Lengthy Investigation Leads to Arrest of Former Funding Company Employee
August 2, 2018
A former Yellowstone Capital employee was arrested yesterday in New York City, the culmination of what Yellowstone CEO Isaac Stern said was a nearly year-long investigation that involved law enforcement in New York, New Jersey and Florida.
The former employee was charged as a Fugitive of Justice in New York. And he is being charged with 3rd degree Theft by Deception and two computer related crimes in New Jersey, according to Stern. This person’s name is being withheld as he has not been convicted. According to Stern, the employee started working for Yellowstone last year as a rep at the company’s Jersey City office. He then left the company on his own volition to move to Florida. When Yellowstone opened a Florida office in May 2017, the man was rehired by Yellowstone to manage the data entry operation at the new office.
The man was terminated in September of 2017 for reasons unrelated to these charges. Following his termination, Stern said that the company noticed a trend where merchants were being solicited after submitting new deals. Simultaneously, the company saw an increase in concerns raised by its ISO partners regarding backdooring. (Backdooring is when a broker submits a potential deal to a funder and that file leaks out to third parties whom the broker did not authorize to handle the information.)
In response to this, the company created a task force comprised of cyber security professionals that ultimately traced the leak to this former employee. A number of people have been arrested for stealing information from Yellowstone, but Stern said that this was by far the largest and most sophisticated theft.
“Nothing has hurt us more than this leak,” Stern said, “and it would have been impossible to catch this guy if we didn’t have a full-time team.”
The team Stern refers to is what he says has now become a separate Yellowstone office at an undisclosed location that is devoted exclusively to security. He said Yellowstone spent about $250,000 developing this external office and upgrading the company’s security systems. Additionally, employees and others can now anonymously email: security@yellowstonecapllc.com with information related to potential theft.
Shopify’s Merchant Cash Advance Business Grows
July 31, 2018Today Shopify released its Q2 2018 earnings report, revealing that Shopify Capital issued $68.5 million in merchant cash advances in the second quarter of 2018, an increase of 84% compared to the $37.2 million issued in the second quarter of last year. Shopify Capital has advanced nearly $300 million to merchants since they launched in April 2016, $80 million of which was outstanding on June 30, 2018.
Founded in 2004 and headquartered in Ottawa, Canada, Shopify currently powers over 600,000 businesses in approximately 175 countries. The stock trades on the New York Stock Exchange and the Toronto Stock Exchange as SHOP.
Syndication at Heart of SEC and Criminal Investigation into 1st Global Capital
July 31, 2018
New light was shed into the bankruptcy filing of 1st Global Capital this morning. The investigations by the SEC and the US Attorney’s office are related to possible securities law violations, “including the alleged offer and sale of unregistered securities, the alleged sale of securities by unregistered brokers, and the alleged commission of fraud in connection with the offer, purchase, and sale of securities.”
The company is also being investigated by several states attorneys general where individuals were solicited to invest into merchant cash advance deals.
No charges have been filed in these investigations to-date, but they have prevented the company from being in a position to raise new capital.
There are more than $283 million in unsecured lender claims. Of the 20 largest creditors, all of them are individuals or their retirement accounts.
The company’s two main executives, Carl Ruderman and Steven A. Schwartz, relinquished their powers and resigned on Friday. Darice Lang, the company’s operations director, will stay on and report to the newly appointed Chief Restructuring Officer.
The company’s 1,000+ individual unsecured creditors (syndicates) loaned money to be invested in merchant cash advances and would receive a monthly statement to see how their money had been allocated. They also had access to a portal to track their accounts.
Of the $283 million owed to the individuals, the company’s unaudited financials reflect $238 million in A/R (primarily MCAs outstanding), $21 million of intercompany accounts, and $17.3 million in unrestricted cash.
1st Global generated $22.6 million in revenue in 2017 and $29.3 million in revenue in the first 6 months of 2018.
90% of PayPal Merchant Advances and Business Loans Are Performing On Pace
July 28, 2018
As of June 30, 90.6% of PayPal’s merchant advances and business loans were performing within the original expected repayment period, the company disclosed this week. That equated to $1.27 billion worth of deals. Only 4.2% of their merchants were more than 90 days behind their expected pace.
PayPal had $1.4 billion in outstanding merchant loans, advances, interest and fees receivables.
Swift business loans are charged off when they are more than 180 days past due. The Working Capital products (which can be loans or advances) are charged off when the merchant is 180 days past the company’s original expectations and no payment has been made in the last 60 days OR when the merchant is 360 days beyond the company’s original expectation.
Swift Business loans are generally repayable over 3-12 months. Working Capital advances are generally expected to be satisfied within 9-12 months.
After PayPal acquired Swift Financial, the company began marketing itself to small businesses as LoanBuilder. A flyer obtained by deBanked showed that it was being marketed with loan amounts of $5,000 to $500,000 that could be funded in as quick as 1 business day.
JTT Funding STILL Impersonating Rival Funding Company, Court Docs Allege
July 26, 2018
A Court-ordered injunction hasn’t prevented New York ISO JTT Funding from continuing to pretend to be Accel Capital, a new motion filed in New York County this week argues. In May, JTT Funding failed to appear in court to defend itself against claims it was impersonating Accel Capital when contracting with merchants. After reviewing the evidence, the judge ordered JTT to stop using the name, logo and likeness of Accel.
Allegedly, JTT is undeterred and is continuing to represent itself as Accel Capital. When merchants deceived by the imposter accidentally reach out to the real company, they learn they’ve been duped. Accel attached contracts as evidence between merchants and the imposter that are dated after the injunction was issued, the docket shows. The phone # in the phony contracts belongs to JTT Funding, according to a Google search.
One of those contracts promises a merchant that they have been approved for $818,000 and in order to obtain the funding they need to first send a payment of $36,932.70 to the imposter.
JTT Funding is the same company that was alleged to have forged a Confession of Judgment last year. Like in the Accel case, JTT never appeared to defend itself.
The Accel Capital suit can be found in the New York Supreme Court under Index Number: 153447/2018
MCA Funder Says Debt Settlement Company Operating Illegally Without a Budget Planning License
July 11, 2018
Merchant Cash Advance companies are on the warpath against debt settlement companies. In the latest legal offensive, High Speed Capital alleges that Corporate Debt Advisors’ debt settlement business is really just an unlicensed Budget Planning operation, a misdemeanor criminal offense in New York.
High Speed’s petition cites New York General Business Law § 455. “So-called ‘debt negotiation’ and ‘debt settlement’ companies that negotiate settlements between debtors and creditors on behalf of the debtors and which may coordinate or supervise payment by the debtors to the creditors in exchange for fees from the debtor are engaged in Budget Planning,” they say. “Budget Planning agreements with unlicensed entities are void for illegality and cannot be upheld by the Court.”
At issue in this action is that the transfer of funds from the merchant to Corporate Debt Advisors is allegedly fraudulent. High Speed won a judgment against the merchant in October 2017 and believes those funds belong to it. Corporate Debt Advisors has refused to send the funds in its possession to High Speed and has instead tried to negotiate. High Speed’s petition before the Court asks that Corporate Debt Advisors turn over the funds immediately to High Speed.
The case can be found in the New York Supreme Court, Erie County under Index #: 810673/2018. You can view the petition here.
Thinking Capital, Equifax Create Canadian Small Business Credit Grades
July 10, 2018
Equifax and Thinking Capital today announced the launch of BillMarket, a service that will now provide Canadian small businesses with a credit grade, A through E. CEO and cofounder of Thinking Capital Jeff Mitelman told deBanked this is revolutionary because, up until now, a Canadian small business’ creditworthiness has usually been based on the personal credit score of the small business owner.
“BillMarket creates a new language of credit for small business in Canada,” Mitelman said. “For the first time, there is a practical way to talk about and put a dollar value on small business credit in Canada. BillMarket expands the purchasing power for Canadian SMBs and eliminates friction in the supply chain.”
Equifax offers this new credit grade for free, and simultaneously, a small business owner is offered a supply chain financing deal by Thinking Capital. Specifically, if a small business owes money to a vendor in 30 days, Thinking Capital can turn that 30 day invoice into a 120 day invoice. Thinking Capital pays the small business’ vendor and the small business has 120 days to pay Thinking Capital. There are fees associated with this, which are based on the small business’ credit grade, but a small business can simply use Equifax’s credit grade and seek funding elsewhere.
“BillMarket represents a cash flow revolution for the Canadian small business market,” he said.
Traditionally, Thinking Capital provides an MCA product, which it calls Flexible, as well as a term product, which it calls Fixed. The company provides funding up to $300,000 to small to medium sized Canadian businesses. Clients must be in business for at least six months and have average monthly sales of at least $7,000. The funder was acquired in March by Toronto-based Purpose Financial, but it still uses the Thinking Capital name.
Founded in 2006, Thinking Capital employees roughly 200 people and has offices in Montreal and Toronto.
Kalamata Capital Merges with Kings Cash Group
June 28, 2018
Kalamata Capital announced today that it has entered into an agreement to merge with Kings Cash Group, effective July 1. The new entity will be called Kalamata Capital Group, or KCG, retaining the Kalamata Capital brand. Together, the new entity and its affiliates will provide approximately $300 million of capital annually to over 5,000 small businesses.
Michael Jaffe and Albert Gahfi have been designated the co-Presidents of Kalamata Capital Group LLC, the direct funding and operating entity, and they will run the day-to-day operations. Steven Mandis, Brandon Laks, Carlos Max, and Connor Phillips will be the Chairman, Chief Operating Officer, Chief Financial Officer, and Chief Credit Officer, respectively, of the holding company, Kalamata Holdings LLC. All are members of the Executive Committee of Kalamata Holdings LLC.
“With this partnership we become the preeminent one stop solution for merchants and strategic partners in the industry,” Gahfi said. “Strategic partners can submit one application, and we will quickly develop competitive, actionable solutions.”
Laks, Chief Operating Officer of KCG told deBanked that employees of both companies will be retained and the former Kalamata Capital offices, both in Bethesda and New York, will remain in place. The Manhattan office of Kings Cash Group will also remain and all products that the two companies used to offer separately, will now be offered by KCG, including small business loans, SBA loans, factoring, equipment leasing and merchant cash advance, among others. Kalamata Capital offered all of these products while Kings Cash Group focused on merchant cash advance.
“With no debt, Kalamata Capital has one of the strongest balance sheets in the industry,” Jaffe, co-President of the newly formed KCG said. “Their Chairman Steven Mandis worked at Goldman Sachs, was a Senior Advisor to McKinsey, has a PhD from Columbia University and teaches at Columbia Business School. He has utilized that experience to build a distinctive partnership culture, established brand, and institutional-grade processes and procedures.”
Mandis, Chairman of KCG, said: “We know and value KCG’s technology platform and people, and we believe their talent and capabilities will further strengthen our overall merchant value proposition. The partnership will enable us to better serve more small businesses by enhancing our underwriting capabilities to provide access to affordable business financing solutions to help them and their communities grow and thrive.”
