Mercury & Choice’s “Bereshit” Problem
CA DFPI Orders Synapse/Evolve Program to Cease & Refrain, CFPB Narrows Scope of Non-Bank Supervision
Hey all, Jason here.
To my American readers, happy Labor Day, the unofficial end of summer (and start of conference season). It’s not a holiday here in the Netherlands, which I guess is good, because I still have a ton of prep work to do before heading to the U.S. later this week.
I’ll be in NYC for about a week for Finovate, and then heading out to the Salt Lake City area for events with MX and LoanPro.
If you’re attending Finovate, I’ll be doing a book signing on Monday, September 8th. If you buy direct from the publisher before September 3rd and use code “SALE40” you can get 40% off — no promises that the book actually makes it to you on time so that I can sign it though!
Mercury & Choice’s “Bereshit” Problem
Bereshit Royalty LLC was formed in Florida in November 2022.
While the company listed an address in Doral, Florida, the authorized persons associated with Bereshit, Gabriel Cavallini Solano and Jorge Carmona Madrigal, both listed addresses in Costa Rica, according to the LLC’s articles of organization.
The company’s website is no longer active, but an archived version shows that it purported to offer real estate, investment advisory, crypto investment, and crypto exchange services.
Although it listed a Florida address as its principal place of business, the contact phone numbers shown on the site have a Costa Rican country code, +506.
While Bereshit purported to employ real estate agents, there are no records of anyone affiliated with the company being licensed as such.
Bereshit purported to offer financial advisory services, but a search of Finra reveals no records that the company was a registered investment advisor (RIA) or any individuals associated with the firm that had relevant licensing.
Despite these obvious red flags, the company seems to have had no problem opening a business bank account at Choice Bank via its third-party service provider, Mercury.
Last October, a bit over $40,000 was seized from that account, according to an asset forfeiture complaint filed in U.S. District Court in South Carolina.
According to the complaint, those funds were the “commission” that Madrigal, one of the people associated with the LLC, earned for laundering about $935,000 that originated from a “sweepstakes” scam.
The fraud is a fairly simple one, with the perpetrators convincing victims, who are often elderly, that they’ve won a substantial amount of money, but that they need to pay fees and taxes before they can receive the prize.
In this case, the victim who was scammed of $935,000 sent the money to a Wells Fargo account on May 9th, 2024. On the same day, $300,000 was wired from the Wells Fargo account to a Bank of America account in the name of “Rogas Management,” the complaint says.
The Rogas firm purported to be a management and consultant company for professional athletes, but was actually an illicit crypto exchange, according to the complaint. Upon receiving the $300,000, an equivalent amount of funds in USDT, a stablecoin also known as Tether, was transmitted to a crypto wallet in Costa Rica, per the court filing.
Also on May 9th, 2024 — months after Choice was hit with an enforcement action stemming in part from its BSA/AML failures and its relationship with Mercury — $42,100 was wired from Wells Fargo to a Bereshit Royalty LLC’s Mercury-provided account at Choice Bank.
On May 13th, 2024, the remaining $593,345 balance in the Wells Fargo account was withdrawn as a cashier’s check and deposited to the same Bank of America account, which was ultimately frozen by the asset forfeiture complaint.
To be fair to Choice and Mercury, even this single asset forfeiture complaint makes clear that these kinds of scams and money laundering operations are not unique to fintechs like Mercury, though upstarts like Mercury who have taken a more “move fast and break things” approach to complying with Bank Secrecy Act and anti-money laundering regulations are often perceived as low-hanging fruit for fraudsters.
Even a cursory examination of Bereshit’s formation records or its website should have invited further scrutiny — an LLC whose members list a Florida address for the entity, but reside in Costa Rica? A janky looking website that describes the business as operating crypto investing and exchange services?
Scammers and fraudsters are becoming increasingly sophisticated in how they execute their schemes. But when banks like Choice and fintechs like Mercury can’t stop seemingly obvious fraudulent actors like Bereshit Royalty LLC, it’s ultimately consumers who end up paying the price.
Representatives for Choice Bank and Mercury did not respond to questions and requests for comment for this story.
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It wouldn't be possible to do what I do without the support of loyal readers like you.Celtic Bank Engaged in Conspiracy to Defraud, Lawsuit in Water Station Ponzi Alleges
An explosive new lawsuit filed by victims of the alleged Water Station Ponzi scheme accuses Celtic Bank of a pattern of racketeering and engaging in a fraud conspiracy.
The suit, filed last week in U.S. District Court in Utah, stems from government-backed SBA loans Celtic originated that were used to make “investments” in the water purification retailer’s “franchise” opportunity.
Celtic is well known in the fintech space as a partner bank for card issuing and lending, but it’s also a top 10 SBA lender. Celtic originated more than $500 million in the SBA’s flagship 7(a) program in FY2025.
The new suit is filed on behalf of nine individuals who serve as guarantors for the SBA loans their affiliated companies used to make the purported “investments” in Water Station.
The suit names Celtic and the bank’s head of SBA lending, Scott Foster, as defendants. Foster, together with his wife Jennyfer, took an SBA loan through an LLC they controlled from another bank to invest in Water Station, publicly available SBA records show.
But, Celtic and Foster failed to disclose this conflict of interest, plaintiffs in the suit claim.
Water Station steered potential investor franchisees to Foster and Celtic, and, despite knowing that Water Station's franchise model should not qualify for the SBA 7(a) program, which only permits “active,” not “passive,” franchises, Celtic provided over $17 million in SBA-backed financing, the suit says.
Foster benefited from facilitating these loans by striking a side deal with Water Station to earn a higher rate of return and, when he began to suspect the company was not legitimate, demanded and received repayment of his investment, according to the complaint.
Celtic benefited from packaging fees, collateral review, documentation fees, and interest payments on the loans, which amounted to millions of dollars, the plaintiffs say.
Now, Celtic is threatening legal action up to and including foreclosure of real property, including some borrowers' residential homes — and has commenced foreclosure proceedings against certain individual plaintiffs, the filing says.
The complaint argues that Celtic was part of a RICO enterprise along with Foster, the various Water Station entities, Water Station founder Ryan Wear (who was recently criminally charged), and two other banks, UniBank and First Fed, which are not named defendants in this complaint.
The suit argues numerous causes of action, including fraud, conspiracy to defraud, negligence, breach of fiduciary duty, RICO violations, and securities violations.
Among other relief, the plaintiffs ask the court to find the loan agreements and personal guarantees to be void and unenforceable.
Everything Else: CA DFPI Takes Action Against Synapse/Evolve Program, CFPB Seeks to Narrow Non-Bank Supervision
The California Department of Financial Protection and Innovation, the state’s financial regulator, took action last week against Juno, a third-party service provider to Evolve Bank & Trust via bankrupt middleware platform Synapse. But the cease and refrain order may amount to too little, too late.
The order seeks to prohibit crypto and banking app Juno from continuing to engage in deceptive deposit taking activities in the state and to make restitution to Juno users in the state for outstanding unpaid balances in cash management accounts as a result of funds being frozen when middleware provider Synapse collapsed last year.
Beginning in at least 2020, Juno partnered with Evolve, via Synapse, to offer and market Evolve checking accounts to California customers.
In or around October 2023, Juno informed end users it would transition to offering brokerage cash management accounts, though users would retain a deposit account at and debit card issued by Evolve.
The DFPI’s complaint notes that Juno's marketing makes heavy use of “FDIC” claims, including specifically referring to the crypto app's “partnership” with Evolve.
Evolve knew, or should have known, about the marketing claims its service providers, Synapse and Juno, were making on its behalf.
And, according to a sworn declaration filed as part of the Synapse bankruptcy case, Evolve played an active role in reviewing Juno’s marketing materials.
Andre Herrera, Juno’s chief compliance officer, wrote in signed declaration that, “It was my understanding and experience that Evolve played a direct role in reviewing and approving (by objecting to) customer-facing materials. This understanding was confirmed through communications that Synapse relayed to Juno, including direct feedback from Evolve's compliance personnel.”
California's order, though, amounts to too little, too late. Juno is no longer accepting new users, and the company appears to have last raised funding, an $18 million Series A, in Oct 2022, suggesting it has few, if any resources remaining.
While California’s order finds that Juno engaged in deceptive deposit-taking activity and calls for restitution to end users for the amount of deposits not returned to them and penalties of $2,500 per each violation of the state’s California Consumer Financial Protection Law, both seem unlikely to ever get paid.
Also last week, the Consumer Financial Protection Bureau issued a notice of proposed rulemaking that would narrow the scope of non-bank entities subject to supervision.
The proposed rule would establish a standard definition of “risks to consumers with regard to the offering or provision of consumer financial products or services.”
The definition would limit the Bureau’s ability to designate non-banks for supervision to entities that:
pose a high likelihood of significant harm to consumers;
and have a direct connection to consumer financial products or services (eg, excluding entities with only indirect or tangential relationships to consumers).
According to the proposed rule, the Bureau expects the change to have minimal impact. The CFPB has also exercised this specific authority to designate fewer than 20 entities for supervision since the Bureau began operating in 2013.
Things To Know & Other Good Reads
SBA Orders Lenders to End Practice of Debanking (Small Business Association)
Let’s Get On with It (Speech by Federal Reserve Governor Waller)
Why bitcoin treasury companies are a fool’s paradise (FT)
Powell Will Hang Separately: The Federal Reserve Has Already Failed its Duty to Lisa Cook and the Constitution (Notes on the Crises)
Every Bank Should Tokenize Deposits (Fintech Brainfood)
Crypto wants to bring you down with it (The Contrarian)
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