Industry News
Meet CAN Capital’s New CEO
January 8, 2019
CAN Capital announced this morning the appointment of Edward J. Siciliano as its new CEO.
“There is still a huge delta between the need for capital for small businesses and the capital that banks are willing to provide,” Siciliano said. “And this creates an enormous opportunity for CAN to expand its business.”
Siciliano comes to CAN Capital from the equipment finance and small business lending company Marlin Business Services, based in New Jersey. He worked there for a decade in several roles including Chief Operating Officer and Chief Sales Officer.
“Ed is a proven leader with deep industry knowledge and a strategist who is skilled at driving business growth,” said CAN Capital’s founder and Executive Chairman Gary Johnson. “Throughout his career, he has served the needs of small businesses while building loyal teams that deliver innovative products and a great customer experience.”
Siciliano is relocating from Princeton, NJ to live near CAN Capital’s headquarters in Kennesaw, GA, near Atlanta. In September 2018, the company announced that it would be moving its finance and executive functions to Kennesaw from New York City. A CAN Capital spokesperson at the time said that Parris Sanz, the former CEO, did not want to move to the Atlanta area for personal reasons. Now, Siciliano said that there is no longer a New York City office, but there is a roughly eight person finance team in White Plains, NY, that will eventually be moved to the Georgia headquarters.
“I really value the work that [Sanz] has done…and we’re going to stay the course out of the gate. However, I’ve been tasked with accelerating the business,” Siciliano said.
In this effort, Siciliano said he will continue to invest in technology, but will also focus on the small business customer rather than a specific product. Instead, Siciliano said that he would like to see CAN Capital expand its product offerings to serve more needs of small business customers.
He also said that he would like to expand the company’s referral partners beyond brokers to include other players such as manufacturers, attorneys and accountants.
For Siciliano, there are two key elements to focus on for any funding company. The first is credit, or underwriting.
“CAN is one of the very few fintechs that lived through 2008, the recession. You get information about your credit portfolio and your credit model in stressful times like that, that is invaluable…I feel like we have great credit models, which will constantly be enhanced and will always be a focus. Your credit model is the Achilles heel of any lending company.”
The other element that Siciliano focuses on is lowering customer acquisition costs. He said he wants to broaden product offerings to attract different and more partners who will, in turn, bring their small business customers to CAN Capital.
Currently, Siciliano said that the company originates $25-30 million a month and 95% of the business is providing working capital and business loans while the remaining 5% is merchant cash advance. CAN Capital works with brokers but also has an internal sales team. There are about 100 employees at the Kennesaw headquarters, including the company’s executive, marketing, and analytics teams. There is also a technology team of about 20 people located in Costa Rica and Siciliano said that the company works with business development people who work independently throughout the country.
Founded in 1998, CAN Capital has provided more than $7 billion to more than 81,000 small businesses.
Kornfelds Settle With SEC Over Woodbridge Ponzi Scheme
January 3, 2019Barry M. Kornfeld and Ferne Kornfeld, both fundraising agents for 1st Global Capital, have settled with the SEC for their role in Woodbridge Group of Companies LLC, a $1.2 billion ponzi scheme. Woodbridge was another Florida-based company that is unrelated to 1st Global Capital. As part of the settlement, the Kornfelds agreed to disgorge $3.69 million plus $690,497 in prejudgment interest on top of $650,000 in combined penalties. They also agreed to be permanently barred from selling securities.
Barry Kornfeld was already barred by the SEC for previous securities violations.
No wrongdoing has been alleged against the Kornfelds in the 1st Global Capital case thus far, but court records revealed that Barry Kornfeld raised $8 million from investors for the company. 1st Global Capital is currently in bankruptcy and was charged with securities fraud by the SEC.
deBanked’s Most Popular Stories of 2018
December 22, 2018
Five of the top 10 most read stories of 2018 were related to the saga of 1st Global Capital; The bankruptcy, SEC charges, the revelation that they had made a $40 million merchant cash advance, and finally the devastating news of that deal falling apart. We decided to lump all of them together in our #1 slot, but first, the following story was the most independently read of 2018:
The Saga of 1st Global Capital
1. Largest MCA Deal in History Suffers Multiple Closures was picked up by ABC News in California, placing deBanked’s website on TV for the first time.
These were the other most read stories related to 1st Global Capital
- 1 Global Capital Files Chapter 11
- Syndication at Heart of SEC and Criminal Investigation into 1st Global Capital
- 1st Global Capital Charged With Fraud by SEC
- The Largest Merchant Cash Advance in History
Bloomberg Businessweek began publishing a series in November about the allegedly scandalous merchant cash advance industry. An initial review by deBanked uncovered questionable holes in their reporting, but when the series’ senior editor thanked a state senator for proposing legislation in response, suspicious ties were uncovered, followed by one Bloomberg reporter wiping his twitter account clean. Bloomberg’s exaggerated series dubbed #signhereloseeverything has spawned a highly popular counterseries that has challenged Bloomberg’s reporting. We call it #tweetherewipeeverything. The following stories were all in the year’s top 12 most read, but we’ve lumped them together here at #2.
The Bloomberg Blitz
2. Multimillionaire CEO Claims Predatory Lenders are Causing Him to Sell His Furniture for Food
The other two were:
Arrested for Data Theft
3. CAUGHT: Backdoored Deals Leads to Handcuffs was the year’s third most read story.
MCAs are Not Usurious
4. It’s Settled: Merchant Cash Advances Not Usurious came in at #4 this year, ending the debate that has persisted in hundreds of cases at the trial court level in New York State.
In October 2016, the plaintiffs sued defendant Pearl in the New York Supreme Court alleging that the Confession of Judgment filed against them should be vacated because the underlying agreement was criminally usurious. As support, plaintiffs argued that the interest rate of the transaction was 43%, far above New York State’s legal limit of 25%. The defendant denied it and moved to dismiss, wherein the judge concurred that the documentary evidence utterly refuted plaintiffs’ allegations. Plaintiffs appealed and lost, wherein The Appellate Division of The First Department published their unanimous decision that the underlying Purchase And Sale of Future Receivables agreement between the parties was not usurious.
Debt Settlement Company Sued
5. ISOs Alleged to Be Partners in Debt Settlement “Scam” in Explosive Lawsuit was #5 in 2018. The lawsuit ultimately settled and resulted in a big payout to the MCA companies.
A Broker’s Bio
6. The Broker: How Zach Ramirez Makes Deals Happen was #6. deBanked interviewed Zachary Ramirez to find out what makes a successful broker like him tick, how he does it, and what kinds of things he’s encountered along the way.
Ban COJs?
7. Senate Bill Introduced to Ban Confession of Judgments Nationwide was #7. Although this is related to the Bloomberg Blitz, the introduction of this bill fits more neatly into a category of its own.
Who’s Funding How Much?
8. A Preliminary Small Business Financing Leaderboard was #8. Despite this being published early in the year and offering detailed origination volumes for several companies all in one place, it wasn’t as well-read as all the drama that unfolded later in the year. Unsurprisingly, a chart of The Top 2018 Small Business Funders by Revenue ranked right behind this one, but we’ve lumped it in with #8 since it’s related.
Thoughts by Ron
9. Ron Suber: ‘This Industry Will Look Very Different One Year From Now’ was #9. Known as the Magic Johnson of fintech, the 1-year prediction by former Prosper Marketplace president Ron Suber, originally captured in the LendAcademy Podcast, resonated all throughout the fintech world. Will he be proven correct?
A Rags to Riches Tale
10. How A New Hampshire Teen Launched A Lending Company And Climbed Into The Inc. 500 was #10.
Josh Feinberg was not a complete newbie when he started in the lending business in 2009, but he also had a long way to go to find success. His dad had been in the business for 15 years and shortly after graduating high school, Josh started to work in equipment financing and leasing at Direct Capital in New Hampshire, his home state. He then had a brief stint working remotely for Balboa Capital, but he wasn’t sure that finance was for him.
He was 19, with a three year old daughter, and he took a low paying job working at a New Hampshire pawn shop owned by his brother and a guy named Will Murphy.
“I was making $267 a week at the pawn shop and I was having to ask friends to help me pay my rent for a room,” Feinberg said. “So at that point, I realized that something needed to change.”
For Sale: 60,000+ Leads From 1st Global Capital
December 21, 2018
Since 1st Global Capital went out of business, the company’s treasure trove of leads has been up for sale. Beginning in October, 41 companies were propositioned by 1st Global Capital’s bankruptcy advisors to make a bid on the company’s data. Ten companies actually entered into non-disclosure agreements to access a data room. That led to four official proposals which was narrowed down to two formal negotiations and ultimately the selection of one final stalking horse bidder.
In Advance Capital’s high bid came in at $105,000 for data that includes 57,000 non-funded applications and 4,760 funded applications. That dollar figure is actually an upfront fee against future commissions because the arrangement requires the buyer to pay 1st Global Capital a commission for every merchant on the list that they end up funding in-house or elsewhere. The total purchase price therefore is likely to exceed $105,000 over time. The buyer is not permitted to stack any merchant on the list.
As the stalking horse, In Advance’s bid will be honored unless new companies outbid them between now and January 7. If two or more qualified bids are received, a formal auction will take place on January 8. A hearing on the outcome will take place on January 9.
Entegra Bank Chooses Velocity Solutions to Power Its Small Business Digital Lending
December 18, 2018
Velocity Solutions announced today that its Akouba digital lending platform was selected by Entegra Bank to power the bank’s digital lending for its small and medium-sized business customers. Akouba provides community and regional banks with origination and underwriting services.
“We selected Akouba not only for their cutting-edge technology and willingness to work with us, but for the very positive impact we believe this will have on the bank’s bottom line and on the customer experience,” said Charles Umberger, Executive VP and Chief Lending Officer for the Franklin, NC-based Entegra Bank.
According to the Velocity Solutions statement, Akouba is the only small business digital lending solution endorsed by the American Bankers Association (ABA). Akouba was endorsed by the ABA back in February 2017.
“The ABA’s endorsement will give lending institutions the assurance that Akouba’s solutions meet the highest standards,” said CEO of Akouba Chris Rentner, when they received the endorsement from the ABA. “In a rapidly changing lending environment, and with marketplace lenders disrupting the business lending space, our platform will help banks bring their customers the technology they have been lacking.”
In the same way that OnDeck’s ODX is trying to improve online lending for large banks, like Chase and PNC, Velocity’s Akouba does the same thing for regional banks.
“The small business loan application process is very time-sensitive and costly for banks, and there is a need to simplify and accelerate the process,” said Bryan Luke, chairman of ABA’s Endorsed Solutions Banker Advisory Council.
Velocity Solutions, which operates Akouba, is based in Fort Lauderdale, FL and employs over 100 people, according to Crunchbase. Entegra provides personal and business banking serves at 20 retail branches throughout Georgia, North Carolina and South Carolina.
1st Global Capital Sues Capital Stack and Others Over Momentum Auto Group
December 18, 2018
The notorious $40 million merchant cash advance deal has a new twist, even more cash advances. On Friday, the now-bankrupt 1st Global Capital filed a lawsuit against Momentum Auto Group, related entities, and 4 merchant cash advance companies including Capital Stack.
According to documents filed in the case, Momentum Auto was behind on taxes and loans to floor plan lenders to the tune of $15.5 million in February this year. That’s in addition to their inability at the time to pay 1st Global Capital and other MCA funders millions of dollars in advanced funds.
To fix the problem, 1st Global Capital established themselves as the senior creditor in which they required rival funders to enter into Subordination And Standstill agreements. In return for 1st Global Capital keeping Momentum Auto solvent with additional funds, the subordinate funders were only permitted to collect a fraction of their originally-stipulated daily payments (and only if Momentum Auto had adequate liquidity and cash flow, otherwise they were not allowed to collect anything at all until 1st Global had been paid in full). In the case of Capital Stack, it was agreed they could only debit 20% of what they were normally entitled to. For others it was 10%.
1st Global Capital says both restrictions were violated, that the funders collected above their agreed percentage and that they also collected from Momentum Auto despite the business not having adequate liquidity and cash flow. As relief, 1st Global Capital is seeking that each MCA funder return all funds they collected from Momentum Auto Group to 1st Global Capital.
Momentum Auto Group is a conglomerate of car dealerships in California that shut their doors in November. Soon after, lawsuits flew, and in one case the judge has ordered the dealerships be placed into receivership.
1st Global Capital is itself in receivership, having filed bankruptcy in July this year. The company and its founder were also charged with fraud by the SEC after they allegedly relied on the sale of unregistered securities to more than 3,400 investors nationwide.
Business That Left Merchant Cash Advance Companies Hanging is Under FBI Investigation
December 16, 2018
In 2017, several judgments were issued in the New York Supreme Court against one Michael Willhoit, a resident and business owner in Springfield, Missouri. No lawsuits were filed, Willhoit had merely confessed judgment to nearly a half million dollars collectively.
By the following summer, a visitor would come knocking on the door of Willhoit’s fully-customized multimillion dollar safari-themed home, dubbed “The African Queen.” It was the FBI. He was under investigation for bank fraud.
According to the Springfield News-Leader, Willhoit’s wife told an investigator that her husband’s exotic car business was gone. But if so, several banks want to know where $4.25 million in unpaid loans went and what happened to the 33 vehicles that Willhoit had given them paperwork for. The banks, who sparked the FBI investigation, sued, and by November Willhoit’s wife filed for bankruptcy. Among her listed possessions were
- Two roaring lion masks
- Two 7-foot tall hand-carved wooden tusks
- An eight-legged genuine impala horn zebra-hide chair
- A 15-foot African warrior statue
- A 3,000-pound (approximately) bronze rhino
- Four gazelle taxidermy mounts
- A baboon, full-body mount
A youtube video tour of the home shows even more exotic paraphernalia. Realtor.com described the residence, which went on the market in July for $8.9 million, as a trophy showcase of African art. Willhoit told a News-Leader reporter in 2016 that he spent $3 million renovating the property including $400,000 for a 900-square-foot wood floor and $300,000 for landscaping.
More recently, News-Leader reported that Willhoit is the target of a federal grand jury investigation. In one of the bank lawsuits filed against him, Willhoit’s defense is reportedly that it’s the bank’s fault.
Cross River Bank Raises $100 Million
December 11, 2018Cross River Bank, which provides banking services to fintech companies, announced last week the completion of a funding round of roughly $100 million. This was comprised of a $75 million equity investment from KKR, along with capital from Andreessen Horowitz, Battery Ventures, Rabbit Capital, and funding from new investors CredEase and Lion Tree. This adds to a $28 million raise a little over two years ago.
Cross River, which originated more than $5 billion in loans as of the end of August 2018, has developed partnerships with fintech leaders to build fully compliant and integrated products within the lending marketplace and payment processing spaces. They have about 15 lending platform partners, including fintech clients Affirm, Best Egg, RocketLoans, Coinbase and TransferWise.
According to the announcement, this new capital will be used to allow Cross River to continue building a complete banking platform where fintech companies can leverage best-in-class banking technology coupled with compliance.
“Cross River offers solutions to fintech companies by giving them access to a full suite of banking solutions and services in a single, fully compliant and innovative platform, making it an increasingly attractive and valuable franchise in a dynamic marketplace,” said Dan Pietrzak, Member and Co-Head of Private Credit at KKR, Cross River’s leading investor.
According to its website, Cross River was named “most innovative bank” by LendIt in 2017 and 2018. Founded in 2008, the Fort Lee, NJ, business-oriented bank has more than 180 employees.
