by make unlawful and false representations. 5. Defendants fraudulantly inflated pay-off amounts of outstanding obligatiers. 6. Defendants imposed charges that did not represent actual expenses incurred by Defendants, which falsely represented that the expenses had been incurred. 1 FILED: FILED : NEW NEW YORK YORK COUNTY COUNTY CLERK CLERK 07/15/2019 12 / 2 0 / 2 018 01:17 10 :2 9 PM AM| INDEX INDEX NO. NO. 656346/2018 656346/2018 NYSCEF NYSCEF DOC. DOC. NO. NO. 185 1 RECEIVED RECEIVED NYSCEF: NYSCEF: 07/15/2019 12/20/2018 7. Defêñdants acted in concert with regard to the tortious activity alleged hereiñbelow. 8. Defêñdañts utilized and disseminated, without permissions, confidential fir±ñcial information including social security numbers and tax ID numbers, and other sensitive financial information. Plaintiffs' 9. Defendants misused access to the bank accounts and disseminated information Plaintiffs' obtained from bank accounts. 10. Upon information and belief, performed unlawful credit checks, in order to further their unlawful schemes. 11. Said unlawful activity is,inter alia, in violation of the Racketeer Influenced and Corrupt Organizations Act ("RICO") statutes. JURISDICTION 12. Jurisdiction is proper in the State of New York, County of New York, based upon the Defendants' residences, place of business, and transaction of business in New York. PARTIES 13. Plaintiff MEDISALES, INC. ("MEDISALES") is a Florida corporation having offices located at 10151 Deerwood Park, B1dg 200, Suite 250, Taehnnville Florida 32256 14. Plaintiff James Davis, II is the principal of Medisales, and is a co-obligor on corJessions Medisales' of judgment as alleged below, and a guarantor of payment as to obligations to the MCA Defendants. 15. Defendant INFLUX CAPITAL GROUP, LLC ("Influx") is,upon information and belief, a domestic limited liability company with offices at 111 John Street, New York, NY. 16. Defendant GTR SOURCE, LLC ("GTR"); is,upon information and belief, a New Jersey limited liability company, licensed to do b÷ss in the State of New York, having a principal place of business at 111 John Street, New York, NY. 17. Upon information and belief, GTR was first licensed to do business in New York, on or about February 5, 2018. 18. Upon information and belief, GTR was formed on or about August 14, 2017. 19. Upon information and belief, GTR also maintains an office at 1006 Monmouth Avenue, Lakewood, NY 08701. 2 4 of 32 FILED: FILED : NEW NEW YORK YORK COUNTY COUNTY CLERK CLERK 07/15/2019 12 / 2 0 / 2 018 01:17 10 :2 9 PM AM| INDEX INDEX NO. NO. 656346/2018 656346/2018 NYSCEF NYSCEF DOC. DOC. NO. NO. 185 1 RECEIVED RECEIVED NYSCEF: NYSCEF: 07/15/2019 12/20/2018 20. Defendant ADDY SOURCE, LLC ("Addy") is,upon information and belief, a New Jersey limited liability company formed on or about March 26, 2018. 21. Defendant SPG ADVANCE, LLC ("SPG") is,upon information and and belief, a domestic limited liability company having a designated principal place of business as 1221 McDonald Avenue, Brooklyn, NY, 11230, and/or c/o Lazer Preizler-Burech Weinstock, 5306 New Utrecht Avenue, Brooklyn, NY 11219. 22. Upon information and belief, SPG uses the trade name/trademark $PG, without any registration thereof. 23. Upon information and belief, SPG is also owned or controlled by Defendants Braun, Reich and Davis. 24. Upon information and belief, SPG also maiñtaiñs an office at 111 John Street, New York, New York. 25. Defendant YES CAPITAL FUNDING GROUP, LLC, d/b/a/ YES FUNDING SERVICES, LLC ("YFS") is,upon information and belief, a domestic limited liability company having offices at 111 John Street, New York, NY. 26. RICHMOND CAPITAL GROUP, LLC ("RCG") is,upon information and belief, a domestic limited liability company having offices at 111 John Street, New York, NY. 27. Upon information and belief, RCG was formed on or about August 25, 2013, by Defendants Braun and Reich. 28. Upon information and belief, RCG uses the d/b/a Richmond Capital Group without authority from the New York State Department of State, hiding itsidentity as a limited liability company. 29. Upon information and belief, the use of the trade name YES FUNDING SERVICES, LLC, by YSF is unlawful in that no such entity has been formed in any state of the United States. 30. Defendant JONATHAN BRAUN ("Braun") is an individual residing at 39 Washington Ave., Staten Island, NY 10314. 31. Upon information and belief, Braun maintains a principal place of business at 111 John Street, New York, NY. 32. Defendant Braun's conduct of his various MCA businesses as well as his prior criminal "A." history is noted in the articles annexed as Exhibit 3 5 of 32 FILED: F ILED : NEW NEW YORK YORK COUNTY COUNTY CLERK CLERK 07/15/2019 12 / 2 0 / 2 018 01:17 10 :2 9 PM AM| INDEX INDEX NO. NO. 656346/2018 656346/2018 NYSCEF NYSCEF DOC. DOC. NO. NO. 185 1 RECEIVED RECEIVED NYSCEF: NYSCEF: 07/15/2019 12/20/2018 33. Upon information and belief, based in part upon the news article recited below, Braun is a convicted felon with ties to organized crime, who has, as alleged below, violated the civil RICO statutes in collusion with the other named Defendants. 34. STEVE REICH a/1da/ Tzvi Reich ("Reich") is,upon information and belief, a co-owner and/or principal and/or partner of Influx, GTR, ADDY, SPG, RCG and YSF. 35. Upon information and belief, Reich maintains a place of business at 111 John Street, New York, NY. 36. Defendant MICHELLE GREGG ("Gregg") is an individual who has executed various fraudulent and false documents for court filings on behalf of the MCA companies Defeñdañts, and who is,upon information and belief, a partial owner of some or all of the corporate Defendants. 37. Gregg has been held by Courts in this jurisdiction to file false affidavits in coreection with MCA agreements and associated judgments. 38. Upon information and belief, Gregg maintains a principal place of business at 111 John Street, New York, NY. 39. Upon information and belief, Gregg resides at 4415 43rd Avenue, Apartment N5, Sunnyside, NY 11104. 40. ROBERT GIARDINA ("Giardina") is,upon information and belief, an individual with a principal place of business at 111 John Street, New York, NY. 41. Giardina is,upon information and belief the managing partner of RCG, Influx, GTR, Addy, and YCF, and share in the profits thereof. 42. Giardina has claimed to be the principal officer of RCG, although other Defeñdants allege tbat Reich and Braun are the individuals in control. 43. BRIAN BAKER ("Baker") is,upon information and belief, an individual employed by the corporatized Defendants, as an account manager, and who shares in other Defendants illegal profits, as set forth more fully below. 44. Baker has an office at 111 John Street, New York, NY, which office is an office in common with RCG, Braun, Reich, Davis, Influx, YFS, Addy, Girardina, and other Defendants. 45. Baker uses, without governmental authority or regi*ah, the trade name, "Baker Funding," Funding," Capital and "Bakercap which latter name is reflected in his email. 4 6 of 32 FILED: FILED : NEW NEW YORK YORK COUNTY COUNTY CLERK CLERK 07/15/2019 12 / 2 0 / 2 018 01:17 10 :2 9 PM AM| INDEX INDEX NO. NO. 656346/2018 656346/2018 NYSCEF NYSCEF DOC. DOC. NO. NO. 185 1 RECEIVED RECEIVED NYSCEF: NYSCEF: 07/15/2019 12/20/2018 46. At alltimes relevant Baker held himelf out as a funder for the transactions hereto, alleged herein below, as an undisclosed agent of other Defendants. 47. REBAR CAPITAL, LLC ("Rebar"), is a New Jersey limited liability company that is associated with Defendanta Braun and and which has acted in closely Reich, Davis, concert with said individual Defendañts and their respective business entities as alleged below. 48. Defeñdants AZRIEL INZELBUCH a/k/a David B Frank ("Frank") is an owner or partial owner, an individual having control of, and sharing the income and profits of Rebar. 49. Tsvi Davis a/k/a Steven Davis ("Davis") is an individual residing at 2201 Avenue M, Brooklyn, New York. 50. With regard to the allegations of this Complaint, SCF has acted, through Rebar, Baker, Frank, Braun, and Recieh as an undisclosed agent of Reich and Braun, and the various business entities named as Defendants herein, as set forth more fully below. FACTS COMMON TO ALL CLAIMS The Nature of MCA Agreements 51. An MCA is a transaction whereby a funder agrees to advance funds to small business entities ("merchants") in transactions that are structured as purchases of future receivables to provide a short-term source of cash flow to small busesses, which would not otherwise qualify for traditional finañciñg. 52. Most jurisdictions consider MCA agreements to be factoring agreements and not loans, and therefore not subject to usury restrictions. 53. MCA funders provide short term financing that is often otherwise unavailable to small businesses. 54. However, the recent widespread abuses of MCA agreements bave caused increased scrutiny of the practice of underfunding and weaponizing of confessions of judgment. 55. The structure of the transaction should be simple. An MCA funding company purchases a portion of the merchant's future receivables, at a discounted price. 52. Then, the fimding company debits the merchant's account in an agreed upon amount, amount" either daily or weekly, until the "purchased of receivables are remitted to the funding company. 53. These periodic payments are generally debited by the MCA funder via ACH transfer. 5 7 of 32 . FILED: FILED : NEW NEW YORK YORK COUNTY COUNTY CLERK CLERK 07/15/2019 12 / 2 0 / 2 018 01:17 10 :2 9 PM AM| INDEX INDEX NO. NO. 656346/2018 656346/2018 NYSCEF NYSCEF DOC. DOC. NO. NO. 185 1 RECEIVED RECEIVED NYSCEF: NYSCEF: 07/15/2019 12/20/2018 54. The amount of the periodic debit is calculated by the funding compey's underwriters. It is set up as a percentage (usually 8% to 15%) of the merchant's estimated average daily or weeldy receivables. 55. Accordingly, MCA agreements specify three specific dollar amounts: a) the "funded amount," which is the amount that the merchant receives from the MCA funding company; b) the daily (or other periodic) payment amoüñt; and c) the "purchased amount," "RTR," also called the which is the total amount that the MCA is to receive in return for advancing the funded amount. 56. If there is a change in the merchant's business, the MCA Agreements generally state that the merchant can request to adjust the periodic payment amount to more accurately merchants' reflect the intended percentage of the issues. This process is often referred to "reconciliation." as 57. For legitimate and honest MCA companies, a reconciliation extends the duration of the merchant's payment schedule, by reducing the periodic remittances. 58. If the merchant has been timely paying and requires additional funding, the MCA funder may fund additional sums in a new agreement and roll over any sums stilldue under the original agreement into the new agreement. 59. In this case, as set forth below, the process of rolling over prior balances was perverted to generate more income for the corporate Defendants. Defendants inflated the balances due under prior agreements, to increase what they receive from the merchant without additional consideration. 60. Generally, merchants in need of MCA financing must fill out an application containing personal and business confidential financial information, including such sensitive items as social security number, birth date and address. 61. The application must also provide business tax returns, financial reports, and business history. The application also usually contains names and contact information of referrals and references, that are used to verify the principal's identity and merchant's business history. 62. The application is often made through a broker, referred to as an individual sales office ("ISO"), who then finds an MCA funder. 63. MCA funders may seek to merchants through in-house contractors or employees. 6 FILED: F ILED : NEW NEW YORK YORK COUNTY COUNTY CLERK CLERK 07/15/2019 12 / 2 0 / 2 018 01:17 10 :2 9 PM AM| INDEX INDEX NO. NO. 656346/2018 656346/2018 NYSCEF NYSCEF DOC. DOC. NO. NO. 185 1 RECEIVED RECEIVED NYSCEF: NYSCEF: 07/15/2019 12/20/2018 64. The merchant's application gives the ISO a limited authority to divulge the information contained therein to MCA funding companies, in order to obtain the best deal for the merchant. 65. Once a funding company accepts the application from the ISO, the funding company runs a credit check, to determine if itwants to enter into an MCA agreement with the merchant. 66. MCA companies also require merchants to execute automated clearing house ("ACH") authorizations that let the MCA company withdraw funds from the merchant's account upon the MCA company's direction. 67. These ACH payments authorizations are used to withdraw the daily payment amounts. 68. In this action, the Defendants wrongfully took ACH payments to which the Defendants were not entitled. 69. MCA agreements also require personal guaranties of the merchant's principal, in this case, James Davis II, are parties to the confessions of judgment. 70. It has become common practice for MCA companies to require merchants to execute a confession of judgment the MCA agreement. 71. The confession of judgment is meant to act as a surety and should only be filed upon a default. 72. In order to file a confession of judgment, the funder must submit an affidavit on personal knowledge of an agent of the funding company. This affidavit should set forth the terms of the agreement, the amount funded, and the date of that funding, the amounts paid, and the date and form of the merchant's default. The affidavit should be accompanied by a copy of the MCA Agreement and, ideally, a payment ledger to corroborate the sworn statements of the affidavit. Potential Abuse 73. There are serious opportunities for abuse and overreaching in MCA transactions. 74. The Defendants in this action, acting jointly and severally, engaged in unfair and unconscionable practices concerning the MCA agreements alleged herein. 75. Plaintiff ceded a great deal of power and control of its financial affairs to the Defendants. 76. Almost universally, and specifically in the transactions that are alleged in this action, an merchants' MCA company requires direct access to the bank accounts, enabling the 7 9 of 32 FILED: FILED : NEW NEW YORK YORK COUNTY COUNTY CLERK CLERK 07/15/2019 12 / 2 0 / 2 018 01:17 10 :2 9 PM AM| INDEX INDEX NO. NO. 656346/2018 656346/2018 NYSCEF NYSCEF DOC. DOC. NO. NO. 185 1 RECEIVED RECEIVED NYSCEF: NYSCEF: 07/15/2019 12/20/2018 MCA to see what funds the merchant has, or had, and what the merchants expenses and income are. 77. This also enables the MCA company easily to note any pattern of daily ACH transactions that would innate funding by other MCA companies to the same merchant (a practice "stacking" called in the MCA industry) 78. The MCA company will have access to the Merchant's tax identification number and social security number of itsprincipal, as well as dates of birth and other information typically provided in regard to credit checks. 79. The daily payments that are made under an MCA agreement are ACH payments, which are taken directly from the Merchant's bank account upon demand by the MCA company. The Merchant, in effect, has to trust the MCA company not to take excessive ACH withdrawals. 80. The Merchant will execute a confession of judgment ("COJ") as security for the payment of the obligations under the MCA agreement and the merchant relies on the MCA company's good faith not to filethe COJ and get a judgment when there is no default or obtain a judgment for more than the outstanding obligation. 81. Often the COJ form will contain provisions that are far harsher than the terms of the MCA agreement itself,and will be used, upon default or even upon a false allegation of a default where no default occurs, to extort large sums of money from merchants. 82. MCA agreements will have personal guarantees and the merchant's principal will be on the COJ. 83. The MCA agreement obligations may also be secured by a UCC-1 filing. 84. This leaves the merchant and itsprincipal, such as the Plaintiffs in this action, open to unscrupulous MCA funders, like the Defendants. 85. The degree of control ceded to an MCA funder requires good faith on the part of the funder, and abuses of COJs, UCC-1 filings, and ACH withdrawals can be devastating to the merchant. 86. Other abuses of the MCA model include imposing exorbitant fees or expenses which are not actually incurred, either deducting them from the financed amount, or simply taking it from the merchants bank account. 87. In many cases, after the merchant has executed the MCA agreement and accompanying documents, the MCA company funds less than promised by the MCA agreement, 8 . ... ..__ __ 10 of 32 FILED: FILED : NEW NEW YORK YORK COUNTY COUNTY CLERK CLERK 07/15/2019 12 / 2 0 / 2 018 01:17