Archive for 2019
Class Action Lawsuit Filed Against Brendan Ross, Direct Lending Investments, and Others
April 2, 2019
A class action lawsuit has been filed in California against Direct Lending Investments, LLC (DLI), Brendan Ross, Bryce Mason, Frank Turner, Rodney Omanoff, and Quarterspot Inc. alleging breach of contract, breaches of fiduciary duty, aiding and abetting breaches of fiduciary duty, and fraudulent inducement.
The claims are drawn from a series of revelations that have come out about the online lending hedge fund, namely that the fund lost nearly 25% of its value through a failed loan to VOIP Guardian Partners I (VOIP) and an SEC complaint that alleged DLI engaged in a scheme to misrepresent performance with the help of an online lender it invested in.
Plaintiffs point out many issues with the VOIP deal but hone in on the fact that the company engaged in risky behavior by taking DLI’s funds and lending out more than 75% of them to just two companies, Najd Technologies Ltd and Telacme Ltd. deBanked previously determined these now-defunct companies were headquartered in the United Arab Emirates and Hong Kong. Documents obtained through VOIP’s bankruptcy filing indicate that both companies ceased making payments in October 2018. Despite this, DLI continued to report to investors that they were achieving very favorable monthly returns, the plaintiffs say, and no mention of VOIP’s distress was disclosed.
Bryce Mason and Frank Turner were named as defendants because they sat on DLI’s investment committee with Ross.
The plaintiffs are investment vehicles for a husband and wife that DLI last reported had a combined value of $758,000. They seek class action certification. They had only just begun investing with DLI last year.
On Monday, a judge in the SEC lawsuit ordered that DLI be placed in receivership. Bradley D. Sharp of Development Specialists, Inc. has been appointed to serve as permanent receiver for the fund’s estate.
You can download the full class action lawsuit complaint here.
Kapitus Rolls Out Fully Automated Funding Process
April 2, 2019
New York, NY – Kapitus, a leading provider of alternative financing to small and midsize businesses, announces the roll-out of auto-checkout – a fully automated funding process for qualified deals. The new process allows for not only a faster, more streamlined experience for its partners; but it also provides more flexible financing options, by providing multiple offers at once. At the same time, the new process provides merchants with secure and quick access to funds for their business.
Unlike competing models where only an “option of approval” or “conditional approval” is provided at the time of checkout, Kapitus is able to determine approval eligibility with only an application and bank statements without the need for multiple upfront stipulations to confirm bank information, ownership and identity. Utilizing proprietary machine learning models – eligible deals can be closed without any additional documentation.
“This is a true turning-point for us from a technology perspective and we’re very excited about it,” said Andrew Reiser, Chief Executive Officer at Kapitus. “With this new automated process, we’re able to provide our partners an extremely simple process with an exceptionally quick time-to-funding. At the same time, merchants are provided with a more seamless experience with enhanced security”
Major features in the roll-out include:
- True auto-check functionality with full approval at time of checkout
- Progress tracking and customizable notifications to follow merchants through the checkout process
- Intuitive user interface with precise, easy-to-understand instructions for both merchants and partners
- Simple, seamless secure checkout functionality for merchants
“This is the first of many technology advancements we will be rolling out over the next year,” adds Arun Narayan, Chief Product Officer. “We are committed to creating exceptional experiences for both our partners and merchants. Incorporating the right technology is paramount in building out the right environment and the best experience for all of our audiences.”
ABOUT Kapitus
Founded in 2006 and headquartered in NYC, Kapitus is one of the most reliable and respected names in small business financing. As both a direct lender and a marketplace built with a trusted network of lending partners, Kapitus is able to provide small businesses the financing they need, when and how it is needed. With one application business owners can save time and money, while eliminating the stress that comes with applying to different lenders. At Kapitus, we believe that business owners should be able to focus on running their business, while we take care of the financing. Learn more at https://kapitus.com
CONTACT: Bernadette Abel
Kapitus
babel@kapitus.com
646-722-1484
Will Millennials Bring Non-banks into Their Finances?
April 1, 2019
Following Apple’s announcement last week of its upcoming Apple Credit Card, one question that comes to mind is: Will people, particularly millennials (now roughly 22 to 37 years old), be up for banking with non-bank companies?
According to an Accenture survey from five years ago, 34% of millennials said they would bank with Apple if such a product were available. Well, five years later, the product is available and Apple is now hoping to capture that demographic. According to the same survey, even more millennials at the time said they would be open to banking with Amazon or Google, and all with no physical branches.
Sankar Krishnan, Executive Vice President, Banking and Capital Markets, at Capgemini, a technology services and consulting company, said that convenience is most important to millennials.
“Millennials and Gen Y live their lives on smartphones… [and] daily comforts such as Uber, Starbucks, Amazon, Tinder and Netflix, are just a swipe away,” Krishan said in an interview in Forbes last year. “As a result, [they] have become accustomed to a quality digital customer experience where ease of use and inbuilt functionality are front and center.”
The implication is that any digital company with enough visibility and the ability to execute is fair game to enter the banking business. Why not Netflix? But Tinder?
Regardless, most major technology companies, like Amazon, Google, Facebook and Uber, are already in the payments space in one way or another. While potentially jarring at first, it seems that many millennials are ready to allow non-bank brands to become more a part of their finances.
Yet despite all the talk of how millennials are willing to break with convention, almost half of millennials said they would not consider switching to a bank that had no physical branches, according to a January 2019 survey conducted by eMarketer.com, which creates marketing reports.
“Though [millennials] may use branches less than older consumers, they don’t want to forgo the option of going to a physical location,” said eMarketer principal analyst Mark Dolliver. “The step from ‘digital’ to ‘digital-only’ is a big one, and many millennials will be in no hurry to take it.”
Lyft IPO Follows a Foray into Finance Business
March 29, 2019
Lyft had its IPO today in the same week it announced that it was offering a debit card to its drivers. The company announced the launch of “Lyft Driver Services,” a suite of services for Lyft drivers including Lyft Direct, a no-fee bank account and debit card. The Lyft Direct debit card will allow drivers to instantly access their earnings after each ride, according to a company statement on its Medium page. This is an extension of Express Pay, which allows drivers to cash out on their earnings right away, rather than wait for the pay cycle to end.
“The traditional biweekly paycheck falls short of serving today’s workers, and the rising costs of maintaining a bank account disadvantage them further,” Lyft COO Jon McNeill explained in a statement. “Americans pay an average of $163/year in banking fees. Minimum balances are often greater than what many people can save, and most cash-back programs require an above-average credit score. We’re fixing that for our drivers.”
The Lyft Direct debit card has 4% cash-back on select restaurant purchases, 2% on gas, and 1% on groceries. Additionally, Lyft will offer its drivers a no-fee bank account with access to over 20,000 fee-free ATMs. Lyft is working with Oklahoma-based Stride Bank on this program. Stride Bank will manage all of the drivers’ bank accounts.
Last April, Uber released the Uber Visa debit card with Go Bank which also allows drivers to get paid instantly. Like the Lyft Direct debit card, the Uber debit card also gives users cash-back, like 3% on Exxon and Mobil gas, 2% on Walmart purchases and 8% on your Sprint bill.
Uber is no stranger to finance. In fact, the company once offered a product akin to an MCA where drivers were offered money up front in exchange for a percentage of their future fares, according to a deBanked story from 2016. That arrangement was made by Clearbanc. Uber also got into the leasing business with its leasing program, Xchange Leasing. But that was phased out beginning in 2017 due to myriad problems, including losses, an FTC lawsuit that dealt with misrepresenting the program, and an FTC complaint, according to a December 2018 post on The Simple Dollar, a personal finance website. The complaint accused Uber of connecting its drivers with subprime auto companies and dealers that provided interest rates significantly higher than industry averages.
So while Uber offers its drivers a debit card, it has backed away from other financing. With Lyft a step behind, will Lyft stop with this new debit card? Or perhaps learn from Uber’s mistakes and expand into the lending space?
The Lyft stock (NASDAQ: LYFT) started at $72 and closed its first day of trading at $78.29, up 8.7 percent.
Online Lender Offering “Incredible” Returns to Investors is Recording Massive Losses
March 29, 2019
StreetShares continues to rack up astronomical losses, according to the company’s recently filed unaudited financial statements. The company recorded a $6.4 million loss for the second half of 2018 on only $1.88 million in operating revenue. As in previous periods, payroll continues to be the largest expense.
StreetShares’ funding comes in part from mom & pop investors that are offered a fixed annual return of 5% regardless of how the company’s underlying loans perform. Advertisements on the website call it “incredible” and trumpet that you can “grow your money like a 2x World War champ” and that “your balance will grow every day.” The offering is called a veteran business bond but it has no government backing and can suffer a total risk of loss, all while the underlying loans may not even be made to veteran-owned businesses.
A simple explanation on the site for how it works is that you just open an account, transfer funds from your bank and then just “watch the interest start piling up.” You can withdraw your money anytime but large withdrawals over $50,000 can take up to 30 days to process, the company states. The attractive terms have allowed StreetShares to take in millions of dollars from everyday people with amounts as small as $25.
Institutional investors can earn even higher returns. Lendit Co-founder Peter Renton recently called StreetShares his “top performing investment by a long way,” beating his investments in Lending Club, Prosper, P2Binvestor, Peerstreet, Yieldstreet, Money360, Fundrise, and even the returns previously and erroneously reported by Direct Lending Investments.
deBanked previously reported that on January 1st, Jesse Cushman, the company’s Chief Business Officer and Principal Financial & Accounting Officer, resigned. However, his name continues to remain on the website’s Leadership page a full 3 months later. The company still has not named a permanent successor. deBanked emailed StreetShares earlier in the week about Cushman’s departure and was told that he left to pursue another opportunity. “Steve Vickrey, has been in place since before he left,” President Mickey Konson responded. Konson has been filling in as acting Principal Accounting Officer in the meantime.
In a press release published by StreetShares on Tuesday about a new credit card offering, StreetShares CEO/co-Founder & Iraq War Veteran Mark L. Rockefeller, said, “Veterans love to help other veterans. StreetShares is a veteran-run company, and the goal of the card is not only to provide a veteran focused payments tool, but also to benefit the veteran community as a whole by funding programs that benefit veteran entrepreneurship.”
Tiny Small Businesses Struggle More Than the Rest
March 28, 2019
The average credit score of the owner of a “mom and pop” shop (a business with four or fewer employees) is 30 points lower than the owner of a larger business, according to a recent study conducted by Lendio. (Lendio defined a “mom and pop” business and having four or fewer employees). Furthermore, the study says that, on average, mom and pop businesses require twice as many interactions with a lending expert, compared to larger small businesses. This is likely because of problems with credit and other financial challenges.
Smaller mom and pop businesses are in greater need of capital, according to the study. These businesses represent 53% of the customers funded through Lendio’s online marketplace. And their loans account for 34% of the total loan volume funded, even though the average size of their loans is smaller. The average loan amount for a “mom and pop” business is less than half that of larger businesses. Specifically, the average loan amount for “mom and pop” businesses is $23,081, while the average loan amount for larger small businesses is $54,188. Of course, a larger company with greater sales can afford to borrow more. But the $54,188 average loan size for larger companies may be a smaller percentage of revenue for those larger companies.
Speaking of revenue, mom and pop businesses’ monthly revenues are on average $35,000 less than their non-mom and pop small business counterparts. The smaller mom and pop shops are also generally younger, according to the Lendio study. Their average time in business is 5.6 years compared to 7.4 years for the larger small businesses.
What Did Direct Lending Investments Invest In?
March 27, 2019
When Bloomberg News reported that Direct Lending Investments (DLI) had lost approximately 25% of its portfolio value from a deal gone bad, some were surprised to learn that it had nothing to do with its core competency of online lending. VOIP Guardian Partners I, which stuck DLI with more than $190 million in unpaid loans, was in the business of lending money to smaller telecoms against their accounts receivables, Bloomberg News reported. VOIP was then supposed to be repaid the money when larger telecom companies paid the smaller ones.
On March 11, VOIP filed for Chapter 7, and limited details behind these telecom borrowers became public.
VOIP’s largest loan default was to a Hong Kong-based company formed in 2015 named Telacme, Ltd. Records indicate that $1 billion overall had been loaned to Telacme through 30-day rolling advances but that they stopped making payments in October 2018, leaving a remaining balance to VOIP and in turn to DLI, of $101.1 million. Telacme’s official website no longer exists and only a holding page by Godaddy indicating that the page has been parked free remains. (Update 4/16/19 – The website has been restored)
The second largest default at $58 million was to a company named Najd Technologies, Ltd, headquartered in the United Arab Emirates. Like Telacme, Najd stopped paying in October 2018 and their website is also no longer accessible. Internet archives show it advertised itself as a global telecom company based in Bangkok, Thailand.
The other remaining telecom loan issues spanned companies all across Europe.
A lawsuit filed against DLI in 2017 complained that DLI falsely represented to investors that it typically made loans that ranged between $5,000 and $100,000 when in fact DLI had been financing multi-million dollar telecom deals as far back as 2014. The plaintiffs went so far as to claim that at one point up to 50% of DLI’s portfolio was invested in telecom receivables.
But the claims were removed in a subsequent amended version of the lawsuit after the judge ordered them stricken because the plaintiffs themselves were not aggrieved investors, but instead unhappy former business partners alleging violations of a non-compete.
“I don’t understand why it’s in the complaint,” the judge said. “Particularly, when [DLI] says it is impacting their ability to raise money.”
The decision was prescient as DLI would not only go on to raise more money but also lose more than $190 million of investor money in telecom deals that weren’t overtly advertised.
A March 2017 DLI investor presentation obtained by deBanked touts its focus on underserved Main Street USA businesses. There is no mention of international telecom lending, nor any plans to finance telecom businesses for hundreds of millions of dollars, let alone do so in the Middle East, Asia, and Europe.
In VOIP’s bankruptcy filing, DLI is the primary secured creditor. DLI’s chief executive recently resigned and the fund has been sued by the Securities & Exchange Commission for issues unrelated to VOIP and is being placed under receivership.
The 2017 lawsuit against DLI and VOIP can be found under Index #650973/2017 In the New York Supreme Court.
Yalber Announces $20 Million Credit Facility
March 26, 2019
Yalber announced today that they have obtained a new $20 million credit facility from Park Cities Asset Management. Brean Capital served as exclusive financial advisor to Yalber on the transaction. This follows an earlier $20 million credit facility in December 2018 from a different investment fund.
“The small business funding space has drastically changed in the past two years,” said Yalber CEO Amir Landsman. “We see more and more sophisticated players in the space and to me, it’s a sign that the industry is on the right track to be the major funding source of businesses in America. Being able to close two facilities within 15 months is strong evidence that Yalber has a lot to offer.”
Yalber provides American small businesses with royalty-based investments. They can fund small businesses with up to $500,000. Founded in 2007, the company is an early player in the alternative lending space and is unique in that it generates 90 percent of its business in-house. Less than 10 percent of their leads come from ISOs, although they do look to build relationships with high quality ISOs, according to Yalber COO Amotz Segal.
Segal said that, aside from business with ISOs, all of their marketing efforts are internal and span from social media to local advertising on radio, TV and in newspapers. Yalber does not use direct mail and does not pay for leads.
“It makes the job for our salespeople a little easier because they’re not making cold calls,” Segal told deBanked. “We [mostly] get incoming calls.”
As of the beginning of last year, Yalber had funded more than 5,000 business with over $300 million, and Segal said that they had funded approximately $65 million in 2018. On the subject of regulation, Segal said that they remain very aware of regulatory changes and they don’t necessarily see regulations as a negative thing.
Headquartered in New York, Yalber employs about 25 people and has two very small offices in Dallas and Los Angeles.
