New York Attorney General Letitia James has filed a comprehensive lawsuit against over 40 entities, including well-known firms like Yellowstone Capital and Delta Bridge. This legal action aims to confront the widespread exploitation of small businesses through deceptive loans that carry exorbitant interest rates, often masquerading as merchant cash advances.
The lawsuit alleges that these companies, under various guises, orchestrated a sophisticated scheme to ensnare small businesses in a cycle of debt with crippling repayment terms. James’ office is seeking at least $1.4 billion, representing the sum of interest and fees unlawfully extracted from these enterprises. The lawsuit also seeks to permanently prohibit the defendants from continuing their predatory practices.
The perpetrators of this scheme provided contracts that fraudulently described each transaction as a purchase of a portion of a merchant’s future revenues, with flexible payment amounts and open-ended terms. In reality, the predatory lenders collected payments at fixed daily amounts, which they debited directly from merchants’ bank accounts over short repayment terms, such as 60 or 90 days. The lenders falsely promised to “reconcile” merchants’ daily payments to ensure they never rose above an agreed-upon percentage of the borrowers’ receipts, but the lenders used numerous fraudulent measures to ensure borrowers almost never qualified for payment refunds. As a result, the transactions were actually short-term loans with ultra-high interest rates of up to 820% per year.
The manipulation extended beyond financial dealings, as these entities also exploited legal systems to further burden their victims. Through dubious court filings and the misuse of “confessions of judgment,” Yellowstone and its affiliates were able to freeze and seize assets directly from the bank accounts of unsuspecting business owners.
Starting in 2009, Yellowstone, under company founder David Glass’ direction, worked under dozens of different company aliases, including Fundry, Green Capital Funding, High Speed Capital, and Capital Advance Services. In 2021, as it faced investigations by OAG and other government agencies, Yellowstone purportedly ceased operations. But as the OAG investigation uncovered, Yellowstone simply rebranded itself as Delta Bridge, also known as Cloudfund, and continued to issue and collect on the same fraudulent, illegal loans through the same personnel that supervised and operated the Yellowstone scheme.
“Small businesses are the foundation of our economy, and they face severe challenges without also having predatory lenders taking advantage of them,” James said. “Yellowstone Capital, Delta Bridge, and the other companies pretended to offer a helping hand, but instead provided only illegal, ultra-high-interest loans. Numerous small business owners struggled because of the outrageous loans issued by Yellowstone Capital and other predatory lenders. My office will not allow any scheme to harm small businesses, their owners or employees, or the millions of New Yorkers who rely on them each and every day.”