Articles by deBanked Staff
Direct Lending Investments Had Over 950 Investors
April 16, 2019
Documents filed in a New York Supreme Court case by the receiver managing Direct Lending Investments (DLI), revealed that DLI had more than 950 investors worldwide with collective investments on the books totaling over $780 million.
For those wondering what’s happened since word of the hedge fund’s shocking demise, Bradley D. Sharp of Development Specialists, Inc. has been appointed to serve as permanent receiver for the fund’s estate. In the New York Supreme Court case, which coincidentally involves VOIP Guardian Partners, Sharp explained that they are currently dealing with a number of “urgent matters arising during the first two weeks of the SEC Action, including but not limited to: securing the business assets and cash of the receivership estate; taking custody of records of the Receivership Entity, including records held by third parties; filing notices of the receivership in approximately 50 district courts across the country; addressing insurance and loan portfolio matters; providing notice to and responding to inquiries from investors; and other similar pressing matters.”
Regarding the $192 million owed to DLI by VOIP, “the Receiver is evaluating enforcement and collection of the VOIP Guardian Loans as against VOIP Guardian Partners I LLC in light of its pending bankruptcy proceeding, and the underlying loans comprising the collateral for the VOIP Guardian Loans.”
Recovering the $192 million in bankruptcy from VOIP may prove difficult. deBanked determined that $159 million of it was actually loaned by VOIP to other companies internationally, including Telacme Ltd in Hong Kong and Najd Technologies Ltd in United Arab Emirates. At the time of its reporting, the websites for both companies had been taken down from the web. The website for Telacme has since been restored.
A class action lawsuit was filed against DLI, its former chief executive Brendan Ross, and others on April 1st.
Additional documents filed in the case on 4/12/19 can be viewed here:
DLI-41219-15.pdf
DLI-41219-16.pdf
Lots of Tech Buzzwords, Scary Problems
April 16, 2019
A federal regulator cut through the shield of fintech buzzwords on Monday when it announced that a darling of online lending valued at $2 billion, failed to properly handle rudimentary loan practices. The lender is Chicago-based Avant, who reportedly settled with the FTC for $3.85 million.
According to the FTC, Avant struggled to accurately determine borrower loan balances and repeatedly mismanaged payments. FTC Bureau of Consumer Protection Director Andrew Smith said that Avant’s issues were systemic. “Online lenders need to understand that loan servicing is just as important to consumers as loan marketing and origination, and we will not hesitate to hold lenders liable for unfair or deceptive servicing practices,” he said in a press release.
The FTC alleged:
“When consumers got an email or verbal confirmation from Avant that their loan was paid off, the company came back for more – sometimes months later – claiming the payoff quote was erroneous. The FTC says Avant dinged consumers for extra fees and interest and even reported to credit bureaus that loans were delinquent after consumers paid the quoted payoff amount.”
The FTC further stated:
“The lawsuit also alleges that Avant charged consumers’ credit cards or took payments from their bank accounts without permission or in amounts larger than authorized. Sometimes Avant charged duplicate payments. One unfortunate consumer’s monthly payment was debited from his account eleven times in a single day. Another person called Avant’s customer service number trying to reduce his monthly payment only to be charged his entire balance. In other instances, Avant took consumers’ payoff balance twice. One consumer was stuck with overdraft fees and angry creditors when Avant withdrew his monthly payment three times in one day.”
In a subtle dig, the FTC said that online lending could be beneficial “if 21st century financial platforms abandon misleading 20th century practices.”
Under the settlement order, Avant, LLC will be prohibited from taking unauthorized payments and from collecting payment by means of remotely created check (RCC). The company also is prohibited from misrepresenting: the methods of payment accepted for monthly payments, partial payments, payoffs, or any other purpose; the amount of payment that will be sufficient to pay off in its entirety the balance of an account; when payments will be applied or credited; or any material fact regarding payments, fees, or charges.
Kabbage Could Be Neck and Neck with OnDeck for Originations This Year
April 8, 2019Kabbage funded $600 million in the first quarter of the year, putting it on pace to potentially overtake OnDeck in originations for 2019. OnDeck reported $658 million in originations just a quarter earlier to finish 2018.
The two companies have been among the top three funders by origination volume on deBanked’s leaderboard since 2014. OnDeck has consistently been on top with Kabbage and Square solidly in the #2 and #3 slots.
In 2018, OnDeck funded $2.48 billion, while Kabbage CEO Robert Frohwein told deBanked that the company originated “north of $2 billion.”
Both companies are expanding.
“We solidified our position as the leading online lender to small businesses in the US, launched ODX, our platform-as-a-service business, and announced plans to scale our international operations and enter the equipment finance market,” said OnDeck CEO Noah Breslow in a 2018 Q4 report statement.
Meanwhile, Kabbage announced in January of this year that it will be powering a program that offers financing to U.S. customers of the Chinese e-commerce giant Alibaba.
“Financing at the point of sale requires a fully automated solution that can handle the immense volume of daily transactions that occur on Alibaba.com,” said Kabbage CEO Rob Frohwein. “We are incredibly impressed with the service and value that Alibaba.com delivers to American businesses and want to do all we can to support their important mission.”
| Company Name | 2018 Originations | 2017 | 2016 | 2015 | 2014 |
| OnDeck | $2,484,000,000 | $2,114,663,000 | $2,400,000,000 | $1,900,000,000 | $1,200,000,000 |
| Kabbage | $2,000,000,000 | $1,500,000,000 | $1,220,000,000 | $900,000,000 | $350,000,000 |
| Square Capital | $1,600,000,000 | $1,177,000,000 | $798,000,000 | $400,000,000 | $100,000,000 |
deBanked’s leaderboard omits companies that have not disclosed their small business origination volumes.
Kabbage’s $700 million securitization that was announced today will be used to pay down a previous securitization.
Funding Circle SME Income Fund to Consider Winding Down
April 6, 2019The Funding Circle SME Income Fund (FCIF), a fund whose objective is to provide shareholders with a sustainable and attractive level of dividend income by lending, both directly and indirectly, to small businesses through Funding Circle’s platform, may soon be winding down. Earlier this week, the fund’s major shareholders expressed a desire to withdraw their capital and a vote will be scheduled to put this plan in motion.
The decision is not a surprise. The fund suffered a sharp decline in Net Asset Value late last year in part due to increasing business loan defaults.
Funding Circle Holdings (FCH), which trades on the London Stock Exchange, announced that a windup of FCIF would not affect the overall company’s 2019 guidance.
FCH CEO Samir Desai said of the news, “A global income fund providing access to a diversified portfolio of Funding Circle small business loans was the right strategy for investors and Funding Circle in 2015. However, there are now more appropriate and varied ways for investors to participate on the platform. We’re pleased to soon introduce two new investor products to the UK market. They will further expand the universe of investors that can access loans on our platform and continue to diversify our sources of funding, in line with the strategy we set out at IPO.”
Indicted Loan Brokers Out On Bond, 1 Still in Custody
April 5, 2019
Four of the five loan brokers indicted in a fake business loan scam that tricked an Ohio resident out of hundreds of thousands of dollars in upfront fees, have been released on bond. Only one, a defendant by the name of Haki Toplica, remains in custody. All of the defendants have entered pleas of not guilty.
In addition to the victim being asked for hundreds of thousands of dollars in upfront fees to apply for phony loans, he also signed over the title of 55 vehicles to the defendants to serve as the collateral. The vehicles included a Ford Mustang, several dump trucks, several tractors, several restored classic vehicles, a Freightliner motor home, and trailers.
Toplica was arrested in December and his co-conspirators in March. All of them are New York residents. The condition of one defendant’s release was that she remain working with her present employer. deBanked determined that her most recent employment was ironically that of a business loan broker.
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.
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.
