New York Takes Down a Predator for $1.065 Billion

You may have heard a sigh of relief while in a small business near you. Relief from a predatory lender could be en route after a massive settlement procured by New York Attorney General Letitia James. For some, it's too late.

On January 22, 2025, James and her office announced a judgment of $1.065 billion against the now-defunct Yellowstone Capital and the 25 companies it controlled. The defendants were accused of predatory lending tactics. Both the debt canceled and money designated for repayment are staggering.

The Definition of Egregious

According to the New York Office of the Attorney General (OAG), Yellowstone Capital presented itself to small businesses as a firm specializing in merchant cash advances. For companies that have difficulty getting lending through traditional banks, these short-term, high-interest loans can keep their operation afloat.

Merchant cash advances offer a lump sum upfront in exchange for the lender to receive a share of the business's revenue over time. While Yellowstone and the other perpetrators of the scheme promised this sort of deal, they delivered something else entirely.

Their contracts described each transaction as a purchase of a portion of a small business’s future revenues, with flexible payment amounts and open-ended terms. While promising these terms, they instead collected fixed amounts directly from small businesses’ bank accounts every day. This occurred during short repayment periods of just 60 or 90 days.

Beyond the fraudulent contracts, Yellowstone promised to refund any overage back to the businesses. They then employed numerous fraudulent measures that borrowers had no hope of qualifying for. Some of Yellowstone's contracts ended up with an actual interest rate of 820% per year. This is more than 50 times the legal limit for interest in New York state.

In addition to Yellowstone and their held companies, Isaac Stern, CEO, and Jeffrey Reese, President, were named in the judgment. Both are forbidden from participating in the merchant cash advantage business again. They also paid $16.1 million upon judgment for dispersal to affected businesses.

This wasn't the first time Yellowstone had to pay a settlement. In 2021, the Federal Trade Commission (FTC) brought charges against them for the same scam. They paid $9.8 million.

Tip of the Iceberg

The initial payment from Stern and Reese is just the beginning of the settlement. Over $534 million in debt owed by small businesses to Yellowstone and its holdings have been canceled. This affects over 18,000 small businesses across the country.

The $16.1 million counts against the $514 million in cash the settlement demands from Yellowstone. This is earmarked for distribution to affected small businesses. It's too late for some of the victims.

City Bakery operated in Manhattan for almost 30 years and had close to 50 employees. Once ensnared in Yellowstone's tendrils of fraud, their daily payments were over $2,000 per day. The predatory lending proved too much to survive, and City Bakery was forced to close.

Any company that was a victim of Yellowstone or one of their holdings can seek relief from the settlement. Information is available on the New York Office of the Attorney General's website.

Not Done Yet

Despite winning its largest settlement ever, the New York OAG isn't finished. They're continuing litigation against Delta Bridge and Cloudfund, two companies that took over operations from Yellowstone in 2021.

They've also targeted eight individuals involved in the predatory lending scam. This includes David Glass, a co-founder of Yellowstone who pleaded guilty to insider trading in 2008. Five others reached separate settlements with the OAG, totaling $3.37 million.

For small business owners who lost their businesses to Yellowstone's fraud, the relief might be too little, too late. Some, though, may decide to act on their dreams again.

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