A merchant cash advance company ("MCA") settled SEC charges for misleading investors in the securitization of a revolving pool of outstanding business loans.

The SEC filed the Complaint against the MCA for acting inconsistently with respect to disclosures to investors concerning the securitization of the revolving pool in violation of the antifraud provisions of Sections 17(a)(2) and (3) of the Securities Act of 1933. According to the SEC, the MCA stated in its securitization materials and offering documents that delinquent accounts would be declared non-performing and replaced in the securitization pool. The SEC alleged that the MCA failed to disclose that it had a practice of granting forbearance, known as "grace days," to certain accounts that did not make loan payments and that these loans remained as collateral for the securitization. This allegedly resulted in "millions of dollars" of non-performing assets that the SEC claimed should have been removed from the securitization, leading to investor losses.

In the settlement, the MCA, without admitting or denying the SEC's allegations, consented to a permanent injunction. The settlement awaits court approval.


While the SEC's primary focus is on COVID-19 related misconduct, this case demonstrates that it continues to push forward non-crisis-related cases. That said, this does look like a particularly strong case for the SEC. The MCA agreed to settle the negligence-based fraud charges under Section 17(a)(2) and (3) of the Securities Act with an obey-the-law injunction and was not required to pay any disgorgement or a civil money penalty.

Originally published 7 May 2020

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.