Articles by deBanked Staff
Jonathan Braun Sentenced to 10 Years
May 28, 2019
Jonathan Braun, who Bloomberg Businessweek profiled in a merchant cash advance story series, was sentenced to 10 years for drug related offenses this morning at the federal courthouse in Brooklyn. He will get credit for 17 months previously served in 2010 – 2011. He is scheduled to surrender on August 25th.
Prior to the judge’s order, Braun was given an opportunity to speak and proclaimed himself a changed man. The judge took many things into consideration including letters supporting Braun’s transformation as well as some new lawsuits and allegations that cast him in a negative light. Nevertheless, the judge explained that no new charges had been brought against Braun since he pleaded guilty 8 years ago. The 10-year sentence was the mandatory minimum.
DLI Receiver Requests Emergency Relief to Liquidate Feeder Fund Entity
May 14, 2019
The Receiver for Direct Lending Investments is racing against the clock to protect and preserve the assets of the Cayman Islands-based vehicle used to receive foreign investments, US court records show. The commencement of a voluntary liquidation of the Cayman-entity is required before the deadline to preserve avoidance claims for over $4 million passes. A liquidation, which the Receiver can’t facilitate without permission from the Court, would also shield the company from any litigation moving forward by imposing an automatic stay.
In a normal situation, the Receiver informed the Court, the liquidation process would be carried out by the directors of the Cayman-based entity, but the only remaining director resigned on May 1st, leaving the company without any leadership whatsoever. Thus, the Receiver appointed in the US is asking for extraordinary relief to assist in the affairs of the Cayman entity and enter into liquidation to best protect its assets.
The Receiver’s concerns over litigation in the Cayman Islands are heightened because he’s reportedly received detailed inquiries from overseas investors wanting to know what’s going on and at this time, he’s not able to confidently answer them.
Given the relief sought and the ex-parte nature of the request, the US court is expected to issue an order on the matter very soon.
Update: The US court approved the Receiver to commence a voluntary liquidation of the Cayman entity
Another COJ Bill In New York Added To The Pile
May 14, 2019
Three members of the New York State Assembly want to make it illegal for a confession of judgment to be entered in the state against non-New York debtors. The debtor would also be required to be a resident of the county in which the COJ is filed. The authors behind Bill A07500, introduced on May 7th, plainly state that it is a reaction to stories that were published in Bloomberg Businessweek. (Questionable stories at that: See deBanked coverage)
“This measure is in response to recent press reports regarding creditors that execute confessions of judgment in New York State even though the associated agreement or debtor have no nexus to the State,” a memo attached to the bill states. Sign Here to Lose Everything, the Businessweek series authored by Zachary R. Mider and Zeke Faux, are cited in the footnotes.
The measure is merely the latest weapon unveiled in a wave of proposed legislation aimed at small business financing in New York this year. Here’s a recap of what’s pending now:
- A07500 – Seeks to ban COJs being entered against non-New York debtors.
- A03636 – Seeks to ban COJs from financial contracts.
- A03637 – Seeks to classify merchant cash advances as loans.
- A03646 – Seeks to establish a task force to investigate New York City marshals and their connection to “predatory lenders” and consider the feasibility of abolishing the city marshal program.
- A03638 – Seeks to apply consumer usury protections to small businesses.
George Popescu Steps Down From Lampix
May 13, 2019George Popescu is stepping down from Lampix, the augmented reality lamp company he founded, according to an announcement. Lampix raised $14.2 million through its sale of PIX tokens in a 2017 Initial Coin Offering (ICO). PIX sold at a price of 12 cents each but the value has since plummeted by more than 95%.
Popescu will be replaced by Salvatore Buccellato, who has been the Chief Revenue Officer since the summer of 2018.
“As outgoing CEO I am really proud to have taken Lampix from an idea/prototype to the successful manufacturing of the Lampix commercial development kits,” Popescu said in a published statement. “I strongly believe that it is good practice for companies to regularly have new CEOs who bring new ideas, new resources and a fresh outside vision to the company. During and after the full transition I will of course remain involved with the company as needed.”
Lampix was profiled in deBanked’s November/December magazine issue as a poster child for the murky world of crypto fundraising. At the time, Popescu was involved in several other ICOs in addition to Lampix. Among them was Restart Energy (which raised $30 million), Opiria, First Blood, AirFox (which later settled charges with the SEC for selling unregistered “securities”), and DropDeck Technologies, whose user funds were lost due to a software bug that also affected numerous other companies. Popescu was also advisory board chairman to Gatecoin, a Hong Kong-based crypto exchange which closed on March 20, 2019 following a 2016 hack.
Amazon Now Among The Top Online Small Business Lenders in The United States
May 8, 2019
Amazon has joined PayPal, OnDeck, Kabbage, and Square as being among the largest online small business lenders. On Tuesday, Amazon revealed that it had made more than $1 billion in small business loans to US-based merchants in 2018. Amazon says the capital is used to build inventory and support their Amazon stores.
By selling on Amazon, “SMBs do not need to invest in a physical store or the costs of customer discovery, acquisition, and driving customer traffic to their branded websites,” the company says. Small and medium-sized businesses selling in Amazon’s stores now account for 58 percent of Amazon’s sales. More than 200,000 SMBs exceeded $100,000 in sales on Amazon in 2018 and more than 25,000 surpassed $1 million.
You can view the full report they published here.
| Company Name | 2018 Originations | 2017 | 2016 | 2015 | 2014 | |
| PayPal | $4,000,000,000* | $750,000,000* | ||||
| 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 | |
| Amazon | $1,000,000,000 | |||||
| Funding Circle (USA only) | $792,000,000 | $514,000,000 | $281,000,000 | |||
| BlueVine | $500,000,000* | $200,000,000* | ||||
| National Funding | $494,000,000 | $427,000,000 | $350,000,000 | $293,000,000 | ||
| Kapitus | $393,000,000 | $375,000,000 | $375,000,000 | $280,000,000 | ||
| BFS Capital | $300,000,000 | $300,000,000 | $300,000,000 | |||
| RapidFinance | $260,000,000 | $280,000,000 | $195,000,000 | |||
| Credibly | $290,000,000 | $180,000,000 | $150,000,000 | $95,000,000 | $55,000,000 | |
| Shopify | $277,100,000 | $140,000,000 | ||||
| Forward Financing | $210,000,000 | $125,000,000 | ||||
| IOU Financial | $125,000,000 | $91,300,000 | $107,600,000 | $146,400,000 | $100,000,000 | |
| Yalber | $65,000,000 |
FTC Forum on Small Business Financing & Merchant Cash Advances
May 7, 2019At 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.
On True-ups
Jesse Carlson
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.
Scott Crocket
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.
Jared Weitz
Other funders stopped requesting payments altogether from merchants who were affected by these natural disasters.
Brokers / Aggressive Marketing
Jared Weitz
A broker of an MCA deal has to give the commission back if the merchant fails within 90 days.
Jesse Carlson
We work with about 100 brokers/ISOs at a given time and we do background checks on them.
Scott Crocket
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
Square Originated $508M in Business Loans in Q1
May 1, 2019Square Capital, Square’s business lending arm, originated 70,000 small business loans for a total of $508 million last quarter, according to their recent earnings report.
As a payments company first, Square processed $22.6 billion in gross payment volume in Q1 and generated a net loss of $38 million on $959 million in revenue.
Shopify Capital Issued $87.8M in Merchant Cash Advances in Q1
April 30, 2019Shopify’s small business funding division, Shopify Capital, issued $87.8 million in merchant cash advances in the first quarter of 2019, according to the company’s earnings report. The figure is a 45% increase over the same period last year. Overall, the company has funded more than $535 million in MCAs since inception.
Shopify is primarily an e-commerce platform, but they are quickly becoming a competitor to both Square and PayPal, both of whom also offer funding solutions.
