New York Attorney General Letitia James on Tuesday sued cash advance provider Yellowstone Capital for $1.4 billion. She alleges the company engages in large-scale predatory lending, charging “sky-high” interest rates on fraudulent loans.
The lawsuit accuses Yellowstone, now known as Delta Bridge Funding or Cloudfund, of falsely claiming to purchase certain percentages of traders’ future earnings, known as accounts receivable, while giving traders the flexibility to do so Repaying advances over longer periods as business slows.
James said the defendants instead withdrew fixed amounts from merchants’ bank accounts over short periods of time, typically 60 or 90 business days, resulting in “outrageous” effective interest rates that regularly reached triple digits and were as high as 820%.
The maximum interest rate in New York that is not considered usurious is 16%.
James said City Bakery, a former Yellowstone customer near Manhattan’s Union Square, closed in 2019 after 29 years in business because the company was heavily indebted and its payment obligations were unexpectedly increased two years earlier.
Lawyers for Yellowstone and Delta Bridge did not immediately respond to requests for comment on behalf of the 37 companies and individuals defendants in James’ 281-page lawsuit.
The lawsuit, filed in a New York court in Manhattan, seeks to recover illegal interest and fees, impose a civil penalty of $5,000 for each fraudulent merchant cash advance, and ban Yellowstone co-founder David Glass from the industry to ban.
Five individual defendants settled for $3.37 million and accepted industry bans, James said.
“Small businesses are the foundation of our economy,” James said. “They face significant challenges without being taken advantage of by predatory lenders.
Glass and co-defendant Yitzhak Stern founded Yellowstone in 2009, a year after Glass pleaded guilty to an insider trading case. He was sentenced to probation.
In 2021, Yellowstone agreed to pay $9.8 million to resolve US Federal Trade Commission (FTC) allegations that the company made unauthorized bank withdrawals and deceived companies about its financing.
Last December, Yellowstone agreed to pay $5.6 million and forgive $21.8 million in debt to resolve allegations by the New Jersey attorney general that the company deceived companies. (Reporting by Jonathan Stempel in New York; Editing by Aurora Ellis)
2024-03-05 20:57:47
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