"Yo Homie! The MCAs are crankin!", new SEC complaint shows

The Securities and Exchange Commission has filed a complaint in the Nevada District Court against two men for what amounts to a Ponzi scheme similar in concept to the MJ Capital case we covered last year in Miami Federal Court. Joel Natario and Jefferson Scott (aka Patch) Baker are allegedly to have duped investors into providing them with funds that they would then provide capital to small businesses in the form of merchant cash advances and earn a return for their investment. With promises of 16-18% every 12 weeks, investors were eager to put their money into the investment opportunity. The amount they raised ended up being approximately $10 million from February 2020 to August 2021. (That timeline overlaps with when MJ Capital did the same thing.)

The problem is that investors were only paid with new investor money. A classic Ponzi scheme. I do want to say this shouldn’t shine a bad light on the funding product used to lure investors, MCAs, because it's simply the product that was involved.

Everything was in place for the scheme. Joel Natario and Patch Baker developed all of the written agreements with the promise to pay the investor the return; however, they never provided any funding to small businesses, and thus no MCA venture, per the complaint.

Roles in the Scheme

Joel Natario was a self proclaimed successful entrepreneur in Mining and Environmental services. Jefferson Scott Baker lised himself as a USMC Veteran, Investor, Business Development Consultant, Speaker and Writer on his LinkedIn profile.

Natario controlled the bank accounts, and Baker was the main person controlling the software platform they built called Flowallet and soliciting investors. Most of the investors were people they met in a private networking group called Board of Advisors, which is where they met back in the 2019-2020 timeframe. Prominent figures like Kevin Harrington were members of this group in the past, where there was an annual membership cost of $25,000.

Image from BA networking group

Sections from the Complaint:

10. Defendants also used investor funds to enrich themselves. Natario sent Baker over $1 million during the life of the scheme, and Natario also used investor funds to pay credit card bills, purchase real property, and pay for personal travel and vacations.

11. By February 2021, investor withdrawal requests were outpacing Defendants’ ability to fraudulently solicit additional investments. In response to investor questions and complaints, Baker and Natario offered various false and misleading excuses, including that the bank had frozen the relevant account.

12. Later in 2021, Baker stopped responding to investors altogether, and Natario continued to deceive investors. For example, in August 2021, Natario sent one investor a sham monthly bank statement that he had doctored to reflect a fictitious account balance of approximately $5.8 million. In truth, the balance for that account at the time was $18.

13. By engaging in this conduct and as alleged further herein, the Defendants each violated Section 17(a) of the Securities Act [15 U.S.C. § 77q], and Section 10(b) of the Exchange Act, [15 U.S.C. § 78j(b)] and Rule 10b-5 [17 C.F.R. §240.10b-5] thereunder.

Florida Civil Case

This is just the beginning of this civil case, but there was a civil case brought in Florida against Joel Natario in August of 2022 in Florida state court that revealed some information:

In November 2021, Natario executed release agreements and promissory notes with multiple investors, including Investors A, B, C, and D (or entities they controlled and through which their MCA investments had been made). In the release agreements, Natario “accepted responsibility and “agree[d] to be personally liable for” repaying the plaintiffs’ invested principal.

130. Natario never made any of the payments owed on the promissory notes.

131. As a result of this conduct, on August 24, 2022, a group of investors brought a civil action against Natario in Florida State court, suing for breach of the promissory notes, captioned Roka Solo 401k Trust, et al. v. Natario, Case No. 22-CA-003326.

132. As reflected in the Consent Judgment and Final Order entered in that case on September 19, 2022, Natario and plaintiffs reached a settlement agreement requiring Natario pay the plaintiffs approximately $5.65 million, plus interest. The plaintiff investors have thus far been unable to collect any of the amounts owed to them by Natario.

Website - PatchBakerFraud

Someone created a website that was registered in April of 2021 that is dedicated to exposing Patch Baker fraud, with all negative testimonials about him and his reported actions, lying, scams, etc. 

Snapshot from the website

He supposedly lied about everything from the house he lived in, which turned out to be a rental, his being in the special forces, that he put $8 million of his own money into this venture, and numerous other outlandish stories from alleged victims of his.

Ponzi Scheme Collapses

More snippets from the complaint:

III. DEFENDANTS OFFERED AND SOLD THE MCA INVESTMENTS AS SECURITIES

133. Natario and Baker offered and sold the MCA investments, including the MCA

Purchase Agreements, as investment contracts and thus securities.

134. An “investment contract” is “a contract, transaction, or scheme” whereby the

investor (1) invests his or her money, (2) in a “common enterprise” and (3) is “led to expect profits” derived “from the efforts of the promoter or a third party.” SEC v. W.J. Howey Co., 328 U.S. 293, 298-99 (1946).

135. These three prongs of the Howey test are satisfied here.

There is nothing found on whether a criminal case is being pursued or not but I would anticipate one at some point, given the very similar type of case of MJ Capital, although she raised almost 20x as much from investors.

Video Interview of Patch Baker

Video clip from interview with Patch Baker