White Collar Crime: Why is Our Insurance so Expensive?

As a result of the monetary value and the challenges associated with fraud or even the likelihood of a white-collar crime, insurance companies and those defending claims need to be cognizant of their surroundings.

This “inaccuracies” and misrepresentation of the loss is a key driver for an independent, accredited determination of the economic loss.

White-collar crime is a global phenomenon that affects economies worldwide. It encompasses a broad range of non-violent offenses committed by individuals or groups in business and government settings. These crimes typically involve deceit, concealment, or violation of trust and are often financially motivated. Some common types of white-collar crime include fraud, embezzlement, insider trading, bribery, and money laundering.

White-collar crime affects over 35% of U.S. businesses. An estimated 75% of all employees steal from their employer at least once, and another half of that percentage is repeatedly stealing. Over 50% of embezzlers are managers.

Identity theft and fraud alone have affected over 17 million Americans. In fact, at least 24% of U.S. households have been victims of a white-collar crime. And unfortunately, most of these occurrences go unnoticed, with 88% of victims opting not to file a formal complaint.

Who Commits the Most White-Collar Crime?

White males between the ages of 41-50 are the most common demographic that commits a white-collar crime. Males commit at least 75% of white-collar crimes, and crimes like bribery are overwhelmingly committed by white individuals (84.9%). This is likely because individuals in this age range tend to hold positions of power in the workplace, as well as know a great deal about how money cycles through the workplace. On the other hand, women commit very little white-collar crime, with less than 10% of white-collar criminals being female.

What Countries Have the Most White-Collar Crime?

• United States

• China

• Russia

• India

• Nigeria

It’s important to note that white-collar crime can occur in any country and across various industries and sectors. Efforts to combat financial misconduct and promote transparency, accountability, and integrity are essential for addressing the root causes of white-collar crime and fostering sustainable economic development globally.

Trends in White-Collar Crime: Looking Ahead

There has been a steady decline in white-collar crimes prosecuted over the last decade, although fraud and identity theft crimes have increased. The prevalence of the internet and globalization could be playing a part in this increase.

Identify theft complaints rose by 113% from 2019 to 2020. This is likely because the pandemic caused more criminals to go digital. While identity theft made up only about 14% of complaints in 2018, it made up 29% of 2020’s identity theft and fraud cases.

Navigating the nuances of economic loss evaluations requires a keen understanding of various factors, from direct costs like medical expenses to complex considerations such as diminished earning capacity. In the dynamic world of claims management, securing accurate economic loss determinations is a critical step. Choosing a reliable partner can make all the difference.

Optimizing the “Offer in Compromise” Via Professionally Prepared Projections and Business Valuations

Background

As tax professionals, the ability to provide our clients with a “do over” as it pertains to their tax obligation can be one of the most helpful tools that can be provided. Obviously, this forgiveness or restructuring of one’s tax obligation requires the tax professional and their client to confront a litany of hurdles.

The Offer in Compromise (“OIC”) program was created by the IRS to allow taxpayers to settle their outstanding debt with the IRS for a lower, agreed-upon amount than what was originally owed. The idea behind the program is that many taxpayers cannot pay their tax liability without creating a significant financial hardship. The burden of proof to demonstrate one’s inability to meet their tax obligations rests on the taxpayer. Perhaps more so in this area where the taxpayer is seeking forgiveness or a restructuring on the tax obligation. To obtain this forgiveness, the IRS wants to know why you believe you will not be able to pay off the entire balance - the IRS isn’t going to take just any reason. Justification for the OIC does not include a recession, loss of a client, or poor record keeping. Nevertheless, the IRS has considered disability, substance abuse problems, huge balance amounts, dependent care, limited income potential as a result of advanced age, or serious health matters as good reasons. On average, over the past few years, the IRS accepted approximately $200,000,000 per year in OIC.

The acceptance of the OIC generally can be classified within three domains, these being:

• Doubt as to liability. A taxpayer meets this requirement only if an effective difference as to the existence or amount due by the taxpayer

• Doubt as to collectability exists. For example, where the taxpayer’s assets and income are less than the full amount of the tax liability. This is especially germane with distressed entities

• Despite there being no doubt that the tax obligation exists, and the obligation amounts are known, and OIC may be accepted if by compelling said payment (in full as current required before the OIC) would either create a significant economic hardship or would be unfair and inequitable because of extraordinary conditions.

Obviously, many taxpayers may wish to have their tax obligations “erased or restructured.” However, it is a challenging process that requires justification, time, the experience of the right tax professionals, determining the amount that can be paid within the agreed upon time, and solid validation for the OIC amount. On average the OIC process, excluding appeals, has taken 4 – 6 months. Many of your clients will want to opt for the OIC route simply because it is the only option that lowers the total value of the tax owed. It is also for this reason that this method is the most advertised settlement option by tax resolution companies and accounting firms. The Latin adage is most appropriate - ‘Caveat Emptor’ (‘let the buyer beware’).

Probability of Obtaining an OIC and How to Increase that Opportunity

The role of the professional tax advisor is critical in the OIC process, perhaps more so than virtually any other area of negotiations or presentations with the IRS. Over the past few years, on average, only 30% of the OIC were accepted by the IRS. However, when the taxpayer works with a team of professionals, this acceptance rate has been increased by 70%. These statistics are based on the over 70,000 OIC applied for to the IRS. The following chart illustrates the increase in the number of OIC accepted by the IRS:

This article addresses how to geometrically improve our client’s probability of having the OIC accepted on terms which are fair to all parties. The opportunity for having a successful OIC, that is fair to all parties, is a function of several critical components. These being:

• Communications

• Accurate information

• Professional prepared financial forecast/projections

• Business Valuation.

Communications

With regards to the OIC, the tax professional needs to be candid with their client which includes, but is not limited to, managing their expectations as to the amounts, the costs of this process, and the timing. For example, even if the OIC is “awarded,” the taxpayer needs to understand that they will be under IRS scrutiny to ensure the assumptions made to derive the restructure amount have not been materially altered.

The candid communications are not only with your client but with the IRS. Eliminate any surprises – be frank, prompt, professional, and ensure the data provided is accurate and supportive. The most common mistakes are to apply for an OIC that is totally unrealistic (too low) and not supportable.

Accurate Information

This component to a successful OIC process may appear to be too obvious, even to the most novice reader. Too often the embarrassing situation is needing to amend the process due to new information. This not only forces the process to “restart,” but one loses credibility as to the over information, amounts and ability of the client to manage their financing.

Many of the taxpayers are in this very predicament because they do not have the basic financial controls in place and information available. More times than not the client will not have audited financial statements with reconciling schedules for all the transactions in question. The tax preparer must recreate the financial periods based upon limited data years after the events in question.

Spend the time and prepare a detailed set of documents with each applicable account/transaction reconciled and documented. For those areas that have gaps in support – document said gaps and advise the IRS representative accordingly.

Professional Prepared Financial Forecast/Projections

Before outlining the financial projections, allow me to summarize the importance of this process. The OIC is based upon the taxpayer’s ability to pay based upon the current economic environment and their future revenue stream(s). The preliminary amount that the IRS will pay is a function of two basic economic factors, these being:

• What is the ability of the taxpayer to be able to pay over the next year or two? In other words, the financial projections of the taxpayer, PLUS:

• The adjusted net value of their current economic situation. This will

  be presented in more detail below.

A financial projection is a forecast of future revenues and expenses. Typically, the projection will account for internal or historical data and will include a prediction of external market factors. In general, you will need to develop both short- and mid-term financial projections. At a minimum, the financial projections should include:

• A sales forecast, generally, for a three-year period

• List all the associated expenses required to generate said sales

• Identify and quantify all the Capital Expenditures required to support the revenue stream

• Develop a cash-flow statement

• Develop an Income Statement projections

• Develop a Balance Sheet

• Breakeven analysis

Use the historical financial results as a basis. Include the overall market and the results of your competitors. Document the differentiators associated with the taxpayer.

My recommendation to eliminate seasonality and provide comparability is to have the first three years monthly, summarized into quarterly and annual results. Detailed supporting document is a prerequisite for the OIC. OIC applicants are generally put through a demanding financial analysis before the application is approved.

The above preparation by a professional should not be considered onerous. A taxpayer and all entities should have a financial plan in place. After all, this is just rudimentary financial forethought. The adage is “failing to plan is a plan for failure.”

On your projections, be as accurate as possible even if you must present best- and worst-case scenarios. For if the IRS accepts the taxpayer’s OIC, the IRS expects that the taxpayer will have no further delinquencies and will fully comply with the tax laws. If the taxpayer doesn’t fulfill their obligations by the terms and conditions of the OIC, the IRS could classify the OIC as in default. Recall that for the accepted OIC, the terms and conditions generally include a requirement that the taxpayer timely file all tax returns and timely payments of all taxes for 5 years. When an OIC is declared to be in default, the agreement is no longer in effect and the IRS may then collect the amounts originally owed (less payments made), plus interest and penalties.

In summary, ensure that the projections are achievable, and that the taxpayer can fulfill their obligations. If an unforeseen material issue arises, notify the IRS and have a plan on how the taxpayer is going to mitigate this exposure. Again, as stated above, no surprises to the IRS.

Business Valuation

This stage of the OIC process – the Business Valuation - is the “Achilles Heel” for most non-individual applications for the OIC. Recall, the OIC financial basis is driven by the ability to pay in the future (Projections) and the current economic environment (a Business Valuation). The IRS has not only defined the requisite requirements of an IRS valuator, but the IRS is most specific on the methodology and processes germane to business valuations to be submitted to the IRS.

A business valuation is a complex process, especially when addressing atypical business environments — distressed entities and the IRS. The IRS requires that the business valuator be a “Qualified Appraiser.” The regulations state a “Qualified Appraiser” is one who has earned an appraisal designation from a professional appraisal organization, has the appropriate education and experience, and performs appraisals on a regular basis.

Since 1959, the IRS (IRS Revenue Ruling 59-60) has created the expectations for its valuation requirements. In summary these being:

• The nature of the business and its history

• The book value of the company stock and its financial condition

• The dividend paying ability of the firm

• The presence of goodwill and other intangible assets

• Sales of company stock, sizes of stock blocks to be valued

• Market price of stock of companies in the same line of business whose stock trades freely on the open market

The tax authorities are typically interested in the business cash flow outlook. So, a realistic earnings forecast is useful both for your income-based business valuation as well as meeting the level of transparency expected of a well thought out business appraisal. However, as described below this is easier said than done.

Why is the Business Valuation so much more Complex for the OIC?

• Attestation. The IRS requires that the valuation be formally certified by the business valuator. Furthermore, the business valuator for the IRS engagements must state that their opinion is not based to limit one’s tax payment but is a true reflection of the value of the business. Any offense to this certification carries severe professional penalties and liabilities. There are many business valuation firms that do not work with the IRS requirements due to this risk plus those listed below.

In addition, although all business valuations require proper document and supporting documentation, generally, the business valuations for the IRS are at the extreme end of the spectrum as it relates to documentation and supporting documentation. As you are aware, the burden of proof is on the taxpayer and the taxpayer is requesting a significant restructuring of a debt that is owed.

• Going Concern. This is the #1 challenge associated with a business valuation associated with an entity that has significant tax obligations. In non-accounting terms: can this entity survive in the long-term given the overall obligations in comparison to its ability to pay? By definition of the OIC the entity’s unable to address its financial/tax obligations, when there is a significant likelihood that an entity will not survive the immediate future (next few years), traditional valuation models may yield an over-optimistic estimate of value.

• Valuation Methodologies. Generally, a business valuation weighs three methods of valuing the entity:

  • Market Base – what is the value of their competitors in the market?

    However, with the tax obligation outstanding and its inability to pay, this

    does not allow for a meaningful valuation comparison to their competitors

  • Income Method (commonly referred to as the Discounted Cash Flow) – this

    approach measures how much net income can be generated over the long-

    term life of the entity at a discounted rate based upon risks. This method

    also presents its own challenges with the OIC process. First, as described

    above, does the entity have a long-term opportunity – is it a “going

    concern?” Secondly, the risks associated with an entity in arrears to its tax

    obligation plus its inability to pay such obligations yields an extremely

    high-risk factor. This quantified risk factor can be so high that this income

    method will not yield meaningful results

  • Asset Method – what are the value of the underlying assets of the entity

    less its liabilities/obligations. Remember for the IRS purposes, generally -

    the valuator can reduce the valuation by the tax obligation in full. For the

    sake of simplicity, let us assume that we can determine all the assets both

    tangible and intangible (including goodwill and Intellectual Properties).

    The challenge in the asset method of valuating the assets in such an entity

    are what premise does one value these assets?

  • Fair market value (FMV) is the price that property would sell for on

    the open market. It is the price that would be agreed on between a

    willing buyer and a willing seller, with neither being required to act,

    and both having reasonable knowledge of the relevant facts.

  • The fair value as the “the price that would be received to sell an

    asset or paid to transfer a liability in an orderly transaction between

    market participants at the measurement date.”

  • The orderly liquidation value (“OLV”) is typically included in an

    appraisal of hard tangible assets (i.e., equipment). It is an estimate

    of the gross amount that the tangible assets would earn in an

    auction-style liquidation with the seller needing to sell the assets on

    an “as-is, where-is” basis.

  • Forced Liquidation Value (“FLV”) is the values expected to be

    produced if the company or machinery and equipment had to be

    disposed of much more quickly. For example – what if the assets

    must be sold within 90 days. This would significantly diminish the

    value of the assets in comparison to the OLV.

When selecting a Qualified Appraiser, ensure that the firm has significant experience in dealing with distressed or challenged entities. The core facts are so different and require a totally different set of parameters. Secondly, ensure that the Qualified Appraiser has had experience in being an expert witness so that they can explain their methodology, procedures and working papers.

• Risk of the entity – The foundation of the business valuation is based upon the ability to generate revenue and its correlated risks. As briefly described above, the risks associated with materially outstanding tax obligations as it pertains to the entity’s survivability generates a risk (discounted rate) so high that the associated results are too often skewed to be beneficial or reflective of the true economic value of the entity.

• The format and components required by the IRS in the OIC environment are atypical. Therefore, experience in dealing with distressed entities, understanding of the tax code, ability to communicate the results as an expert witness and knowledge of the business valuation methodologies are prerequisites that a Qualified Appraisers needs to assist you, the tax professional, in optimizing your client’s chances of obtaining the OIC.

Mythic of the OIC Amounts

Although the IRS has numerous guidelines on how to determine the OIC amount if accepted, there are no “fast and set” calculations to derive the OIC amounts and/or payment schedules. There is no doubt that the criteria is based upon the ability to pay in the future (projections) + the valuation of the net assets. But it is the combination of the aforementioned factors that determine the amounts involved.

The reality is success with an OIC is based on a full understanding of the IRS investigative process into ability to pay coupled with the net value of the assets in question. It is not a one size fits all situation; the amount of one person’s settlement has no bearing on the success of another’s. The IRS does not have a set percentage of settlement to the amount owed.

An Offer in Compromise does not affect your credit. Credit services have no idea that you have filed an offer or are seeking relief. The key is that your offer is accepted. Once the offer is accepted and paid, any tax lien should be released.

Case Study: Maximizing MCA Recoveries Through Strategic Consolidation in Chapter 11 Bankruptcy

Background:

A debtor company filed for Chapter 11 bankruptcy, owing $486,000 to three Merchant Cash Advance (MCA) creditors. Each MCA was preparing to take separate independent actions against the debtor. This approach would have generated redundancies in costs. Lakelet Advisory Group LLC was able to persuade these three MCAs into collaborating with us to address the financial analysis, valuation of the debtor and assessment of the collectability of the unsecured debt.

Strategic Rationale for Consolidation:

Lakelet Advisory Group LLC created a unified approach to help MCA creditors improve their recoveries, cut costs, and simplify the bankruptcy process.

A collective approach is best for MCA creditors because it offers stronger negotiating power by combining claims, resulting in better settlement terms. It also lowers legal and valuation costs through a single financial investigation. Additionally, it speeds up the resolution with cooperation among legal teams and experts, preventing delays. Finally, it optimizes recovery by aligning interests rather than competing for funds.

Solution: Coordinated Legal & Financial Forensic Strategy:

To eliminate inefficiencies and maximize recovery, the three MCAs pooled resources and engaged our firm for a unified financial forensics and business valuation analysis. Key components included a comprehensive business valuation to assess if the debtor’s assets exceeded liabilities and recovery potential. It also involved a financial forensics investigation to uncover insider payments before bankruptcy, strengthening clawback arguments. Additionally, a unified legal strategy ensured MCA creditors were aligned, preventing the debtor from pitting them against each other.

Financial Breakdown: Independent Costs vs. Collective Synergies:

Key Benefits of the Consolidated Approach & the Outcome:

Key Benefits of the Consolidated Approach include cost savings and shared expenses, where each MCA paid a fixed amount instead of excessive fees, saving $15,490 in financial forensics and business valuation. A unified legal approach strengthened the case in court and prevented delay tactics by the debtor. The approach also allowed faster claims processing and identified fraudulent transactions for higher recoveries. The outcome included net savings of $268,000, a stronger legal strategy, quicker bankruptcy resolution, and optimized collection per MCA.

Conclusion: Why MCA Creditors Should Consolidate Efforts in Bankruptcy Cases:

Introduction: This case shows the benefits of teamwork among MCA creditors.

Key Points:

• Shared resources lower costs while maintaining quality.

• Legal fees become more predictable.

• The bankruptcy process is quicker, enhancing recovery.

• Collaboration boosts overall recovery rather than competing.

In MCA bankruptcies, combining resources and strategies improves recovery and reduces costs for all involved.

The Role of a Business Valuator in Product Liability

It stands to reason that product liability actions are quite complex, and establishing legal fault and economic loss often requires the assistance and testimony of experts. Aside from the legal perspective, product liability includes elements of finance, business valuations, forensics, determination of economic losses, accounting, economics, management, and other disciplines. It is the job of a valuation expert to measure economic loss. Doing so requires a thorough examination, including a careful analysis of pertinent operational, financial, industrial, and economic data. A valuation expert’s responsibility is to measure the value by which all parties are made “whole” after the event.

Not all valuation professionals are created equal. Every economic loss profile is unique and therefore requires an experienced and knowledgeable professional to give an independent, well-reasoned, and well-supported opinion.

At Lakelet Advisory Group (LAG), our experts are highly experienced and credentialed. We offer both valuation and forensic accounting services, enabling us to ensure we have the best information available and can deliver the most accurate measure of economic loss based on that information. Our team has the ability to examine large amounts of complicated data in an efficient and cost-effective manner, and report solid conclusions supported by careful analyses.

Merchant Cash Advances: Legal Landscape, Bankruptcy Recovery, and Litigation Support

A fintech platform reported default rates of 8.5% to 10.5% among MCA borrowers. This gives us a rough idea of accounts that go into default. As a benchmark, traditional business loan delinquency stands much lower—at 1.16%.

A small to mid-size entity in bankruptcy averages ~3 MCAs per filing.

Lakelet Advisory Group’s Service for MCAs.

Lakelet Advisory Group helps MCA providers protect and maximize recovery in distressed situations. We analyze contracts for recharacterization risks, usury exposure, and UCC perfection to strengthen legal standing. Our forensic team traces receivable flows, identifies preference or fraudulent transfers, and models expected recovery under Chapter 7 or Chapter 11. In litigation, we support counsel with expert testimony, financial exhibits, and loss quantification, while also developing workout strategies that preserve cash flow outside of bankruptcy.

Beyond individual cases, we conduct portfolio risk reviews, highlight exposure to stacking and industry concentrations, and provide regulatory insights shaping MCA enforceability. With deep experience in valuation, bankruptcy, and financial forensics, Lakelet Advisory Group delivers clarity, defensibility, and actionable strategies—helping MCA providers improve collectibility and mitigate risk.

Legal Characterization and Direction of MCAs

The legal treatment of MCAs in bankruptcy depends on whether the transaction is deemed a “true sale” of receivables or a disguised loan. Courts examine the substance over form, with key factors including:

· Whether repayment is contingent on actual receivables

· The presence of a fixed repayment schedule

· Recourse against the merchant if sales decline

· The use of personal guarantees and confessions of judgment (COJs)

If classified as a true sale and secured with a perfected UCC filing, the MCA provider may recover directly from receivables and avoid inclusion in the bankruptcy estate under §541 of the Bankruptcy Code. However, in most cases, courts have found MCA agreements to be loans, rendering them unsecured claims subject to the automatic stay under §362 and substantially reducing recovery prospects. Additionally, aggressive pre-petition collections can be clawed back as preferences (§547) or fraudulent transfers (§548).

Market Trends, Regulatory Actions, and Case Outcomes

• Market Scale & Growth: Published market-size estimates diverge, but all show rapid growth. Allied Market Research pegs 2023 global MCA volume at $17.9B with a forecast to $32.7B by 2032 (CAGR ~7.2%).[1] Some trackers report even steeper trajectories, but methodologies vary.[2]

• Bankruptcy courts are increasingly scrutinizing “true sale” claims. Recent S.D.N.Y. rulings (e.g., In re J.P.R. Mechanical, Inc.) recharacterized MCA agreements as loans and allowed the clawback of >$3M in pre-petition payments, despite “sale of receivables” labels, highlighting preference exposure when reconciliation is weak or term/recourse looks loan-like.[3]

• Small-business demand context. Federal Reserve Small Business Credit Survey shows firms’ applications for loans/LOCs/MCAs dipped from 40% to 37% (2022→2023), with approval rates largely unchanged owners continue turning to non-bank options when banks tighten.[4]

• There is no widely published data on the average number of MCAs per bankruptcy, but “most small business debtors under Subchapter V of Chapter 11 have at least one merchant cash advance creditor.”[5] For businesses filing for Chapter 11 to have more MCA obligations stacked on top of each other, especially when financing, has become a repeated, urgent solution.

MCA Recovery Outcomes by Bankruptcy Chapter and Legal Classification

In distressed scenarios or bankruptcy, MCA providers often experience sharply negative returns. For example, on a $100,000 advance with a contractual repayment of $135,000, a 10% recovery over 12 months equates to a -90% ROI. Breakeven occurs only with full recovery of the advanced amount, not including profit. Typical distressed recoveries for recharacterized MCAs are under 20%, especially in Chapter 7 liquidations.

Why This Matters to Recovery Outcomes

If an MCA is recharacterized as a loan in bankruptcy, the claim is typically unsecured, subject to the automatic stay, and prior collections can be avoided as preferences or fraudulent transfers, slashing recoveries vs. “true sale” treatment with perfected security interests. Enforcement actions and COJ limits increase the odds that aggressive pre-petition debits are challenged and clawed back, or that contractual terms are voided, directly affecting net ROI.[6]

Adding Value by Consolidating Services

If your firm can consolidate services and address MCAs strategically, you can offer distinct advantages:

1. Cost Reduction

· Simplify servicing: Consolidating MCAs into a single structured arrangement (e.g., a term loan or manageable repayment plan) can lower administrative overhead and eliminate the high factor fees—typically 1.1× to 1.5× the advance.[7]

· Reduce expensive stacking: Prevent businesses from entering repeated MCA cycles that dramatically increase costs via repetitive high repayments.[8]

2. Risk Mitigation

· Improved cash flow predictability: Replacing daily or weekly holdbacks with structured repayments reduces volatility and helps clients budget more effectively.[9]

· Avoid legal pitfalls: MCAs often come with aggressive terms like ACH withdrawals, personal guarantees, and UCC filings. Consolidation into more standard, transparent terms lowers exposure to defaults and potential litigation.[10]

3. Enhanced Negotiating Leverage

· In bankruptcy contexts, you can use tools like automatic stay, prioritizing claims, or negotiating secured vs unsecured status to streamline resolution. Consolidation supports such strategic maneuvering.[11]

· Professional representation: Your integrated services (valuation, restructuring, negotiation) give the client a stronger, more credible position with MCA funders and the court.

Lakelet Advisory Group: Litigation Support That Moves the Needle

Lakelet Advisory Group helps determine what’s collectible, what’s avoidable, and what’s negotiable in MCA disputes. Here’s how we add value (and why it benefits your case):

• Deal Characterization & UCC Perfection Review: We test MCA terms against the three core factors courts scrutinize (contingency on receivables, fixed terms, and recourse) and verify perfection gaps to argue secured “true sale” when supportable or to pressure concessions when it isn’t. This can shift a claim from unsecured to secured (or vice versa), materially changing expected recoveries.

• Preference/Fraudulent-Transfer Analytics: We reconstruct payment flows and timing to quantify §547/§548 exposure; critical when rulings like J.P.R. Mechanical show millions can be clawed back. Quantifying that exposure tightens settlement ranges and informs plan negotiations.[12]

• Forensic Receivables Tracing: We map pre- and post-petition receivable streams, identify carve-outs, and surface third-party payment processors or lockbox gaps, creating actionable leads for turnover demands or adequate-protection negotiations.

• Expert Support & Testimony: We translate industry mechanics (reconciliation practices, factor rates vs. APR optics, COJ usage) for the court, aligning with evolving case law to strengthen usury defenses (when appropriate) or to support recharacterization arguments.[13]

• Plan & Workout Modeling: We build scenario models (sale vs. loan characterization; secured vs. unsecured; preference outcomes) to set settlement anchors and accelerate resolution, improving time-to-cash vs. protracted litigation.

The MCA industry remains a fast-growing alternative finance sector, but legal recharacterization risks in bankruptcy substantially impact recoveries. At Lakelet Advisory Group, we provide effective litigation support and proactive restructuring to ensure true sale status and perfected security interests. We have a proven track record of materially improving collection prospects.

[1] Allied Market Research. Merchant Cash Advance Market. https://www.alliedmarketresearch.com/merchant-cash-advance-market-A323338

[2] Global Growth Insights. Merchant Cash Advance Market Report. https://www.globalgrowthinsights.com/market-reports/merchant-cash-advance-market-102198

[3] Eversheds Sutherland. Preference Pitfalls for Merchant Cash Advances: Lessons from the Southern District of New York. https://www.eversheds-sutherland.com/en/global/insights/preference-pitfalls-for-merchant-cash-advances-lessons-from-the-southern-district-of-new-york

[4] Federal Reserve Banks. (2024). 2024 Report on Employer Firms: Findings from the 2023 Small Business Credit Survey. https://doi.org/10.55350/sbcs-20240307

[5] McConville Considine Cooman & Morin, P.C. The Dangers of a Merchant Cash Advance. https://www.mccmlaw.com/news-and-articles/articles/the-dangers-of-a-merchant-cash-advance

[6] Federal Trade Commission. Court Enters $203 Million Judgment in FTC Case Against Merchant Cash Advance Operator Jonathan Braun. https://www.ftc.gov/news-events/news/press-releases/2024/02/court-enters-203-million-judgment-ftc-case-against-merchant-cash-advance-operator-jonathan-braun

[7] Attorney-NewYork.com. Can You File Bankruptcy on a Merchant Cash Advance?. https://attorney-newyork.com/mca-debt/merchant-cash-advance-can-you-file-bankruptcy

[8] New Frontier Funding. How to Get Out of MCA Loans: A Comprehensive Guide. https://newfrontierfunding.com/how-to-get-out-of-mca-loans

[9] Rho Editorial Team. What is an MCA? Merchant Cash Advances for Startups. Rho (May 27, 2025). https://www.rho.co/blog/merchant-cash-advances-mca

[10] United States Bankruptcy Court, Northern District of Florida. Merchant Cash Advance Claims in Bankruptcy (by Caitlyn Coates & Michael Markham), April 2025. https://www.flnb.uscourts.gov/sites/flnb/files/2025-04_NSL_Guest_MerchantCashAdvance.pdf

[11] Coates, Caitlyn & Markham, Michael. Merchant Cash Advance Claims in Bankruptcy. United States Bankruptcy Court, Northern District of Florida (April 2025). https://www.flnb.uscourts.gov/sites/flnb/files/2025-04_NSL_Guest_MerchantCashAdvance.pdf

[12] Allied Market Research. Merchant Cash Advance Market. https://www.alliedmarketresearch.com/merchant-cash-advance-market-A323338

[13] New York Courts. Principis Capital, LLC v. I Do, Inc. 160 A.D.3d 501 (2018). https://www.nycourts.gov/REPORTER/3dseries/2018/2018_01645.htm

Case Study: Strategic Valuation Support in a SARE Chapter 11 Bankruptcy

Background:

A commercial real estate debtor filed Chapter 11 under SARE provisions, defaulting on a $7.8 million mortgage. The asset, a single underperforming retail property, was the debtor’s only income-generating asset. The debtor proposed a reorganization plan asserting full recovery for the secured creditor based on optimistic rental assumptions and an inflated asset valuation.

Lakelet Advisory Group was retained by the senior secured lender to assess the accuracy of the debtor’sprojections and defend against the proposed plan. Our role: deliver defensible analysis that would withstand scrutiny under the Bankruptcy Code.

Solution: Independent Valuation & Financial Forensics

We executed a three-part strategy:

• Fair Market Valuation: Applied market-derived cap rate of 8.25%, in contrast to debtor’s 6.5%, yielding a property FMV of $6.45M versus the debtor’s $8.25M.

• Cash Flow and NOI Analysis: Our audit of the property’s rental income and expenses showed:

  • Net Operating Income (NOI): -$112,000 annually

  • Debtor overstated rents by 18%, understated expenses by 12%

• Plan Feasibility Assessment: We identified that the reorganization plan depended on speculative lease renewals and untenable income projections, failing the feasibility test under §1129(a)(11).

Legal Anchoring and Outcome

Using our findings, counsel for the secured creditor filed a motion under §362(d)(1) and (d)(2) for relief from stay, citing lack of adequate protection and absence of equity. Lakelet Advisory Group’s valuation undermined the debtor’s “equity cushion,” showing that liabilities exceeded the realistic FMV of the property.

Our experts provided courtroom testimony that was instrumental in:

• Dismissing the reorganization plan• Granting foreclosure authority to the lender

• Achieving resolution within 7 months

Key Financial Table

Note: Forensic review showed projected rents exceeded market norms by 18%, with OPEX understated by 12%.

Timeline of Events

• Month 0: Bankruptcy Filing (SARE)

• Month 1: Lakelet Engaged by Creditor

• Month 2: Valuation Delivered

• Month 4: Testimony in Relief from Stay Hearing

• Month 5: Foreclosure Granted

• Month 7: Case Resolved

SARE Case Characteristics (Sidebar)

Single Asset Real Estate (SARE) cases under the Bankruptcy Code are:

• Defined under 11 U.S.C. §101(51B)

• Involve one real property with limited business operations

• Subject to expedited plan filing and relief from stay timelines

Creditors in these cases must act swiftly with robust valuation support to contest overreaching reorganization proposals.

Why Lakelet Advisory Group

For over 20 years, Lakelet Advisory Group has delivered sophisticated valuation and financial forensics services in bankruptcy and restructuring matters. Our firm brings:

• Proven results in high-stakes real estate disputes

• Court-tested valuation methodologies

• Deep experience in cross-jurisdictional insolvency matters

If you represent secured creditors in SARE or distressed real estate matters, our valuations can be the difference between recovery and write-down.

Contact Lakelet Advisory Group for expert support that stands up in court.