New York Attorney General Letitia James has filed a lawsuit naming 28 entities and 10 individuals for allegedly exploiting small businesses through fraudulent loans at excessively high interest rates disguised as merchant cash advances. One of the entities named, Delta Bridge Funding LLC, has an office in Suffern according to the lawsuit document that was filed in state court. One of the individuals named, Vadim Serebro, resides in Yonkers, according to the filing. Another individual named in the action, Aaron Davis, was identified as a resident of Pomona in Rockland County.
Through the lawsuit, James is seeking to be awarded at least $1.4 billion in what the lawsuit says was interest and fraudulent fees that were collected from small businesses. The lawsuit also seeks a court order for the companies to stop what is described as their illegal activities.
According to James’ office, those sued include Yellowstone Capital and its founder David Glass, Delta Bridge Funding, and several other individuals who negotiated and serviced what were said to be the illegal loans.
Before filing the lawsuit, James reached settlements with five individuals involved with the Yellowstone operation, which included $3.37 million for impacted small businesses and a ban from the merchant cash advance industry.
“Small businesses are the foundation of our economy, and they face severe challenges without also having predatory lenders taking advantage of them,” said James. “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.”
James alleged that Yellowstone Capital and the other businesses operated through a string of different company names and, according to James, therefore each is part of the same predatory lending scheme.
As James’ office described it, “Starting in 2009, Yellowstone, under company founder David Glass’s 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 (Office of Attorney General) 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.”
James office said that the merchant cash advances issued by Yellowstone, Delta Bridge, and their affiliates are a form of short-term, high-interest funding for small businesses. Merchant cash advances have grown in popularity in recent years, James’ office said, particularly for businesses that cannot get small business loans from traditional banks. James office said that the perpetrators of the 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.
James’ office said that Yellowstone and Delta Bridge also went to court to obtain judgments against merchants and that the companies filed papers in court falsely describing each transaction as a purchase of a portion of a merchant’s future revenues.
The lawsuit alleges, “Respondents declare merchants in default when they merely have insufficient funds in their bank account to cover Respondents’ debits of Daily Amounts, and in the event of such ‘default’ Respondents file legal actions against merchants and their guarantors to immediately recover not only the missed payments but also the merchant’s entire remaining balance. And on top of their usury scheme, Respondents, through their Yellowstone operation, have defrauded merchants in other ways by repeatedly charging the merchants hidden, undisclosed fees and by debiting from the merchants’ bank accounts excess payments that the merchants never agreed to.”
The lawsuit alleges, “Since 2013, Respondents under their various names have illegally, fraudulently collected an estimated $4.5 billion from merchants and their guarantors, including an estimated $1.38 billion in interest.” It alleges that one of the individuals named in the lawsuit told a businessman that the only way out of his mounting debt was “death” and the businessman subsequently attempted suicide.
