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.
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.
