A lawsuit filed yesterday against Yellowstone Capital, Delta Bridge, and dozens of other entities that some were essentially white label 'funders' and a few individuals is the final warning to those who operate similarly. Most should have already known this. The government is coming after the bad actors. This is a positive thing for the rest of the companies operating above board that help business owners across the country gain billions of dollars in working capital.
Here is the summary:
Main Actors: The lawsuit involves over 30 companies and individuals, including Yellowstone Capital and its founder David Glass, and Delta Bridge Funding, among others.
Allegations: The accused are charged with exploiting small businesses through fraudulent loans with exorbitantly high interest rates, disguised as merchant cash advances.
Legal Action: New York Attorney General Letitia James filed the lawsuit seeking $1.4 billion in interest and fraudulent fees collected from small businesses, alongside a court order to halt the illegal activities.
Previous Settlements: Before filing this lawsuit, AG James reached settlements with five individuals connected to the Yellowstone operation, totaling $3.37 million in compensation for affected businesses and a ban from the merchant cash advance industry.
Predatory Lending Practices: The accused operated under numerous company names, engaging in a scheme that provided short-term, high-interest funding through misleading contracts. These contracts falsely presented the advances as purchases of future revenues with flexible terms, while in reality, they imposed fixed daily repayments with interest rates as high as 820% per year.
Impact on Small Businesses: Many small businesses suffered under the burden of these loans, with some, like the City Bakery in Manhattan, being forced to close due to the unsustainable debt caused by the fraudulent loans.
Abuse of Legal System: The companies also exploited New York courts to further harm merchants by obtaining judgments based on fraudulent claims, allowing them to seize money from borrowers’ bank accounts.
OAG's Legal Demands: The lawsuit aims to secure $1.4 billion for impacted businesses, a stop to the illegal scheme, and a lifetime industry ban for Yellowstone's founder, David Glass, among other penalties.
The 289-page lawsuit includes testimony about the inner workings of how a funding company underwrites MCAs, the reconciliation process, inconsistent or non-existent policies, and much more. It will be very interesting to see how this all plays out.
One thing is for sure, things have changed and I believe it will be for the better.
Comments