New York State Attorney General Letitia James sued cash advance provider Yellowstone Capital for $1.4 billion on Tuesday, claiming it ran a large-scale predatory lending operation that imposed “astronomical” interest rates on fraudulent loans.
The complaint accuses Yellowstone, now known as Delta Bridge Funding or Cloudfund, of falsely representing that it would purchase specific percentages of merchants’ future revenues, called receivables, while giving merchants the option to repay the advances over longer periods in the event of a slowdown in activity.
According to Mr James, the defendants instead debited fixed sums from the merchants’ bank accounts over short periods, typically 60 or 90 business days, which resulted in “unreasonable” effective interest rates which regularly reached triple-digit rates and even reached 820%.
In New York, the maximum interest rate that is not considered usurious is 16%.
Mr. James said City Bakery, a former client of Yellowstone near Manhattan’s Union Square, closed after 29 years in business in 2019, the victim of huge debts to the company and a surprise raise, two years earlier, of its payment obligations.
Lawyers for Yellowstone and Delta Bridge did not immediately respond to requests for comment on behalf of the 37 companies and individuals defended in Mr. James’s 281-page complaint.
The complaint filed in a New York state court in Manhattan seeks to recover illegal interest and fees, impose a $5,000 civil penalty for each fraudulent cash advance and ban Yellowstone co-founder, Industry’s David Glass.
According to Mr. James, five individual defendants agreed to a $3.37 million settlement and bans from the industry.
“Small businesses are the foundation of our economy,” Mr. James said. “They are facing serious difficulties without predatory lenders taking advantage of them.
Mr. Glass and his co-defendant Yitzhak Stern co-founded Yellowstone in 2009, the year Mr. Glass pleaded guilty in an insider trading case. He was sentenced to probation.
In 2021, Yellowstone agreed to pay $9.8 million to settle charges by the U.S. Federal Trade Commission that it made unauthorized bank withdrawals and misled companies about its financing.
Last December, Yellowstone agreed to pay $5.6 million and forfeit $21.8 million in debt to respond to charges from the New Jersey attorney general, who accused it of defrauding businesses. (Reporting by Jonathan Stempel in New York; Editing by Aurora Ellis)
2024-03-05 20:47:18
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