Yellowstone Capital, a pioneer in a form of high-risk lending called merchant cash advance, was sued by New York’s attorney general for $1.4 billion for allegedly making illegal loans to small businesses, Bloomberg News reported. For years, Yellowstone lent money at rates that exceeded usury limits — sometimes more than 800% annualized, according to the lawsuit filed in New York state court in Manhattan Tuesday. Like other cash-advance companies, Yellowstone claimed those rules didn’t apply because the transactions were “advances” on businesses’ future revenue rather than loans. They “pretended to offer a helping hand, but instead provided only illegal, ultra-high-interest loans,” Attorney General Letitia James said in a statement. Yellowstone, founded in 2009 by Yitzhak Stern and David Glass, a former stock trader who pleaded guilty to insider trading charges, was one of the biggest players in the industry, which took off after the financial crisis. Yellowstone advanced more than $500 million in 2017 alone. Originally based in New York’s financial district, then Jersey City, New Jersey, its salesmen worked the phones to pitch cash advances to florists, pizzerias, truckers and other small businesses. New York is suing dozens of companies and people related to Yellowstone, which it called a “fraudulent operation” and a “predatory lending scheme.” The state is seeking the recovery of $1.4 billion in interest and fees and a lifetime ban from the industry for Glass. Five people associated with Yellowstone have already agreed to settlements totaling $3.4 million, the attorney general said.
