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Settling Up: Debt Settlement Companies Paid Yellowstone Capital and Everest Business Funding a Half Million Dollars to End LawsuitJune 12, 2018
A group of debt settlement companies and ISOs have entered into a settlement they’re unlikely to forget. A lawsuit that accused Corporate Bailout, Protection Legal Group, Mark Mancino, Michael Hamill and others of tortious interference with merchant cash advance contracts has led to a settlement in which the defendants agreed to pay Yellowstone Capital and Everest Business Funding $500,000. They also agreed not to offer any services to Yellowstone or Everest merchants in the future, deBanked has learned.
The original complaint alleged that ISOs had partnered with companies that purport to offer debt relief services to merchants with MCAs. In practice, the complaint said, debt relief was a code word for deceiving merchants to breach their existing agreements so that they could pay fees instead to the debt relief companies.
When asked to comment, Yellowstone Capital CEO Isaac Stern said that there were companies that offer this kind of service the right way but that was not the case here. “The way they’re going about it is really wrong,” he said.
Of note is that the bound parties were not just debt settlement companies but also ISOs and a law firm (Mark D. Guidubaldi & Associates, LLC dba Protection Legal Group).
Additional companies not named in the original complaint but nonetheless bound to the settlement are Mainstream Marketing Group and Corporate Client Services LLC. Websites for both companies say that they offer small business debt relief services.
Coast to Coast Funding LLC, who the defendants represented they had no control of, did not participate in the deal.
The settled matter is not the first of its kind. Everest and Yellowstone have been hammering debt settlement companies with lawsuits this year, according to court records examined by deBanked. In January, Everest sued MCA Helpline and Todd Fisch for tortious interference, and just last month Yellowstone filed a Petition to recover funds that were allegedly fraudulently transferred by Settle My Cash Advance.
In the latter case with Settle My Cash Advance, the defendants are alleged to have actively coached a merchant to hide his money in new bank accounts and hide the paper trail rather than pay the money owed to Yellowstone.
Speaking about no case in particular, Stern said “Imagine getting a commission on a deal [where you help a small business get funding] and then sending it to a debt settlement company. If there are ISOs that are doing that, we’re going to come after you hard.”
On May 23, the Federal Trade Commission launched an investigation into unfair or deceptive practices in the small business financing industry, including by merchant cash advance providers.
The agency is looking into, among other things, whether both financial technology companies and merchant cash advance firms are making misrepresentations in their marketing and advertising to small businesses, whether they employ brokers and lead-generators who make false and misleading claims, and whether they engage in legal chicanery and misconduct in structuring contracts and debt-servicing.
Evan Zullow, senior attorney at the FTC’s consumer protection division, told deBanked that the FTC is, moreover, investigating whether fintechs and MCAs employ “problematic,” “egregious” and “abusive” tactics in collecting debts. He cited such bullying actions as “making false threats of the consequences of not paying a debt,” as well as pressuring debtors with warnings that they could face jail time, that authorities would be notified of their “criminal” behavior, contacting third-parties like employers, colleagues, or family members, and even issuing physical threats.
“Broadly,” Zullow said in a telephone interview, “our work and authority reaches the full life cycle of the financing arrangement.” He added: “We’re looking closely at the conduct (of firms) in this industry and, if there’s unlawful conduct, we’ll take law enforcement action.”
Zullow declined to identify any targets of the FTC inquiry. “I can’t comment on nonpublic investigative work,” he said.
The FTC investigation is one of several regulatory, legislative and law enforcement actions facing the merchant cash advance industry, which was triggered by a Bloomberg exposé last winter alleging sharp practices by some MCA firms.
The Bloomberg series told of high-cost financings, of MCA firms’ draining debtors’ bank accounts, and of controversial collections practices in which debtors signed contracts that included “confessions of judgment.”
The FTC long ago outlawed the use of COJs in consumer loan contracts and several states have banned their use in commercial transactions. In September, Governor Andrew Cuomo signed legislation prohibiting the use of COJs in New York State courts for out-of-state residents. And there is a bipartisan bill pending in the U.S. Senate authored by Florida Republican Marco Rubio and Ohio Democrat Sherrod Brown to outlaw COJs nationwide.
Mark Dabertin, a senior attorney at Pepper Hamilton, described the FTC’s investigation of small business financing as a “significant development.” But he also said that the agency’s “expansive reading of the FTC Act arguably presents the bigger news.” Writing in a legal memorandum to clients, Dabertin added: “It opens the door to introducing federal consumer protection laws into all manner of business-to-business conduct.”
FTC attorney Zullow told deBanked, “We don’t think it’s new or that we’re in uncharted waters.”
The FTC inquiry into alternative small business financing is not the only investigation into the MCA industry. Citing unnamed sources, The Washington Post reported in June that the Manhattan district attorney is pursuing a criminal investigation of “a group of cash advance executives” and that the New York State attorney general’s office is conducting a separate civil probe.
The FTC’s investigation follows hard on the heels of a May 8 forum on small business financing. Labeled “Strictly Business,” the proceedings commenced with a brief address by FTC Commissioner Rohit Chopra, who paid homage to the vital role that small business plays in the U.S. economy. “Hard work and the creativity of entrepreneurs and new small businesses helped us grow,” he said.
But he expressed concern that entrepreneurship and small business formation in the U.S. was in decline. According to census data analyzed by the Kaufmann Foundation and the Brookings Institution, the commissioner noted, the number of new companies as a share of U.S. businesses has declined by 44 percent from 1978 to 2012.
“It’s getting harder and harder for entrepreneurs to launch new businesses,” Chopra declared. “Since the 1980s, new business formation began its long steady decline. A decade ago births of new firms started to be eclipsed by deaths of firms.”
Chopra singled out one-sided, unjust contracts as a particularly concerning phenomenon. “One of the most powerful weapons wielded by firms over new businesses is the take-it-or-leave-it contract,” he said, adding: “Contracts are ways that we put promises on paper. When it comes to commerce, arm’s length dealing codified through contracts is a prerequisite for prosperity. “But when a market structure requires small businesses to be dependent on a small set of dominant firms — or firms that don’t engage in scrupulous business practices — these incumbents can impose contract terms that cement dominance, extract rents, and make it harder for new businesses to emerge and thrive.”
As the panel discussions unfolded, representatives of the financial technology industry (Kabbage, Square Capital and the Electronic Transactions Association) as well as executives in the merchant cash advance industry (Kapitus, Everest Business Financing, and United Capital Source) sought to emphasize the beneficial role that alternative commercial financiers were playing in fostering the growth of small businesses by filling a void left by banks.
The fintechs went first. In general, they stressed the speed and convenience of their loans and lines of credit, and the pioneering innovations in technology that allowed them to do deeper dives into companies seeking credit, and to tailor their products to the borrower’s needs. Panelists cited the “SMART Box” devised by Kabbage and OnDeck as examples of transparency. (Accompanying those companies’ loan offers, the SMART Box is modeled on the uniform terms contained in credit card offerings, which are mandated by the Truth in Lending Act. TILA does not pertain to commercial debt transactions.)
Sam Taussig, head of global policy at Kabbage, explained that his company typically provides loans to borrowers with five to seven employees — “truly Main Street American small businesses” — that are seeking out “project-based financing” or “working capital.”
“The average small business according to our research only has about 27 days of cash flow on hand,” Taussig told the fintech panel, FTC moderators and audience members. “So if you as a small business owner need to seize an opportunity to expand your revenue or (have) a one-off event — such as the freezer in your ice cream store breaks — it’s very difficult to access that capital quickly to get back to business or grow your business.”
Taussig contrasted the purpose of a commercial loan with consumer loans taken out to consolidate existing debt or purchase a consumer product that’s “a depreciating asset.” Fintechs, which typically supply lightning-quick loans to entrepreneurs to purchase equipment, meet payrolls, or build inventory, should be judged by a different standard.
A florist needs to purchase roses and carnations for Mother’s Day, an ice-cream store must replenish inventory over the summer, an Irish pub has to stock up on beer and add bartenders at St. Patrick’s Day.
The session was a snapshot of not just the fintech industry but of the state of small business. Lewis Goodwin, the head of banking services at Square Capital, noted that small businesses account for 48% of the U.S. workforce. Yet, he said, Square’s surveys show that 70% of them “are not able to get what they want” when they seek financing.
Square, he said, has made 700,000 loans for $4.5 billion in just the past few years, the platform’s average loan is between $6,000 and $7,000, and it never charges borrowers more than 15% of a business’s daily receipts. The No. 1 alternative for small businesses in need of capital is “friends and family,” Goodwin said, “and that’s a tough bank to go back to.”
Panelist Gwendy Brown, vice-president of research and policy at the Opportunity Fund, a non-profit microfinance organization, provided the fintechs with their most rocky moment when she declared that small businesses turning up at her fund were typically paying an annual percentage rate of 94 percent for fintech loans. And while most small business owners were knowledgeable about their businesses — the florists “know flowers in and out,” for example — they are often bewildered by the “landscape” of financial product offerings.
“Sophistication as a business owner,” Brown said, “does not necessarily equate into sophistication in being able to assess finance options.”
Panelist Claire Kramer Mills, vice-president of the Federal Reserve Bank of New York, reported that the country’s banks have made a dramatic exit from small business lending over the past ten years. A graphic would show that bank loans of more than $1 million have risen dramatically over the past decade but, she said, “When you look at the small loans, they’ve remained relatively flat and are not back to pre-crisis levels.”
Mills also said that 50% of small businesses in the Federal Reserve’s surveys “tell us that they have a funding shortfall of some sort or another. It’s more stark when you look at women-owned business, black or African-American owned businesses, and Latino-owned businesses.”
On the merchant cash advance panel there was less opportunity to dazzle the regulators and audience members with accounts of state-of-the-art technology and the ability to aggregate mountains of data to make online loans in as few as seven minutes, as Kabbage’s Taussig noted the fintech is wont to do.
Instead, industry panelists endeavored to explain to an audience — which included skeptical regulators, journalists, lawyers and critics — the precarious, high-risk nature of an MCA or factoring product, how it differs from a loan, and the upside to a merchant opting for a cash advance. (To their credit, one attendee told deBanked, the audience also included members of the MCA industry interested in compliance with federal law.)
A merchant cash advance is “a purchase of future receipts,” Kate Fisher, an attorney at Hudson Cook in Baltimore, explained. “The business promises to deliver a percentage of its revenue only to the extent as that revenue is created. If sales go down,” she explained, “then the business has a contractual right to pay less. If sales go up, the business may have to pay more.”
As for the major difference between a loan and a merchant cash advance: the borrower promises to repay the lender for the loan, Fisher noted, but for a cash advance “there’s no absolute obligation to repay.”
Scott Crockett, chief executive at Everest Business Funding, related two anecdotes, both involving cash advances to seasonal businesses. In the first instance, a summer resort in Georgia relied on Everest’s cash advances to tide it over during the off-season.
When the resort owner didn’t call back after two seasonal advances, Crockett said, Everest wanted to know the reason. The answer? The resort had been sold to Marriott Corporation. Thanking Everest, Crockett said, the former resort-owners reported that without the MCA, he would likely have sold off a share of his business to a private equity fund or an investor.
By providing a cash advance Everest acted “more like a temporary equity partner,” Crockett remarked.
In the second instance, a restaurant in the Florida Keys that relied on a cash advance from Everest to get through the slow summer season was destroyed by Hurricane Irma. “Thank God no one was hurt,” Crockett said, “but the business owner didn’t owe us anything. We had purchased future revenues that never materialized.”
The outsized risk borne by the MCA industry is not confined entirely to the firm making the advance, asserted Jared Weitz, chief executive at United Capital Service, a consultancy and broker based in Great Neck, N.Y. It also extends to the broker. Weitz reported that a big difference between the MCA industry and other funding sources, such as a bank loan backed by the Small Business Administration, is that ”you are responsible to give that commission back if that merchant does not perform or goes into an actual default up to 90 days in.
“I think that’s important,” Weitz added, “because on (both) the broker side and on the funding side, we really are taking a ride with the merchant to make sure that the business succeeds.”
FTC’s panel moderators prodded the MCA firms to describe a typical factor rate. Jesse Carlson, senior vice-president and general counsel at Kapitus, asserted that the factor rate can vary, but did not provide a rate.
“Our average financing is approximately $50,000, it’s approximately 11-12 months,” he said. “On a $50,000 funding we would be purchasing $65,000 of future revenue of that business.”
The FTC moderator asked how that financing arrangement compared with a “typical” annual percentage rate for a small business financing loan and whether businesses “understand the difference.”
Carlson replied: “There is no interest rate and there is no APR. There is no set repayment period, so there is no term.” He added: “We provide (the) total cost in a very clear disclosure on the first page of all of our contracts.”
Ami Kassar, founder and chief executive of Multifunding, a loan broker that does 70% of its work with the Small Business Administration, emerged as the panelist most critical of the MCA industry. If a small business owner takes an advance of $50,000, Kassar said, the advance is “often quoted as a factor rate of 20%. The merchant thinks about that as a 20% rate. But on a six-month payback, it’s closer to 60-65%.”
He asserted that small businesses would do better to borrow the same amount of money using an SBA loan, pay 8 1/4 percent and take 10 years to pay back. It would take more effort and the wait might be longer, but “the impact on their cash flow is dramatic” — $600 per month versus $600 a day, he said — “compared to some of these other solutions.”
Kassar warned about “enticing” offers from MCA firms on the Internet, particularly for a business owner in a bind. “If you jump on that train and take a short-term amortization, oftentimes the cash flow pressure that creates forces you into a cycle of short-term renewals. As your situation gets tougher and tougher, you get into situations of stacking and stacking.”
On a final panel on, among other matters, whether there is uniformity in the commercial funding business, panelists described a massive muddle of financial products.
Barbara Lipman: project manager in the division of community affairs with the Federal Reserve Board of Governors, said that the central bank rounded up small businesses to do some mystery shopping. The cohort — small businesses that employ fewer than 20 employees and had less than $2 million in revenues — pretended to shop for credit online.
As they sought out information about costs and terms and what the application process was like, she said, “They’re telling us that it’s very difficult to find even some basic information. Some of the lenders are very explicit about costs and fees. Others however require a visitor to go to the website to enter business and personal information before finding even the basics about the products.” That experience, Lipman said, was “problematic.”
She also said that, once they were identified as prospective borrowers on the Internet, the Fed’s shoppers were barraged with a ceaseless spate of online credit offers.
John Arensmeyer, chief executive at Small Business Majority, an advocacy organization, called for greater consistency and transparency in the marketplace. “We hear all the time, ‘Gee, why do we need to worry about this? These are business people,’” he said. “The reality is that unless a business is large enough to have a controller or head of accounting, they are no more sophisticated than the average consumer.
“Even about the question of whether a merchant cash advance is a loan or not,” Arensmeyer added. “To the average small business owner everything is a loan. These legal distinctions are meaningless. It’s pretty much the Wild West.”
In the aftermath of the forum, the question now is: What is the FTC likely to do?
Zullow, the FTC attorney, referred deBanked to several recent cases — including actions against Avant and SoFi — in which the agency sanctioned online lenders that engaged in unfair or deceptive practices, or misrepresented their products to consumers.
These included a $3.85 million settlement in April, 2019, with Avant, an online lending company. The FTC had charged that the fintech had made “unauthorized charges on consumers’ accounts” and “unlawfully required consumers to consent to automatic payments from their bank accounts,” the agency said in a statement.
In the settlement with SoFi, the FTC alleged that the online lender, “made prominent false statements about loan refinancing savings in television, print, and internet advertisements.” Under the final order, “SoFi is prohibited from misrepresenting to consumers how much money consumers will save,” according to an FTC press release.
But these are traditional actions against consumer lenders. A more relevant FTC action, says Pepper Hamilton attorney Dabertin, was the FTC’s “Operation Main Street,” a major enforcement action taken in July, 2018 when the agency joined forces with a dozen law enforcement partners to bring civil and criminal charges against 24 alleged scam artists charged with bilking U.S. small businesses for more than $290 million.
In the multi-pronged campaign, which Zullow also cited, the FTC collaborated with two U.S. attorneys’ offices, the attorneys general of eight states, the U.S. Postal Inspection Service, and the Better Business Bureau. According to the FTC, the strike force took action against six types of fraudulent schemes, including:
- Unordered merchandise scams in which the defendants charged consumers for toner, light bulbs, cleaner and other office supplies that they never ordered;
- Imposter scams in which the defendants use deceptive tactics, such as claiming an affiliation with a government or private entity, to trick consumers into paying for corporate materials, filings, registrations, or fees;
- Scams involving unsolicited faxes or robocalls offering business loans and vacation packages.
If there remains any question about whether the FTC believes itself constrained from acting on behalf of small businesses as well as consumers, consider the closing remarks at the May forum made by Andrew Smith, director of the agency’s bureau of consumer protection.
“(O)ur organic statute, the FTC Act, allows us to address unfair and deceptive practices even with respect to businesses,” Smith declared, “And I want to make clear that we believe strongly in the importance of small businesses to the economy, the importance of loans and financing to the economy.
Smith asserted that the agency could be casting a wide net. “The FTC Act gives us broad authority to stop deceptive and unfair practices by nonbank lenders, marketers, brokers, ISOs, servicers, lead generators and collectors.”
As fintechs and MCAs, in particular, await forthcoming actions by the commission, their membership should take pains to comport themselves ethically and responsibly, counsels Hudson Cook attorney Fisher. “I don’t think businesses should be nervous,” she says, “but they should be motivated to improve compliance with the law.”
She recommends that companies make certain that they have a robust vendor-management policy in place, and that they review contracts with ISOs. Companies should also ensure that they have the ability to audit ISOs and monitor any complaints. “Take them seriously and respond,” Fisher says.
Companies would also do well to review advertising on their websites to ascertain that claims are not deceptive, and see to it that customer service and collections are “done in a way that is fair and not deceptive,” she says, adding of the FTC investigation: “This is a wake-up call.”
At the FTC Forum on Small Business Financing & Merchant Cash Advances this morning, FTC regulators asked questions of a panel of industry representatives about controversial topics, including the use of COJs. Below are some closely paraphrased responses.
On Confessions of Judgment (COJs)
Scott Crocket, Founder & CEO, Everest Business Funding
The role of COJs is a conversation worth having. What’s the right balance?
We choose only to use them for deals of $100,000 or more. And COJs apply for only 3% of our business. So if there was a ban on COJs, it wouldn’t really affect us. It might just limit the amount we would fund.
The Bloomberg stories are not representative of what we do. We don’t file a COJ when a business is slowing down, but only when we suspect fraud.
Jared Weitz, CEO, United Capital Source
90% to 95% of our deals do not include COJs. And for those where we do use COJs, we give merchants a document that has a description of what it is so that they’re comfortable with it. We tell them that they have to be comfortable with it before they take it.
Jesse Carlson, Senior Vice President & General Counsel, Kapitus
After we saw the extent of the use of confessions of judgement by certain individuals/companies, as a trade association, we at the Small Business Finance Association (SBFA) decided to include in our code of conduct a ban on the use of confessions of judgement if you’re a member of the SBFA.
Part of the reason why we do include COJs is because we’re very careful with our underwriting.
We have 5 to 10 employees who speak with merchants when they are having unforeseen financial challenges and we’ll adjust their ACH repayment. Some companies treat the percentage of the company’s sales as an absolute. We’ll offer them modifications.
We remind merchants that the true-up is available.
Ami Kassar, Founder & CEO, Multifunding LLC
Many funders are not as forgiving as these funders say they are.
Kate Fisher, Partner, Hudson Cook
Some MCA funders reached out to merchants affected by the hurricane in Texas and the forest fires in California to adjust their payments.
Other funders stopped requesting payments altogether from merchants who were affected by these natural disasters.
Brokers / Aggressive Marketing
A broker of an MCA deal has to give the commission back if the merchant fails within 90 days.
We work with about 100 brokers/ISOs at a given time and we do background checks on them.
We do background checks on brokers and we monitor their behavior. We don’t hesitate to cut off a relationship with an ISO. We do spot checks, but we don’t monitor every ISO every day.
The Federal Trade Commission hosted a forum on small business financing including loans and merchant cash advances to examine trends and consumer protection issues in this marketplace.
The forum began at 8:30am and concluded at 1pm. Among some familiar names that spoke are:
- Jared Weitz, CEO, United Capital Source
- Scott Crockett, Founder & CEO, Everest Business Funding
- Christian Spradley, Head of Policy & Senior General Associate Counsel, OnDeck
- Kate Fisher, Partner, Hudson Cook
- Ami Kassar, Founder & CEO, Multifunding LLC
- Jesse Carlson, Senior Vice President & General Counsel, Kapitus
- Sam Taussig, Head of Global Policy, Kabbage
- Lewis Goodwin, Banking Lead, Square Capital
Nearly three months on from the beginning of the United States’ lockdown, the alternative finance industry is starting to feel a recovery. As states look to ease lockdowns, businesses seek to start back up, and offices are reopening, an element of normalcy, if it can be called that, appears to be returning. deBanked reached out to a number of businesses in the industry to find out how they were plotting their recovery, as well as what they thought of the future for the space and the American economy.
One such company was Everest Business Funding. After experiencing a strong start to 2020 in January and February, covid-19 and the economic shutdown that accompanied it came as a shock to Everest, CEO Scott Crocket explained.
“It’s difficult to imagine an exogenous event outside of our control that could more squarely impact an industry like this,” Crockett stated. “I mean, after all, we provide capital to small and medium-sized businesses all across the United States, all 50 states, every type of small business you can imagine. And we’re cruising along, we had a record 2019, we’re off to a great start with January, February, even the beginning of March … and we really saw it come on in the third week of March, the week that started with Monday the 16th. It started as a kind of a trickle in, but by the end of the week it was more of a tidal wave in terms of the number of small businesses in our portfolio that were calling in looking for some type of relief as a result of what was happening.”
Crockett said that they paused all new funding the following week, out of concern for the company’s ability to generate business while there was a national economic shutdown in place. Since then however, Everest has been slowly getting back to what it was, with employees now returning to the office in waves and discussions being had over when exactly to start funding again, be it late June or early July.
Another firm that halted its funding operations was the New York-based PIRS Capital. Similarly, it was mid-March when the pressure was first felt, and PIRS didn’t return to funding until May 15th. PIRS COO Andrew Mallinger chalked this up to the company’s lack of reliance on automated underwriting processes, saying that although “the industry was leaning towards automatic funding and all these models and 20-second approvals, we weren’t fully invested in that yet. So it was good to see that the old-school approach is back and working again, interfacing with these brokers and really understanding their deals and what they’re bringing to the table.”
Mallinger is also confident going into the rest of 2020. Saying that while the company is maintaining a cautiously optimistic outlook, PIRS is working off the assumption that there will eventually be growth this year and that it is set to continue working from home for however long that may be, on the basis that New York may be one of the last states to return to offices.
Also looking forward is Velocity Group USA’s Trace Feinstein, who believes there will tough times ahead for many in the industry, but who also holds that there are opportunities for those who can make it through.
“Anyone who can weather this storm is going to come out 10 times better than they did going in.” The Chief Syndication Officer said in a call. “It’s an adjustment for our economy, it’s an adjustment for our country, and I think it’s an adjustment for our industry on top of that. So there’s a lot of different changes and things are going to be happening, but I think it’s going to be very good for the ones who make it out of it.”
Feinstein, who said that most of Velocity’s workers are back in its offices, noted that it approached underwriting during the pandemic with thoroughness. Daily underwriting meetings entailed going through each state, looking at what was happening there with infection rates, and discussing how various industries could be affected.
Reporting that applications following the lockdown were actually cleaner than before, with average credit scores going up to be between 650 and 750, Feinstein explained that he pushed underwriters to rely on common sense rather than overthinking their decisions and to treat these deals like they would any MCA application.
And while many funders have struggled through the lockdown period, another part of the industry, collection agencies, have been doing well after an initially tough stretch.
Shawn Smith of Minneapolis’ Dedicated Commercial Recovery has claimed to have grown the company’s portfolio by 100% in 60 days despite a particularly trying period in mid-April. Explaining that the company was two weeks away from having to bring in strict measures to keep things going, Dedicated began getting calls again just in time, with its clients mostly phoning in about MCA deals.
Looking ahead, Smith is anticipating a busy summer and fall as businesses, funders, and the courts come back, but he is worried about a second wave and the alternative finance industry not putting in the precautions needed to stave off the economic impacts this next time around.
“Anyone can lend out a lot of money or put out a lot of money on the street, but your ability to get it back is going to be very important, and you want the fire extinguisher in place before the house is on fire … what you’re seeing in the MCA industry is because it’s just not as aged as the equipment leasing and banking industries … the MCA companies just didn’t have 20-30 year veterans in collections and legal … we’re so concerned with how to write more deals and get more money out there, and not about how to get it back and not about having strong enough underwriting standards and things like that. So when it got stress tested, the pain came back real quick.”
Likewise, Kearns Brinen & Monaghan’s Mark LeFevre claimed that after having a rocky road during the earlier stages of the pandemic and switching to a “plan B” for the year, the collections company is optimistic about going forward. Having weathered what may be the worst stretch without having had to furlough or lay-off anyone, KBM now has brought most of its workers back after a reworking of the office space. A pre-return fumigation, sneeze guards, and temperature-taking upon re-entry to the office building have all been employed after KBM’s employees asked to return to the workplace.
“The industry is changing literally day to day,” explained the President and CEO. “Some of the laws that are passed by the House and by the Senate are changing quicker than I’ve ever seen. I’ve just never seen it before. But I think it’s for the better and we’re starting to see the comeback of the economy, the stock market, employment. The unemployment numbers are really good and, in my opinion, [the numbers will] continue to go down from what we’re seeing in our industry.”
Fourteen individuals and two companies (including Decision One Debt Relief) were sued by Funding Metrics in Federal court last month for allegedly “conducting a nationwide illegal debt restructuring scheme through numerous acts of mail and wire fraud.”
The suit, which stems from the defendants’ interference with Funding Metrics’ merchant cash advance customers, makes six claims, among them financial damages resulting from state and federal crimes. Per the complaint:
“Defendant Decision One (along with its affiliate/alter ego D1 Servicing) fraudulently presents itself as being able to renegotiate and restructure merchant agreements with Plaintiff and other funding companies. It has established a deceptive business practice of making misleading and often outright false representations to merchants under contract with Plaintiff promising that, with its help, these merchants will save money on those contracts by defaulting on them. Decision One tells merchants that they can safely stop paying cash advance funding companies like Plaintiff; that it will go to work for them promptly; that it can reduce their debt by 60-80% or more; and that they will be provided with a Veritas insurance plan to cover legal expenses arising from their defaults, once cash advance companies exercise their rights under agreements with their merchants, as they inevitably will. Based on these misrepresentations, the merchants default on their contracts with their funders – that is, at Decision One’s direction, they stop paying their funders and instead pay Decision One – although Decision One does not even expect to achieve results for the merchants. The result is a fraud on the merchants and tortious interference with the contracts Plaintiff have with them.”
The suit is just the latest bomb dropped on the exploding debt settlement industry. deBanked began covering the controversy surrounding debt settlement in late 2016 after the owner and employees of an upstate New York debt settlement company were arrested for charging merchants to restructure their merchant cash advances and then not actually performing any services. The owner, Sergiy Bezrukov, was charged with money laundering, bank fraud, mail fraud, wire fraud and conspiracy to defraud. Bezrukov has been locked away in jail for almost two years awaiting trial. He is facing a maximum of 30 years. Two of his employees pled guilty, Vanessa Cardona to bank fraud and Dustin Walker to conspiracy to commit bank fraud.
Since then, nearly a dozen major lawsuits have been filed by merchant cash advance companies against other debt settlement companies that are alleged to be carrying out similar schemes. One of those sued companies, NJ-based Corporate Bailout LLC, was featured on the cover of the New York Post last summer for being “the craziest office in America.” Corporate Bailout was sued by both Yellowstone Capital and Everest Business Funding which later resulted in a very public settlement agreement that forced Corporate Bailout to fork over $500,000 to the two MCA companies.
Decision One Debt Relief, sued now by Funding Metrics, was also originally a co-defendant alongside MCA Helpline in a lawsuit filed by Everest Business Funding earlier this year. In February, after determining the two were not related, Everest dropped the claims against Decision One only. The suit against MCA Helpline is still pending.
Around that same time, a representative for Decision One revealed to deBanked that the company was on track to be doing more than $100 million a year in business.
Bezrukov, by contrast, who currently resides in a Niagara County New York jail, is accused of having only obtained $1.2 million throughout his entire debt settlement venture’s existence. Although Decision One is not being charged criminally, the private civil suit alleges damages caused by a violation of criminal statutes including RICO.
The Funding Metrics suit against Decision One was filed in the Southern District of Florida under ID# 9:18-cv-81061.
Everest Business Funding has voluntarily withdrawn claims against one of three named defendants in a debt settlement tort lawsuit in Florida, court records show. The case against Decision One Debt Relief was withdrawn without prejudice on February 2nd.
That leaves MCA Helpline, LLC and Todd Fisch individually as the remaining named defendants.
Everest had originally alleged that Fisch was the individual behind both MCA Helpline and Decision One Debt Relief. Decision One Debt Relief, however, told deBanked that the two companies had no ties to each other. “Decision One has no relation with Todd Fisch or MCA Helpline,” Decision One’s president wrote as part of an emailed statement about the dismissal.
Everest is still seeking damages for the remaining Defendants’ tortious interference with at least a dozen of its merchant contracts.
Thank you to everyone who attended our cocktail networking event in South Beach last week. It was a great opportunity for funders, lenders, brokers and others in the industry to connect with each other (many for the first time ever). Thank you again to Everest Business Funding, National Funding, Knight Capital Funding, NISO, Grand Capital Funding, and Venture Credit Solutions for sponsoring.
Below is a sample of our photos from the evening. If you attach any of your own on social media, please use #debankedconnect so that we can find them.
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everest business funding and vader mountain capital have made the difficult decision to temporarily suspend funding at this time., , we hope that you and your loved ones all stay safe and well during this period. we will inform you as soon as we start fundin...
everest business funding and vader mountain capital have made the difficult decision to temporarily suspend funding at this time., , we hope that you and your loved ones all stay safe and well during this period. we will inform you as soon as we start fundin...
everest business funding and vader mountain capital are open and funding!...