Penn Capital Funding, MapCap Funding Hit with Class Action Over Alleged Merchant Cash Advance Account Freeze Scam

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A proposed class action lawsuit has been filed against Penn Capital Funding, MapCap Funding and those who run the merchant cash advance (MCA) companies over their alleged use of an apparent loophole in Connecticut law to collect upon unlawful debts and otherwise fraudulently obtain money. 

The filing describes the merchant cash advance industry as essentially payday lending for businesses and a breeding ground for unscrupulous actors. The 32-page lawsuit says that in the wake of the New York Legislature’s 2019 ban on out-of-state confessions of judgment as a way to seize out-of-state bank accounts, the defendants have “abuse[d]” an apparent loophole in Connecticut law that allows them to freeze out-of-state bank accounts by “simply serving legal papers” on a bank that has a branch located in that state. As justification for these account freezes, the defendants “represent and attest under oath that their small business victims owe them a debt,” and that the companies are “unaware of any defenses to their claims,” the case states. 

The complaint, citing Bloomberg News, says that this Connecticut loophole was used more than 180 times in the last year, often with a “catastrophic” effect given the defendants, who operate in New York, can freeze an out-of-state bank account “without any notice whatsoever.” 

“Once frozen, Defendants can then extort payment under duress due to their victims’ need to save payroll or pay other necessary business expenses, such as insurance, taxes, rent and inventory,” the lawsuit says. 

Per the case, this “tactic” is especially harsh because even when a small business victim capitulates to the defendants’ “extortionate demands,” the release of their bank account funds may take days due to processing delays and procedural constraints. 

According to the suit, the defendants purportedly act under the direction of or in concert with former drug trafficker Jonathan Braun, whose federal prison sentence was commuted at the last minute by former President Donald Trump “without utilizing the safeguards and review process typically employed by U.S. Presidents.” 

In addition to collecting unlawful interest, the defendants, the lawsuit says, have engaged in the tactic of “ghosting” merchants after over-collecting money from them. With regard to the plaintiff, a Tarzana, California senior living facility, the defendants were permitted to collect pursuant to the MCA agreement $625,000 yet “nevertheless brazenly and unlawfully collected $729,118, and were never to be heard from again,” despite the facility’s repeated attempts to collect a refund by phone, the case alleges. 

“Regrettably, Plaintiffs are not alone, and thus bring this action on behalf of [themselves] and those similarly situated, to permanently enjoin Defendants from their myriad unlawful practices,” the suit says. 

Also named as individual defendants alongside Penn Capital Funding and MapCap Funding are New York residents Yosef Brezel, Miriam Deutsch and Moshe Katz. 

The lawsuit aims to represent all persons in the United States who, on or after February 25, 2018, paid money to any of the defendants pursuant to a merchant cash advance agreement with an effective interest rate in excess of 25 percent.

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