NY attorney general reaches $1 billion settlement with defunct cash advance firm over ‘predatory’ loans

MANHATTAN (CN) — Yellowstone Capital came to a $1.065 billion settlement with New York Attorney General Letitia James over what her office deemed “predatory” loans to small businesses, according to a Wednesday press release.

James accused the now-defunct cash advance provider of controlling a network of 25 companies that engaged in a sweeping lending operation that charged illegally high interest rates on fraudulent loans. Those loans, the office said in its lawsuit, singled out small businesses and forced many to shut down.

“Targeting small businesses with predatory loans and outrageous interest rates threatens the livelihoods of hardworking business owners and their employees,” James said in the statement. “Yellowstone and its executives lined their pockets at the expense of vulnerable small businesses who turned to them for help. Their predatory loans forced successful companies to close and put New Yorkers out of work. My office has put an end to these predatory loans and secured over $534 million in debt relief for businesses that were harmed, helping them stay open and continue to thrive as the engine of our economy."

Wednesday’s settlement mandates that Yellowstone cancel more than $534 million of outstanding debts owed by more than 18,000 small businesses nationwide. The judgment has already secured more than $16 million from Yellowstone, its CEO Isaac Stern and President Jeffrey Reece, which will go toward restitution for the companies.

Yellowstone and its entities will be liable for the remaining $514 billion in the judgment.

According to the attorney general’s office, more than 1,100 small businesses in New York will receive debt relief.

James sued Yellowstone and its entities in March 2024 after an investigation she said revealed that the company charged “astronomic” interest rates on fraudulent loans disguised as merchant cash advances — a common form of high-interest funding for small businesses that may be unable to get loans from traditional lenders.

Rather than getting a portion of the businesses’ revenue in return — the typical practice in a merchant cash advance — Yellowstone and its companies collected fixed amounts directly from the small businesses’ bank accounts independent from their revenue, according to James.

James claimed that the malpractice led numerous small businesses in New York and beyond to suffer insurmountable debt.

“Many, such as the popular New York City-based City Bakery, have been forced to lay off their employees and go out of business after being pushed by respondents into deepening spirals of debt,” James said in the lawsuit, adding that, before its closure, City Bakery had to pay more than $2,000 per day to Yellowstone.

“When one merchant, Jerry Bush, a plumber based in Virginia, was told by [the respondents] that death was the only escape from his ballooning debts to Yellowstone (or winning the lottery), the merchant attempted suicide in a desperate attempt to save himself and his family from a bottomless pit of debt,” James added.

The settlement does not end ongoing litigation between James’ office and the companies that took over Yellowstone’s operations in 2021, including Delta Bridge Funding, Cloud Fund and eight individuals with purported involvement. Among those people is David Glass, who pleaded guilty in an insider trading case in 2008, was sentenced to probation, then co-founded Yellowstone in 2009 with Stern.

The $1 billion judgment is the largest against Yellowstone, but it’s hardly the first. In 2021, Yellowstone agreed to pay $9.8 million to settle charges brought by the Federal Trade Commission, which accused the company of making unauthorized bank withdrawals and misleading customers about its financing.

In 2023, New Jersey Attorney General Matthew Platkin reached a settlement worth more than $27 million. Platkin accused Yellowstone of deceiving businesses with abusive lending and collection tactics.

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