Federal Trade Commission lawsuit against RCG Advances, LLC and Robert Giardina led to court order permanently barring company and merchant cash advance industry owner for misleading and threatening small businesses and their owners. The FTC alleged that the operators of the program lied to small business owners about the terms and fees of their financing and threatened them with violence when they were unable to pay. Additionally, the court ordered RCG Advances and Giardina to make an initial payment of $1.5 million and a subsequent payment of over $1.2 million to reimburse consumers.
“These defendants lied to small businesses about financing, stole money from their accounts, made violent threats and provided false documents to the courts,” said Samuel Levine, director of the FTC’s Consumer Protection Bureau. . “This order prohibits them from making cash advances to merchants and requires them to return money to businesses they have deceived.”
RCG Advances and Giardina, along with the other defendants in the FTC case, have operated a merchant cash advance program since at least 2015, according to the agency. Merchant cash advances are an alternative type of financing for small businesses. In general, mCash advance companies provide funds to businesses in exchange for a percentage of business revenue, which is usually paid by daily withdrawals from the business bank account.
The FTC investigation found that the defendants in the case, including RCG Advances and Giardina, lied to small businesses about many elements of financing agreements before they were signed and broke the law in their communications with the companies. and their owners afterwards. The harms to small businesses and their owners were significant, including:
- Misleading consumers about personal guarantees: Defendants’ websites falsely claimed that their cash advances required “no personal guarantee guarantees from business owners”, meaning that people obtaining financing on behalf of businesses would not see not their personal property treated as collateral. In fact, their contracts included these requirements.
- Forcing consumers and businesses into confessions of judgment: Defendants also required companies and their owners to sign admissions of judgment, which allow defendants to obtain an immediate uncontested judgment in the event of an alleged default. The Complaint alleges that the Defendants unlawfully and wrongfully used these judgment admissions to unexpectedly and improperly seize consumers’ personal and business assets.
- Provide less funding than promised: The complaint alleges that when the companies received their funding from the defendants, it was often thousands of dollars less than promised. The shortfall was due to alleged large fees that were not disclosed to business owners. This happened despite defendants’ marketing promises of “no upfront costs”.
- Threatening consumers and businesses: The complaint alleges that the defendants made threatening calls to consumers, including telling a man they would “break his jaw” if he failed to make his payments and, in another instance, threatening to ruin the reputation of a consumer by falsely accusing him of being a pedophile if he does not pay.
Pursuant to a court order accepted by the defendants to settle the case, they will:
- Permanently banned from the corporate finance and debt collection industries.
- Required to set aside judgments and liens: Defendants are ordered to set aside any judgments against their former clients and release any liens on their clients’ property.
- Prohibition of misleading consumers: Defendants will be prohibited from misleading consumers about material facts about a good or service, including charges, the total cost of the product, and other facts that reflect their deceptions in this case.
- Pay more than $2.7 million: The defendants are ordered to pay more than $2.7 million, which will be used to reimburse consumers harmed by their actions.
The FTC previously obtained a court order in settlement with defendants RAM Capital Funding, LLC and Tzvi Reich. The FTC’s case against remaining defendant Jonathan Braun is still ongoing.
The Commission’s vote approving the stipulated final order was 4-0-1, with Commissioner Alvaro M. Bedoya not participating. The FTC filed the proposed order with the United States District Court for the Southern District of New York.
NOTE: Stipulated final orders or injunctions have the force of law when approved and signed by the district court judge.