The broker who arranged your merchant cash advance may have earned more from that transaction than you did. In an industry where commissions run as high as fifteen percent of the funded amount, the incentive structure rewards placement volume over suitability. The consequences of that misalignment land on the business owner’s bank account, not the broker’s.
A federal jury found in early 2024 that Jonathan Braun, operating through RCG Advances, had deceived small businesses about the terms of their merchant cash advances for nearly a decade. The court entered a judgment exceeding twenty million dollars. What made the case instructive was not the dollar figure but the mechanism: misrepresentation at the point of origination, followed by collection practices that included threats of physical violence. The broker layer in transactions like these often operates with even less oversight than the funder.
The Carroting Scheme
A broker contacts a business owner and presents an offer that sounds like a term loan. Fixed monthly payments, reasonable interest, a repayment period measured in years rather than months. The catch is minor, the broker explains. Before the term loan can fund, the business must first accept a short merchant cash advance to establish a payment history. The term loan, of course, never arrives.
The advance was always the product. The term loan was the bait.
This practice, known informally as carroting, depends on the business owner’s unfamiliarity with the MCA industry’s structure. A legitimate lender does not require a merchant cash advance as a prerequisite for a term loan. The two products serve different capital functions and originate through different underwriting channels. When a broker presents one as a gateway to the other, the representation is false on its face.
The business owner in Queens had been told three separate times that the term loan was “in underwriting.” Each time, the broker suggested one more small advance to keep the file active. By the fourth month, the daily debits from the accumulated advances consumed nearly all of the business’s receivables.
Commission Stacking
Brokers earn a commission on every advance they place. A broker who placed the first advance earns a new commission on the second, and another on the third. The arithmetic is not subtle. Three advances on a single business can generate more broker income than one advance on three separate businesses, and the paperwork is simpler.
Stacking becomes fraudulent when the broker knows, or should know, that the combined daily obligation exceeds what the business can sustain. In the New York Attorney General’s action against Yellowstone Capital and its subsidiaries, the investigation revealed that some businesses carried effective annual rates exceeding eight hundred percent. Brokers who facilitated the layering of those obligations were not passive intermediaries. They were architects of the debt spiral.
The settlement required the cancellation of over five hundred million dollars in outstanding obligations. That figure reflects the scale at which stacking operates when left unchecked.
Inflated Revenue Figures
Some brokers coach business owners to misrepresent their revenue on MCA applications. The logic appears generous: a higher revenue figure qualifies the business for a larger advance with better terms. What the broker does not explain is that the daily debit amount is calculated as a percentage of the stated revenue. When the stated revenue exceeds the actual revenue, the daily debit consumes a larger share of real cash flow than the contract’s percentage would suggest.
The business owner bears the legal exposure for the inflated application. The broker, who suggested the numbers and may have prepared the paperwork, typically faces no liability. In several reported instances, business owners discovered only during litigation that their applications contained revenue figures they had never seen before the broker submitted them.
I have reviewed applications where the stated monthly revenue was more than double the figure shown on the business’s own bank statements. The discrepancy was not a rounding error.
Undisclosed Dual Compensation
A broker owes a duty of disclosure to the client. When a broker receives compensation from both the business owner and the MCA funder on the same transaction without disclosing the dual arrangement, the relationship is tainted by a conflict of interest that would be impermissible in any regulated financial services context.
The problem is that merchant cash advances exist in a regulatory space where many of the protections applicable to loans do not apply. Brokers operating in this gap may charge the business owner a placement fee while simultaneously collecting a commission from the funder. The business owner pays twice for the same introduction and does not know it.
New York’s commercial financing disclosure law, enacted in 2020 and implemented through regulations that took effect more recently, now requires brokers to disclose their compensation. But enforcement remains uneven, and brokers operating across state lines may claim the law does not reach their transactions. The disclosure obligation exists. Whether the broker honors it is a different question.
Unauthorized Renewal and Refinancing
The fifth scheme is the quietest. A broker initiates a renewal or refinancing of an existing advance without the business owner’s informed consent. The new advance pays off the remaining balance of the old one, and the broker collects a fresh commission on the full amount of the new funding, not merely the net new capital. The business owner receives only the difference between the new advance and the payoff amount, which may be a fraction of the total funded.
In practice, a business owner who accepted a fifty thousand dollar advance and repaid half of it might find that the renewal generates a new hundred thousand dollar obligation, of which twenty five thousand pays off the old balance, fifteen thousand goes to the broker as commission, and the business receives the remainder. The cost of capital on that remainder can be extraordinary.
The pattern across all five schemes is the same. The broker’s compensation does not depend on the business owner’s success. It depends on the transaction closing. That structural misalignment creates the conditions for every fraud described here, and for others that do not fit within five categories.
What distinguishes recoverable situations from unrecoverable ones is timing. A business owner who recognizes broker misconduct while the advance is still active has options that disappear once default triggers the funder’s collection apparatus. The contract may contain an arbitration clause. The funder may have filed a UCC lien. The broker may have moved on to the next deal.
A consultation is where the timeline becomes clear. A first call costs nothing and assumes nothing.
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