Two Broward County residents accused of $196 million Ponzi scheme

Two Broward County residents have been accused of running a massive Ponzi scheme that raised more than $196 million from at least 15,400 investors in a little over a year.

Johanna M. Garcia, Pavel Ramon Ruiz Hernandez and a team of 70 sales agents ran the scheme out of headquarters on West Atlantic Boulevard in Pompano Beach, according to complaints filed by the U.S. Attorney’s Office and the Securities and Exchange Commission in U.S. District Court in Fort Lauderdale.

Hernandez, 29, is the subject of two separate complaints filed in federal court on Monday: a civil complaint by the SEC and a criminal complaint by the U.S. Attorney’s Office in the Southern District of Florida.

Garcia, 39, who lives in Lauderdale Lakes, is a defendant in a case filed in August 2021 by the Securities and Exchange Commission. In an April filing responding to the charges, Garcia acknowledged she is the subject of a federal criminal investigation related to the SEC charges.

According to complaints filed so far, investors were told that Garcia’s companies, MJ Capital Funding and its affiliate MJ Taxes and More Inc., would use their money to provide loans to cash-strapped small businesses, the complaints state.

In return, investors would earn 120% to 180% every year.

Instead, less than $1 million in loans were made while investors were paid $64 million “in purported returns,” the SEC said. But they weren’t actually returns. It was money paid by later investors in what the SEC is calling a classic Ponzi scheme.

Based on the number of small business loans it made, the companies “were not earning anywhere near the revenue needed to pay the promised returns to investors,” the SEC said.

“The only way the MJ companies could honor their obligations to investors would be by successful continuation of their fraudulent scheme,” the complaint states.

Garcia, Hernandez and their sales agents lived lavishly off of the investments while operating the scheme between June 2020 and August 2021, the complaints state.

The trouble began when an anonymous individual set up a website with a similar domain name as MJ Capital’s and filled it with posts claiming the operation was a Ponzi scheme.

The site got enough attention from investors that MJ Capital was compelled to deny the allegations on its site and file a defamation suit against the anonymous individual.

In the suit, MJ Capital made numerous statements that the SEC called “false” or “misleading,” including a declaration by Garcia under penalty of perjury that MJ Capital “funds millions of dollars in merchant capital loans” each month.

In June 2021, MJ Capital was visited by an undercover FBI agent posing as a prospective investor. The agent invested $10,000 and received an initial 10% monthly interest payment shortly afterward, the SEC said.

The SEC shut down the operation in August 2021 after obtaining a temporary restraint order and asset freeze against Garcia and her two companies.

Hernandez, a Fort Lauderdale resident, is charged with raising at least $46 million from more than 5,100 investors. The SEC’s complaint states he was a lead sales agent, involved in “high-level decision-making,” served as a board member and had access to MJ Capital’s bank accounts.

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He “misappropriated or misused” $6.5 million of investors’ money, including on personal expenses such as crypto assets and a luxury vehicle, the SEC’s complaint states.

Hernandez could not be reached for comment Tuesday. According to a Department of Justice news release, he made his initial appearance in federal court on Tuesday. He faces a maximum of 20 years in prison if convicted on charges of conspiring to commit wire fraud through an investment Ponzi scheme.

The SEC’s civil complaints charge Garcia and Hernandez with numerous counts of violating numerous U.S. securities laws. They’re seeking court orders barring Garcia and Hernandez from operating again and requiring them to repay victims of the scheme.

Garcia, in an April statement filed in response to the SEC’s charges, cited the criminal investigation in her decision to plead the Fifth Amendment right against self incrimination in response to 71 paragraphs of the SEC’s complaint. Garcia’s attorney did not immediately respond to an interview request.

But in response to a charge that she was liable for illegal acts by others, Garcia said she “at all times acted in good faith and did not directly or indirectly induce” any violation of U.S. securities law.

Her former businesses are now under control of a receiver appointed to liquidate the companies’ assets and recover funds for the scheme’s investors. For more information about the receiver, go to kttlaw.com/mjcapital.

Ron Hurtibise covers business and consumer issues for the South Florida Sun Sentinel. He can be reached by phone at 954-356-4071, on Twitter @ronhurtibise or by email at rhurtibise@sunsentinel.com.