The lawsuit filed by New York Attorney General Letitia James against Yellowstone Capital, Fundry, Delta Bridge, Cloudfund, and associated individuals, including David Glass, Isaac Stern, Jeffrey Reece, Bart Maczuga, and Vadim Serebro, outlines a pattern of fraudulent and illegal activities over several years.
Important points from the filed lawsuit document include:
- The respondents engaged in a scheme where purported merchant cash advances (MCAs) were illegal, usurious, and fraudulent loans, often with interest rates in the triple digits, much higher than the maximum interest rates allowed under New York usury laws
- These transactions were dressed up as "Purchase and Sale of Future Receivables" agreements; however, they required fixed daily payments from merchants' bank accounts, disconnected from the merchants' actual revenues
- The respondents promised merchants the ability to reconcile payments if their revenue declined, but this was largely unattainable due to the structuring of the transactions
- The respondents secured these agreements with personal guarantees and claimed a priority status as secured creditors under UCC Article 9, which would enable them to collect full repayment even in the event of merchant bankruptcy
- When merchants could not cover the daily debits, they were declared in default, and the respondents would pursue legal actions against them
- The respondents conducted their operations under multiple corporate names and concealed their associations with convicted white-collar criminal David Glass
- The respondents fraudulently obtained judgments from New York courts to enforce these illegal agreements and have, since 2013, collected an estimated $4.5 billion from merchants, including around $1.38 billion in interest
- The petition seeks extensive relief, including injunctions against future operations in the MCA and loan industry for the respondents, voiding of the illegal agreements, repayment of ill-gotten gains to merchants, and civil penalties among other remedies
One disturbing case involves a distressed plumber contemplating suicide, highlighting the severe consequences of such practices.
However, it's important to remember that everyone is presumed innocent until proven guilty. We need to wait for the full facts of the case to emerge before making final judgments.
Our Opinion:
In light of these events, the industry needs to take the initiative to regulate itself. This means setting up strict monitoring systems, aligning daily payment demands with a business's income, and reviewing credit card split funding and lockbox setups to increase transparency and minimize legal risks. The industry's future depends on its ability to provide fair, clear, and mutually beneficial financial options. This situation is a chance for industry professionals to reaffirm their commitment to ethical behavior, compliance, and professionalism.
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