Industry News

Attorney General James Sues Large-Scale Predatory Lending Operation Targeting Small Businesses

AG James Sues Over 30 Lenders, Including Yellowstone Capital and Delta Bridge, for Collecting Billions of Dollars Through Illegal, Fraudulent Loans

NEW YORK – New York Attorney General Letitia James today filed a lawsuit against a major operation of over 30 companies and individuals for exploiting small businesses through fraudulent loans at sky-high interest rates disguised as merchant cash advances. The companies and individuals sued by Attorney General James include Yellowstone Capital and its founder David Glass, Delta Bridge Funding, and several other individuals who negotiated and serviced the illegal loans. Through this lawsuit, the Office of the Attorney General (OAG) is seeking at least $1.4 billion in interest and fraudulent fees that were collected from small businesses, and a court order for the companies to stop their illegal activities. Before filing the lawsuit, Attorney General 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 case 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 Attorney General 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.”

Attorney General James alleges that Yellowstone Capital and the other businesses operated this fraudulent operation through a string of different company names, and therefore each is part of the same predatory lending scheme. 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 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.

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, particularly for businesses that cannot get small business loans from traditional banks. 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.

Impacted small businesses include the City Bakery, a Manhattan eatery in Union Square, which was forced to close in 2019, largely as a result of its skyrocketing debts to Yellowstone. Before closing, the bakery, which employed 30-50 full-time staffers, had to pay more than $2,000 per day to Yellowstone due to the fraudulent, predatory loans.

Yellowstone and Delta Bridge also exploited the New York courts by fraudulently obtaining judgments against the merchants, enabling the lenders to harm them even further. The companies filed papers in court falsely describing each transaction as a purchase of a portion of a merchant’s future revenues. For years, Yellowstone also filed so-called “confessions of judgment” in New York courts against their borrowers – even those located outside of New York state – which allowed the lenders to immediately obtain court judgments that they used to seize money from borrowers’ bank accounts.

The OAG lawsuit seeks $1.4 billion for the impacted small businesses, including the return of all interest and fraudulent fees collected by the lenders and amounts illegally obtained through fraudulent court papers. The OAG lawsuit further seeks a court order barring Yellowstone, Delta Bridge, their affiliates, and the named officials from each company from continuing their scheme in the future, as well as a lifetime industry ban for Yellowstone founder David Glass.

Attorney General James has taken major actions to support New York’s small businesses. Last month, Attorney General James secured a historic court judgment of more than $77 million against Richmond Capital Group, Ram Capital Funding, and Viceroy Capital Funding (the Richmond companies) and their principals who were harming small businesses through high-interest loans and undisclosed fees following a September 2023 court judgment against three merchant cash advance companies. In April 2023, Attorney General James shut down two websites that impersonated the New York State Department of State and significantly overcharged aspiring small business owners and users for services provided for free from state government. Also in April 2023, Attorney General James released a guide to help businesses adopt effective data security measures to better protect New Yorkers’ personal information.

This matter is being handled by Assistant Attorneys General John P. Figura, Adam J. Riff, and Dami Obaro, and Attorney General Fellow Emily E. Smith, under the supervision of Bureau Chief Jane M. Azia and Deputy Bureau Chief Laura J. Levine, all of the Bureau of Consumer Frauds & Protection. Data Analyst Blake Rubey and Data Scientist Jasmine McAllister also assisted in this matter, under the supervision of Gautam Sisodia, Acting Director of Research & Analytics. The Bureau of Consumer Frauds and Protection is a part of the Division for Economic Justice, which is led by Chief Deputy Attorney General Chris D’Angelo and is overseen by First Deputy Attorney General Jennifer Levy.