The SEC describes a real book that performed badly. According to the SEC, 5G Funding made about 184 advances to 110 merchants, collected the full amount due on only about 30 of them and collected less than 60% of what merchants owed.¹ According to the complaint, Garfinkel had no merchant cash advance experience when he formed 5G Funding in October 2021, and a December 2021 investor deck said the company "has a track record of having returns ranging from 36%-65% on any given deal," one month after its first advance.¹ The SEC says an investor portal and periodic reports showed account returns of 25% to 60% that were projections assuming every advance paid in full, and that July 2022 reports listed as "performing" advances whose merchants had missed payments or stopped paying.¹ It also alleges three sets of transfers: about $400,000 from the operating account for personal spending and to related accounts, about $320,000 in merchant repayments routed to a separate company Garfinkel owned, and about $282,000 in sales agent commission clawbacks sent to that company on his instruction.¹

New lending stopped in January 2023, and in July 2023 an attorney for the defendants told investors the company was insolvent, according to the complaint.^{1 4} The SEC says investors have received less than $1.7 million back, and all but one of the at least 23 lost money, with individual losses from about $15,000 to $670,000.^{1 3} The complaint adds that about $170,000 of the money returned came from another person who never invested in 5G Funding, which Garfinkel used to partially repay certain investors.¹

According to the SEC, participants were told 5G Funding would earn a management fee, typically 6% of each merchant repayment, plus a 50/50 split of quarterly net profits, and nothing from the pool of investor money at funding.¹ The complaint says the merchant contracts worked differently: 5G Funding deducted an origination fee, typically 10%, from the purchase price before sending the merchant the other 90%, while the merchant still owed the full amount.¹ The SEC alleges that investors funded the full purchase price, that the 10% went to a related back-office company, 5G Capital, whose bank account Garfinkel alone controlled, and that the participation agreements never mentioned it. It puts the total at about $1.1 million.¹

The complaint says a December 2021 deck did show an origination fee, but as money deducted from what the merchant received rather than from investor capital, with profit projections built on that assumption.¹ Because investors funded the sales agent commissions, the SEC says clawbacks on early defaults belonged to them, not to 5G Funding or Garfinkel.¹

The complaint's Merchant A example lays out the mechanic step by step. On September 27, 2022, the SEC says, 5G Funding renewed a Georgia merchant that owed more than $266,000 and had missed about 15 of its last 20 scheduled payments.¹ According to the complaint, the renewal showed a $300,000 advance and a $449,700 payback, but $266,000 of it retired the old balance, so no cash was collected.¹ The complaint says investors were still charged about $14,000 in management fees on the retired balance, a $24,000 origination fee and a $39,000 sales agent commission, and that the original advance was then shown as "paid in full" in their reports.¹ On Beyond Banks' arithmetic, the $266,000 payoff and the $24,000 origination fee account for $290,000 of the $300,000 face amount, leaving about $10,000; the complaint does not say how much new cash reached the merchant. That $24,000 fee is 8% of the face amount, below the roughly 10% the complaint calls typical; the complaint does not explain the difference. According to the complaint, the $39,000 commission sat on top of the purchase price, because the participation agreements had investors fund both.¹

The SEC alleges four more renewals like it between September 13, 2022 and January 6, 2023, almost $190,000 in origination fees and sales agent commissions across the five, payable to Garfinkel, and a default by every one of those merchants.¹ According to the complaint, the company's customer relationship management system listed 61 advances as paid in full, and at least 30 of those appear to be renewals.¹ On Beyond Banks' arithmetic, that would account for most of the gap between 61 "paid in full" entries and about 30 advances collected in full. The complaint also ties the reporting to the raise: it says at least one investor put money in after seeing another investor's returns in the portal, and others kept rolling collections into new advances because the portal showed gains.¹

The complaint alleges that Garfinkel pooled investor money, decided alone which advances each investor joined and how much, collected merchant payments, and rolled collections into new deals unless an investor asked otherwise.¹ Most investors let 5G Funding roll their money into new advances rather than withdraw it, the complaint says.¹ On those facts the SEC says each agreement was an investment contract: money invested in a common enterprise with profits expected from the efforts of Garfinkel and 5G Funding.¹ That lets the agency charge Securities Act Section 17(a) and Exchange Act Section 10(b) and Rule 10b-5, and seek injunctions, disgorgement, penalties and an order barring Garfinkel from participating in securities offerings.² As pleaded, the claims center on what participants were told and how their money was used, and no registration claim appears: the complaint's two counts are antifraud claims only¹, while in Par Funding the SEC also charged unregistered offerings under Sections 5(a) and 5(c).⁵

Courts have not treated every loan participation as a security. In Banco Espanol de Credito v. Security Pacific National Bank, the Second Circuit in 1992 held that participations in short-term commercial loans, sold only to sophisticated institutions and barred from resale without the bank's consent, were not securities under the Supreme Court's test for notes.⁶ That case involved institutional buyers and a different legal test, so it is context, not a safe harbor for a syndication program that sells to individuals.

Par Funding is an earlier and much larger MCA investor case. In July 2020 the SEC said the Philadelphia cash advance company raised nearly half a billion dollars from about 1,200 investors by selling promissory notes through unregistered agents.⁵ In March 2026 the company pleaded guilty to conspiracy to commit wire fraud and securities fraud; the court found an actual loss of about $404.7 million, reduced to about $288.4 million after credit for seized collateral, and the case covered misstatements about underwriting, default rates and portfolio performance.⁷

The 5G Funding case is far smaller, about $4.5 million, but its structure is the point. Par Funding sold promissory notes through unregistered agents⁵; 5G Funding sold participations in specific advances.¹ Our read: a note sold through unregistered agents is easy to file away as someone else's problem. A participation case is harder to file away, because, as FunderIntel notes, the industry has long used syndication as a legitimate way to spread risk and bring outside capital into individual MCA deals.⁴

InvestmentNews covered it as an affinity case because the money came through personal and community networks.³ The SEC's own investor alert on affinity fraud lists lying about "the track record of the investment" among the usual features, and the first set of misrepresentations the complaint alleges concerns 5G Funding's claimed "successful track record".^{8 1}

Funders that raise participation money from individuals come first, because the SEC's securities theory attaches to the participation agreement itself, which, if the court accepts it, would put fee disclosure and the basis of any reported return inside the securities analysis.^{1 2} Funders that buy into another shop's deals carry the mirror risk: the complaint alleges that a lead funder kept a book looking current through renewals while cash collections lagged.¹ For brokers and ISOs, the clawback allegation is the part to note: the complaint treats commission refunds on early defaults as money owed to the investors who funded the commission.¹

Factoring and equipment finance shops that sell participations in receivables or leases should pull two documents this week: the participation agreement's fee schedule and the investor report template, and compare both with the fee and renewal allegations in the complaint. The complaint says nothing about those structures, and a complaint is not a ruling.

Four checks, each aimed at a failure or fact the complaint alleges.¹ First, report participant returns on cash collected, and label any payback projection as a projection. Second, classify a renewal of a delinquent merchant as a restructuring in participant reporting, with the rolled balance shown, not as a payoff. Third, put every fee taken at funding, including origination fees deducted before the merchant is paid, in the participation agreement, and write down who receives sales agent commission clawbacks. Fourth, give participants deal-level information and the choice to approve each deal and each renewal, and do not roll their collections into new advances without consent; those are the facts the SEC's investment-contract allegation leans on. Doing this does not by itself decide whether an agreement is a security, and the reporting duties apply either way.

Participants buying into another funder's deals can ask for the same four items before they wire money. These are Beyond Banks' suggestions, not SEC requirements or legal advice; funders that syndicate should have securities counsel review their participation agreements and investor reporting.

What the record does not yet show: any response from Garfinkel or 5G Funding, how the court will treat the SEC's investment-contract theory once the defendants answer, and how much of the remaining merchant balances has been collected since the July 2023 insolvency notice.¹

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Nvidia has held early talks with insurers about covering lenders to smaller AI cloud companies if a borrower defaults and the Nvidia chips pledged as collateral resell for less than the loan, the Financial Times reported.^{9 10} Nvidia has worked with broker Howden Re, shared chip-depreciation data with at least one insurer and explored syndicating the risk to hedge funds.^{10 11} The push follows its offer to backstop part of financing deals meant to draw $500 billion of Wall Street capital.¹⁰ Our read: for equipment lenders it would work like residual value insurance on a fast-depreciating asset. Neocloud Lambda has already borrowed $917 million to buy chips.¹² The talks are early and may not produce deals.⁹

Apollo chief economist Torsten Slok wrote on September 27 that AI assistants such as Meta's Muse could move household cash from checking accounts paying a 0.1% average into fintech accounts paying 3.3% to 5%.^{13 14} "If every household used AI agents to optimize the return on their cash balances, banks could lose a large share of the cheap deposits they rely on to make loans," he wrote.^{13 15} It is a scenario warning, not a measured outflow.¹⁴ Our read: if deposits did become that mobile, the banks that lend to nonbank funders would feel it in their own funding costs.

Oxford Finance said its asset-based lending strategy closed five deals totaling $368 million of commitments in its first year, from $25 million to $160 million each, with Oxford as sole lender on all five.^{16 17} Borrowers were middle-market companies in transportation, consumer products, equipment and industrial manufacturing.¹⁶ The release says the platform offers revolving credit facilities and cites rising demand for nonbank capital; the figures are company-reported and no pricing was disclosed.¹⁶ Our read: $25 million and up is well above typical factoring and MCA ticket sizes, so this is context on where nonbank ABL competition sits, not a direct threat to small-ticket funders.

_{Sources
1 U.S. Securities and Exchange Commission | Complaint, SEC v. Jacob Garfinkel, 5G Funding LLC, and Five G Funding LLC, N.D. Ill. No. 1:26-cv-11825
2 U.S. Securities and Exchange Commission | Litigation Release No. 26651: SEC Charges Merchant Cash Advance Companies and their Founder
3 InvestmentNews | $4.5M raised on trust alone: SEC alleges affinity fraud in merchant lending
4 FunderIntel | SEC Charges 5G Funding and Jacob Garfinkel Over Alleged $4.5M MCA Investment Fraud
5 U.S. Securities and Exchange Commission | Litigation Release No. 24860, SEC v. Complete Business Solutions Group Inc. d/b/a Par Funding
6 U.S. Court of Appeals, Second Circuit | Banco Espanol de Credito v. Security Pacific National Bank, 973 F.2d 51 (1992)
7 IRS Criminal Investigation | Par Funding pleads guilty to defrauding investors
8 SEC Office of Investor Education and Advocacy via Investor.gov | Investor Alert: Affinity Fraud
9 Financial Times | Nvidia turns to insurers to spread risk of AI build-out
10 Investing.com via Yahoo Finance | Nvidia turns to insurers to spread risk of AI build-out - FT
11 GuruFocus | Nvidia Turns to Insurers to Spread AI Chip Financing Risk
12 The Next Web | Nvidia talks to insurers about loans backed by its AI chips, FT reports
13 CoinDesk | AI agents could drain cheap bank deposits, Apollo's Torsten Slok warns
14 investingLive | Apollo's Slok warns AI agents could trigger a bank run
15 24/7 Wall St. | Apollo's Chief Economist Warns AI Agents Like Meta's Muse Could Trigger the Next Bank Run
16 Oxford Finance via Business Wire | Oxford Finance's Asset-Based Lending Strategy Completes Strong First Year with $368 Million of Closed Commitments
17 Alternative Credit Investor | Oxford Finance raises $368m for ABL strategy}