A leading provider of a type of small-business funding that has caused problems for small motor carriers deceived clients and cheated them out of millions of dollars, says a U.S. Federal Trade Commission lawsuit.
Overdrive‘s recent Cash-Flow Crisis series covers merchant cash advances and other aspects of financing challenges that small fleets face.Yellowstone Capital, now operated as Fundry, was a pioneer in the controversial financing niche of merchant cash advances. An MCA provider gives a client, usually a small business with a poor credit rating, a cash advance in exchange for a much larger amount repaid through daily automatic payments.
The FTC announcement of the filing said the defendants “used deception to lure small business customers, then regularly withdrew money from their accounts without consent even after the customers had repaid the money they owed.” It also alleges the defendants “unlawfully withdrew millions of dollars in excess payments from their customers’ accounts, and to the extent they provided refunds, sometimes took weeks or even months to provide them.”
Named in the FTC lawsuit were Yellowstone Capital, Fundry, founder and CEO Yitzhak Stern, and President Jeffrey Reece. The complaint was filed in the U.S. District Court for the Southern District of New York.
Thousands of entities with U.S. DOT numbers, most of them fleets, brokers and other trucking-related entities, have used MCAs in the last five years, based on analysis of companies that made uniform commercial code filings, which are part of virtually every MCA application. UCC filings, made at the state level, are liens that a creditor uses to establish that it has an interest in a debtor’s property that was pledged to secure financing. The state-based filings were gathered and analyzed by RigDig, a trucking industry data subsidiary of Overdrive’s publisher, Randall-Reilly.
Some small-fleet owners who took out MCAs were interviewed in Overdrive’s recent Cash-Flow Crisis series, which explored financing challenges faced by small fleets and owner-operators during and before the coronavirus pandemic.
The FTC filed a similar complaint in June against a group of companies and their officers, all related to the former Richmond Capital Group. A similar lawsuit was filed by the state of New York against the same parties, which are not related to the defendants in the Yellowstone lawsuit. The allegations against the Richmond companies are similar to those against Yellowstone.
The Overdrive series, citing a 2018 investigative series by Bloomberg Businessweek, noted that Yellowstone introduced the MCA model when it was formed in 2009 by David Glass and a friend. “Among the hustlers and con men who work the bottom rungs of Wall Street, Glass is a legend,” wrote Bloomberg. “Before he was 30, he’d inspired the 2000 stock-scam movie ‘Boiler Room’ and was “later busted by the FBI for insider trading.”
Yellowstone and another lender, Green Capital, have been reorganized and rebranded as subsidiaries of Fundry. Fundry did not respond to an interview request from Overdrive.
The FTC complaint says the defendants market their products “through a vast, everchanging network of agents.” Among them are Green Capital Funding LLC, West Coast Business Capital, LLC, World Global Capital LLC, High Speed Capital LLC, Thryve Capital Funding LLC, and Mason Capital LLC.
The FTC seeks to obtain the restitution of illegally gained money “and other equitable relief.”
