SUPREME COURT OF THE STATE OF NEW YORK
COUNTY OF NEW YORK
PEOPLE OF THE STATE OF NEW YORK, by
LETITIA JAMES, Attorney General of the
State of New York,
Petitioner,
-against-
YELLOWSTONE CAPITAL LLC, FUNDRY
LLC, DELT
A BRIDGE FUNDING LLC,
CLOUDFUND
LLC, ABC MERCHANT
SOLUTIONS
, LLC, ADVANCE MERCHANT
SERVICES LLC, BUSINESS ADVANCE
TEAM LLC, CAP
ITAL ADVANCE SERVICES
LLC, CAPITAL MERCHANT SERVICES
, LLC,
CASH VILLAGE FUNDING LLC, FAST CASH
ADVANCE LLC, FUNDZIO LLC, GREEN
CA
PITAL FUNDING LLC, HFH MERCHANT
SERVICES LLC, HIGH SPEED CAPITAL
LLC,
MERCHANT CAPITAL PAY LLC,
MERCHANT FUNDING SERVICES
LLC,
MIDNIGHT ADVA
NCE CAPITAL LLC, MR.
ADVANCE CAPITAL LLC, OCEAN 1213 LLC,
SIMPLY EQUITIES LLC,
TVT CAP FUND
LLC,
TVT CAPITAL HR, LLC, THRYVE
CAPITAL FUNDING LLC, WCM FUNDING
LLC, WEST COAST BUSINESS CAPITAL
,
LLC
(f.k.a. YELLOWSTONE CAPITAL WEST
LLC
), WORLD GLOBAL CAPITAL LLC
(including each entity
captioned herein doing
business
under any other name), DAVID
GLASS,
YITZHAK (“Isaac”) STERN, JEFFREY
REECE,
BARTOSZ (“Bart”) MACZUGA,
VADIM SEREBRO,
TSVI (“Steve”) DAVIS,
AARON DAVIS,
MATTHEW MELNIKOFF,
MARK SANDERS,
and DAVID SINGFER,
Respondents.
VERIFIED PETITION
Index No. ______/2024
IAS Part ___
Assigned to Justice __________
CAUTION: THIS DOCUMENT HAS NOT YET BEEN REVIEWED BY THE COUNTY CLERK. (See below.) INDEX NO. UNASSIGNED
NYSCEF DOC. NO. 1 RECEIVED NYSCEF: 03/05/2024
This is a copy of a pleading filed electronically pursuant to New York State court rules (22 NYCRR §202.5-b(d)(3)(i))
which, at the time of its printout from the court system's electronic website, had not yet been reviewed and
approved by the County Clerk. Because court rules (22 NYCRR §202.5[d]) authorize the County Clerk to reject
filings for various reasons, readers should be aware that documents bearing this legend may not have been
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LETITIA JAMES
Attorney General of the State of New York
Attorney for Petitioner
28 Liberty Street, New York, New York 10005
Of Counsel:
JANE M. AZIA, Bureau Chief, Bureau of Consumer Frauds and Protection
LAURA J. LEVINE, Deputy Bureau Chief
JOHN P. FIGURA, Assistant Attorney General
ADAM J. RIFF, Assistant Attorney General
OLUWADAMILOLA E. OBARO, Assistant Attorney General
EMILY E. SMITH, Attorney General Fellow
CAUTION: THIS DOCUMENT HAS NOT YET BEEN REVIEWED BY THE COUNTY CLERK. (See below.) INDEX NO. UNASSIGNED
NYSCEF DOC. NO. 1 RECEIVED NYSCEF: 03/05/2024
This is a copy of a pleading filed electronically pursuant to New York State court rules (22 NYCRR §202.5-b(d)(3)(i))
which, at the time of its printout from the court system's electronic website, had not yet been reviewed and
approved by the County Clerk. Because court rules (22 NYCRR §202.5[d]) authorize the County Clerk to reject
filings for various reasons, readers should be aware that documents bearing this legend may not have been
accepted for filing by the County Clerk.
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i
TABLE OF CONTENTS
PRELIMINARY STATEMENT ...................................................................................... 1
PARTIES AND JURISDICTION ................................................................................... 8
I. CORPORATE RESPONDENTS .............................................................................. 9
A. Yellowstone Capital and Fundry ........................................................................ 9
B. Yellowstone Subsidiaries .................................................................................. 10
C. Yellowstone, Its Subsidiaries, and Fundry Form a Common Enterprise ....... 17
D. Delta Bridge Entities ........................................................................................ 20
II. INDIVIDUAL RESPONDENTS ............................................................................ 22
A. Officer Respondents .......................................................................................... 23
B. Funder Respondents ......................................................................................... 25
THE ATTORNEY GENERAL’S INVESTIGATION .................................................... 29
STATUTE OF LIMITATIONS AND TIME PERIOD AT ISSUE ............................... 33
FACTS ........................................................................................................................... 34
I. RESPONDENTS’ ILLEGAL PRACTICE OF USURY .......................................... 34
A. New York Law Prohibits Usurious Loans When Cloaked as Purchases of
Revenue ............................................................................................................. 39
B. Respondents’ MCAs Have Fixed Durations and Payment Amounts that Do
Not Approximate a Specified Percentage of Revenue ..................................... 40
1. The Daily Amounts Are Fixed and Do Not Approximate a Specified
Percentage of Revenue ............................................................................... 40
2. The Lengths of the Transactions Are Fixed and Do Not Vary Based on a
Specified Percentage of Revenue ............................................................... 49
3. Respondents Ignored the Specified Percentage Altogether When
Underwriting MCA Transactions .............................................................. 56
CAUTION: THIS DOCUMENT HAS NOT YET BEEN REVIEWED BY THE COUNTY CLERK. (See below.) INDEX NO. UNASSIGNED
NYSCEF DOC. NO. 1 RECEIVED NYSCEF: 03/05/2024
This is a copy of a pleading filed electronically pursuant to New York State court rules (22 NYCRR §202.5-b(d)(3)(i))
which, at the time of its printout from the court system's electronic website, had not yet been reviewed and
approved by the County Clerk. Because court rules (22 NYCRR §202.5[d]) authorize the County Clerk to reject
filings for various reasons, readers should be aware that documents bearing this legend may not have been
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ii
C. During the Repayment Period, Respondents Do Not Change the Fixed
Durations and Payment Amounts Based on a Specified Percentage of
Revenue ............................................................................................................. 60
1. Respondents Virtually Never Issued Reconciliation Refunds .................. 62
2. Respondents Made Reconciliation Expressly Discretionary Until 2018 .. 64
3. Starting Around 2018, Respondents Used Fixed Specified Percentages
that Were Grossly Inflated to Ensure that Merchants Would Still Be
Unable to Adjust Payments Retroactively Through Reconciliation ......... 67
4. Delta Bridge’s New Practice of Suggesting a Specified Percentage ......... 87
5. Additional Barriers to Reconciliation ........................................................ 91
a. Respondents Use the Effects of Declining Revenues to Disqualify
Merchants from Reconciliation .......................................................... 91
b. Respondents Manipulate How Merchants’ Revenue Is Calculated
When Performing Reconciliations ..................................................... 92
c. Respondents Do Not Provide Relief to Merchants When They
Experience Sudden Drops in Revenue .............................................. 98
d. Yellowstone and Delta Bridge Disincentivized Reconciliation, and
Their Funders Disfavored It ............................................................ 101
6. Prospective Payment Modifications—Which Are Discretionary and Do
Not Align Payments With the Specified Percentage—Are Not a
Substitute for Reconciliation ................................................................... 106
D. Respondents Treat the Specified Percentage—Purportedly the Share of
Revenue That Respondents Are Purchasing—As Irrelevant Except as a
Barrier to Reconciliation ................................................................................. 110
1. Respondents Did Not Negotiate the Specified Percentage With Merchants
113
2. Respondents Purported to Purchase Shares of Merchants’ Revenue that
Were Improbably (or Impossibly) Large .................................................. 120
3. Yellowstone and Delta Bridge Left It up to Individual Funders to
Determine What Counted as “Revenue” ................................................. 130
CAUTION: THIS DOCUMENT HAS NOT YET BEEN REVIEWED BY THE COUNTY CLERK. (See below.) INDEX NO. UNASSIGNED
NYSCEF DOC. NO. 1 RECEIVED NYSCEF: 03/05/2024
This is a copy of a pleading filed electronically pursuant to New York State court rules (22 NYCRR §202.5-b(d)(3)(i))
which, at the time of its printout from the court system's electronic website, had not yet been reviewed and
approved by the County Clerk. Because court rules (22 NYCRR §202.5[d]) authorize the County Clerk to reject
filings for various reasons, readers should be aware that documents bearing this legend may not have been
accepted for filing by the County Clerk.
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4. The Specified Percentage Was Only Relevant to Reconciliation—Where it
Has Served Chiefly as an Impediment .................................................... 132
E. Respondents Claim Rights to Repayment in the Event of Bankruptcy or Lack
of Revenue ....................................................................................................... 133
1. Respondents Claim Extensive Recourse in the Event of Merchant
Bankruptcy ............................................................................................... 135
2. When Merchants Are Unable to Make Just a Few Payments,
Respondents Take Court Action to Obtain Full Repayment of Pending
Balances from Merchants and Their Guarantors ................................... 138
3. Respondents Exercise Their Secured, Guaranteed Rights to Repayment
Despite Merchants’ Lack of Revenue or Closing of Their Businesses ... 141
F. Other Indicia that Respondents’ MCAs Are Loans ....................................... 147
1. Everyone Knew They Were Loans ........................................................... 147
2. Yellowstone Also Did Deals That Were Explicitly Loans, Which Were No
Different from Yellowstone and Delta Bridge’s So-Called MCAs .......... 152
3. Respondents Pushed Merchants Experiencing Financial Trouble to Take
on More Debt to Keep Up with the Daily Debits .................................... 154
4. Yellowstone Used Contracts that Purported to Purchase a Share of All
Monies the Merchant Received from Any Source ................................... 158
5. Yellowstone Marketed Its MCAs to Merchants as Loans ....................... 159
6. Yellowstone Specifically Pursued Merchants Who Were High Credit
Risks and Desperate for Funding ............................................................ 161
G. Respondents’ Loans Used Interest Rates that Vastly Exceeded the Legal
Limit ................................................................................................................ 162
II. RESPONDENTS MISREPRESENT THEIR USURIOUS TRANSACTIONS TO
THE NEW YORK COURTS ....................................................................................... 163
A. Respondents Have Misrepresented Their Transactions in False Affidavits 166
B. Respondents Misrepresent Their Transactions in Verified Complaints ...... 171
C. Respondents Misrepresent the Facts of Merchants’ Payment Histories in
Claiming that the Merchants Have Defaulted on Their MCAs .................... 175
CAUTION: THIS DOCUMENT HAS NOT YET BEEN REVIEWED BY THE COUNTY CLERK. (See below.) INDEX NO. UNASSIGNED
NYSCEF DOC. NO. 1 RECEIVED NYSCEF: 03/05/2024
This is a copy of a pleading filed electronically pursuant to New York State court rules (22 NYCRR §202.5-b(d)(3)(i))
which, at the time of its printout from the court system's electronic website, had not yet been reviewed and
approved by the County Clerk. Because court rules (22 NYCRR §202.5[d]) authorize the County Clerk to reject
filings for various reasons, readers should be aware that documents bearing this legend may not have been
accepted for filing by the County Clerk.
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III. RESPONDENTS ENGAGE IN REPEATED AND PERSISTENT FRAUD IN
THEIR DEALINGS WITH MERCHANTS ................................................................ 178
A. Respondents Misrepresent that Their Transactions Are Not Loans and that
They Will Provide Flexible Payment Structures and Terms ........................ 178
B. Respondents Falsely Promise No Collateral and No Personal Guarantees . 182
C. Respondents Falsely Promise Merchants that They Will Provide More
Desirable Financing Terms or Nonexistent Forms of Financing .................. 183
D. Yellowstone Concealed the Fees It Charged to Merchants ........................... 186
E. Respondents Fraudulently Continued to Debit Merchants’ Bank Accounts
After the Transactions Were Complete .......................................................... 189
IV. DELTA BRIDGE IS THE SAME BUSINESS AS YELLOWSTONE,
CONTINUED BY RESPONDENTS UNDER A DIFFERENT NAME ..................... 197
A. The Same People Are Doing the Same Jobs In the Same Offices ................. 199
1. The Same People Are In Charge .............................................................. 199
2. The Same People Sell, Underwrite, Service, and Collect on Delta Bridge
MCAs ........................................................................................................ 201
3. Respondents and their Personnel Continued to Work From the Same
Locations ................................................................................................... 204
B. Delta Bridge Succeeded to Virtually All of Yellowstone’s Assets In the So-
Called “Purchase of Software” ........................................................................ 206
1. The Transition to Delta Bridge Was Fraudulently Disguised as a Sale of
Software .................................................................................................... 206
2. Delta Bridge in Fact Succeeded to Virtually All of Yellowstone’s Assets
208
C. Delta Bridge Is Yellowstone—Minus the “Baggage” of the Investigations .. 213
1. Delta Bridge’s Business Is the Same as Yellowstone’s ........................... 215
2. Delta Bridge Employees and Funders Are Also Handling the So-Called
“Wind-Down” of Yellowstone’s Business ................................................. 220
D. Yellowstone Transferred Its Assets to Shield Them from Potential Liability
Resulting from the Government Investigations ............................................ 225
CAUTION: THIS DOCUMENT HAS NOT YET BEEN REVIEWED BY THE COUNTY CLERK. (See below.) INDEX NO. UNASSIGNED
NYSCEF DOC. NO. 1 RECEIVED NYSCEF: 03/05/2024
This is a copy of a pleading filed electronically pursuant to New York State court rules (22 NYCRR §202.5-b(d)(3)(i))
which, at the time of its printout from the court system's electronic website, had not yet been reviewed and
approved by the County Clerk. Because court rules (22 NYCRR §202.5[d]) authorize the County Clerk to reject
filings for various reasons, readers should be aware that documents bearing this legend may not have been
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1. Yellowstone Recognized at the Time of the Asset Transfer that the
Investigations Presented Grave Liabilities ............................................. 225
2. The Asset Transfer Was Motivated by Yellowstone’s Liabilities ........... 227
3. Yellowstone Engineered the Sale to an Insider and Maintained
Significant Control ................................................................................... 230
4. Delta Bridge Significantly Underpaid for the Assets It Acquired from
Yellowstone ............................................................................................... 234
V. SCALE AND EFFECTS OF RESPONDENTS’ FRAUD AND ILLEGALITY ... 236
VI. LIABILITY OF INDIVIDUAL RESPONDENTS ................................................ 241
A. Officer Respondents ........................................................................................ 241
1. David Glass ............................................................................................... 241
a. Glass Actively Managed, Directed, and Participated in Yellowstone’s
Operations Throughout Its Entire Existence .................................. 241
b. Glass Is a De Facto Officer and Shareholder of Yellowstone ......... 244
2. Isaac Stern ................................................................................................ 252
3. Jeffrey Reece ............................................................................................. 255
4. Bart Maczuga ........................................................................................... 258
5. Vadim Serebro .......................................................................................... 261
B. Funder Respondents ....................................................................................... 264
FIRST CAUSE OF ACTION AGAINST ALL RESPONDENTS PURSUANT TO
EXECUTIVE LAW § 63(12): ILLEGAL ACTS IN THE FORM OF USURY ............ 265
SECOND CAUSE OF ACTION AGAINST ALL RESPONDENTS PURSUANT TO
EXECUTIVE LAW § 63(12): ILLEGAL ACTS IN THE FORM OF CRIMINAL
USURY ........................................................................................................................ 266
THIRD CAUSE OF ACTION AGAINST ALL RESPONDENTS PURSUANT TO
EXECUTIVE LAW § 63(12): ILLEGAL ACTS IN THE FORM OF ENGAGING IN
THE BUSINESS OF MAKING HIGH-INTEREST LOANS WITHOUT A LICENSE
IN VIOLATION OF BANKING LAW §§ 340 AND 356 ............................................ 266
CAUTION: THIS DOCUMENT HAS NOT YET BEEN REVIEWED BY THE COUNTY CLERK. (See below.) INDEX NO. UNASSIGNED
NYSCEF DOC. NO. 1 RECEIVED NYSCEF: 03/05/2024
This is a copy of a pleading filed electronically pursuant to New York State court rules (22 NYCRR §202.5-b(d)(3)(i))
which, at the time of its printout from the court system's electronic website, had not yet been reviewed and
approved by the County Clerk. Because court rules (22 NYCRR §202.5[d]) authorize the County Clerk to reject
filings for various reasons, readers should be aware that documents bearing this legend may not have been
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FOURTH CAUSE OF ACTION AGAINST ALL RESPONDENTS PURSUANT TO
EXECUTIVE LAW § 63(12): FRAUD......................................................................... 268
FIFTH CAUSE OF ACTION AGAINST ALL RESPONDENTS PURSUANT TO
EXECUTIVE LAW § 63(12): DECEPTIVE ACTS AND PRACTICES IN VIOLATION
OF GENERAL BUSINESS LAW § 349 ...................................................................... 271
SIXTH CAUSE OF ACTION AGAINST DELTA BRIDGE FUNDING LLC:
VOIDABLE TRANSFER PURSUANT TO THE UNIFORM VOIDABLE
TRANSACTIONS ACT ............................................................................................... 273
REQUEST FOR RELIEF ............................................................................................ 275
CAUTION: THIS DOCUMENT HAS NOT YET BEEN REVIEWED BY THE COUNTY CLERK. (See below.) INDEX NO. UNASSIGNED
NYSCEF DOC. NO. 1 RECEIVED NYSCEF: 03/05/2024
This is a copy of a pleading filed electronically pursuant to New York State court rules (22 NYCRR §202.5-b(d)(3)(i))
which, at the time of its printout from the court system's electronic website, had not yet been reviewed and
approved by the County Clerk. Because court rules (22 NYCRR §202.5[d]) authorize the County Clerk to reject
filings for various reasons, readers should be aware that documents bearing this legend may not have been
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Petitioner the People of the State of New York (“Petitioner”), by their
attorney, Letitia James, Attorney General of the State of New York (“NYAG”),
brings this special proceeding pursuant to Executive Law § 63(12) against
Yellowstone Capital LLC, Fundry LLC, Delta Bridge Funding LLC, Cloudfund LLC,
David Glass, Bartosz (“Bart”) Maczuga, Jeffrey Reece, Vadim Serebro, Yitzhak
(“Isaac”) Stern, Tsvi (“Steve”) Davis, Aaron Davis, Matthew Melnikoff, Mark
Sanders, David Singfer, and all other Respondent entities listed above (collectively,
“Respondents”).
The NYAG, on behalf of Petitioner, alleges as follows:
PRELIMINARY STATEMENT
1. Yellowstone Capital, Fundry, Delta Bridge, Cloudfund, and the other
Respondents named herein have engaged for years in a fraudulent, illegal scheme—
under the leadership of David Glass, Isaac Stern, Jeffrey Reece, Bart Maczuga, and
Vadim Serebro—to fleece money from small businesses by issuing them illegal,
short-term loans at sky-high interest rates through so-called “merchant cash
advances,” or “MCAs.”
2. Through their illegal transactions, which Respondents have enforced
using judgments that they have fraudulently obtained from the New York courts,
Respondents have illegally collected billions of dollars from struggling small
businesses in New York and across the United States. By doing so, they have
driven merchants even further into debt or financial ruin—or worse—causing
CAUTION: THIS DOCUMENT HAS NOT YET BEEN REVIEWED BY THE COUNTY CLERK. (See below.) INDEX NO. UNASSIGNED
NYSCEF DOC. NO. 1 RECEIVED NYSCEF: 03/05/2024
This is a copy of a pleading filed electronically pursuant to New York State court rules (22 NYCRR §202.5-b(d)(3)(i))
which, at the time of its printout from the court system's electronic website, had not yet been reviewed and
approved by the County Clerk. Because court rules (22 NYCRR §202.5[d]) authorize the County Clerk to reject
filings for various reasons, readers should be aware that documents bearing this legend may not have been
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immense harm not only to the small businesses themselves, but also to the lives of
their owners, employees, and others who depend on them.
3. Respondents purport to help struggling small businesses by providing
them with rapid access to funding with flexible repayment options, with no lengthy
application process and despite past credit problems.
4. In reality, Respondents’ transactions are illegal, usurious, fraudulent
loans, set to fixed payment amounts that Respondents debit from merchants’ bank
accounts each business day (“Daily Amounts”). Respondents set their transactions
to finite terms, such as 60 days or 90 days.
5. Respondents memorialize each funding transaction in an agreement in
which they fraudulently describe the deal as a “Purchase and Sale of Future
Receivables,” or similar language. Respondents falsely state in their agreements
that they are buying a portion, which they call a “Specified Percentage,” of the
merchants’ future receipts of revenue, sometimes called “receivables.” Respondents
set each merchants’ payments to a fixed, recurring amount that they fraudulently
state reflects a Specified Percentage of the merchant’s future revenue.
6. Respondents misrepresent that if merchants’ revenue declines in the
future, the merchants can “reconcile” their past payment amounts accordingly,
obtaining refunds for past payments—and, in the case of Delta Bridge, adjustment
for future payments as well—so the merchants are never paying more than a set
percentage of their revenue. And Respondents falsely state in the agreements that
CAUTION: THIS DOCUMENT HAS NOT YET BEEN REVIEWED BY THE COUNTY CLERK. (See below.) INDEX NO. UNASSIGNED
NYSCEF DOC. NO. 1 RECEIVED NYSCEF: 03/05/2024
This is a copy of a pleading filed electronically pursuant to New York State court rules (22 NYCRR §202.5-b(d)(3)(i))
which, at the time of its printout from the court system's electronic website, had not yet been reviewed and
approved by the County Clerk. Because court rules (22 NYCRR §202.5[d]) authorize the County Clerk to reject
filings for various reasons, readers should be aware that documents bearing this legend may not have been
accepted for filing by the County Clerk.
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the transactions are open-ended, such that the advances may be paid off over a long
term if the merchants’ receipt of revenue slows down.
7. All these representations are a sham, created by Respondents to lure
merchants to sign their loan agreements and to evade New York usury law by
disguising the loans as something they are not. But Respondents’ transactions are
usurious loans, not purchases of revenue.
8. Respondents collect on the transactions according to fixed Daily
Amounts that have no connection to the Specified Percentages stated in the
agreements, and Respondents debit them from merchants’ bank accounts each
business day, regardless of declines in the merchants’ revenue.
9. Respondents’ promises of payment reconciliation are a fraud.
Respondents deliberately increase their Specified Percentages while planning their
transactions in order to put the remedy of reconciliation far out of reach for
merchants, making it impossible for merchants to qualify for fair refunds of excess
payments collected by Respondents when merchants’ intake of revenue declines.
10. Despite their promises of open-ended payment terms, Respondents set
their transactions to finite terms, such as 60 or 90 business days, which
Respondents regularly negotiate and manipulate, largely based on the perceived
risk of repayment and without regard to the percentages of merchants’ revenue
purportedly purchased. These finite repayment terms are not affected by
reconciliations or adjustments based on Specified Percentages of merchants’
revenue, which Respondents virtually never provide.
CAUTION: THIS DOCUMENT HAS NOT YET BEEN REVIEWED BY THE COUNTY CLERK. (See below.) INDEX NO. UNASSIGNED
NYSCEF DOC. NO. 1 RECEIVED NYSCEF: 03/05/2024
This is a copy of a pleading filed electronically pursuant to New York State court rules (22 NYCRR §202.5-b(d)(3)(i))
which, at the time of its printout from the court system's electronic website, had not yet been reviewed and
approved by the County Clerk. Because court rules (22 NYCRR §202.5[d]) authorize the County Clerk to reject
filings for various reasons, readers should be aware that documents bearing this legend may not have been
accepted for filing by the County Clerk.
11 of 289
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11. Through their fixed payments and finite terms, Respondents charge
the merchants sky-high annual interest rates that are regularly in the triple
digits—reaching at least as high as 820%—far beyond both the maximum civil
usury interest rate of 16% and the maximum criminal usury interest rate of 25%.
12. Respondents require the transactions to be personally guaranteed and
extensively secured against a vast array of merchants’ assets, far beyond the
revenue Respondents purport to be purchasing.
13. Respondents claim for themselves priority status as secured creditors
under UCC Article 9, enabling them to ensure full repayment in the event of
merchant bankruptcy, long after merchants’ revenue has dwindled to zero, while
unsecured and lower-priority creditors may recover little to nothing.
14. Respondents declare merchants in default when they merely have
insufficient funds in their bank account to cover Respondents’ debits of Daily
Amounts, and in the event of such “default” Respondents file legal actions against
merchants and their guarantors to immediately recover not only the missed
payments but also the merchant’s entire remaining balance.
15. And on top of their usury scheme, Respondents, through their
Yellowstone operation, have defrauded merchants in other ways by repeatedly
charging the merchants hidden, undisclosed fees and by debiting from the
merchants’ bank accounts excess payments that the merchants never agreed to.
16. Respondents have also directed their fraudulent scheme at the New
York judiciary. This was an essential part of Respondents illegal usury scheme, as
CAUTION: THIS DOCUMENT HAS NOT YET BEEN REVIEWED BY THE COUNTY CLERK. (See below.) INDEX NO. UNASSIGNED
NYSCEF DOC. NO. 1 RECEIVED NYSCEF: 03/05/2024
This is a copy of a pleading filed electronically pursuant to New York State court rules (22 NYCRR §202.5-b(d)(3)(i))
which, at the time of its printout from the court system's electronic website, had not yet been reviewed and
approved by the County Clerk. Because court rules (22 NYCRR §202.5[d]) authorize the County Clerk to reject
filings for various reasons, readers should be aware that documents bearing this legend may not have been
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Respondents counted on being able to enforce their agreements with merchants,
who were located all over the country, in the courts of this state.
17. When Respondents sought to enforce their agreements, they did so by
fraudulently obtaining judgments from the New York courts. Respondents file court
papers falsely stating that they collect “Specified Percentages” of merchants’
revenue and that merchants have defaulted on the transactions by failing to pay
such percentages to Respondents. By fraudulently filing such papers in court,
Respondents have created before the courts the illusion that their transactions are
lawful investments in merchants’ future receipts of revenue—when in reality they
are nothing more than fixed-payment, short-term, ultra-high-interest loans.
Respondents have then used these fraudulently obtained judgments as a tool to
seize even more money from the bank accounts of merchants and their guarantors,
in addition to the money Respondents wrongly collected as Daily Amounts.
18. Respondents have conducted their fraudulent, illegal scheme under
numerous corporate names and purported corporate forms. From 2009 to 2021,
Respondents managed their operation under the names of Yellowstone Capital,
Fundry, and numerous subsidiary companies (“Yellowstone Subsidiaries”), such as
Green Capital Funding LLC, Capital Advance Services LLC, and World Global
Capital LLC. Each of these was merely an interchangeable brand name, an alias,
for Yellowstone Capital, and all such entities provided the same usurious,
fraudulent MCA product put forth by Yellowstone Capital.
CAUTION: THIS DOCUMENT HAS NOT YET BEEN REVIEWED BY THE COUNTY CLERK. (See below.) INDEX NO. UNASSIGNED
NYSCEF DOC. NO. 1 RECEIVED NYSCEF: 03/05/2024
This is a copy of a pleading filed electronically pursuant to New York State court rules (22 NYCRR §202.5-b(d)(3)(i))
which, at the time of its printout from the court system's electronic website, had not yet been reviewed and
approved by the County Clerk. Because court rules (22 NYCRR §202.5[d]) authorize the County Clerk to reject
filings for various reasons, readers should be aware that documents bearing this legend may not have been
accepted for filing by the County Clerk.
13 of 289
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19. Respondents have for years concealed their association with David
Glass, a notorious white-collar criminal who was previously convicted of securities
fraud, even as Glass has been actively engaged with Respondents for years in
shaping and managing their fraudulent, illegal MCA business.
20. In 2021, Respondents purported to wind down the Yellowstone/Fundry
operation and sell its software assets to a brand-new MCA company, Delta Bridge—
a transaction arranged by Glass—but the asset sale was a sham. Delta Bridge and
its affiliated company Cloudfund were nothing more than new names for the same
Yellowstone/Fundry operation, run by former Yellowstone officers, staffed by the
same Yellowstone personnel, and selling the same fraudulent, illegal, usurious
MCA product that was long sold by Yellowstone.
21. Since 2013, Respondents under their various names have illegally,
fraudulently collected an estimated $4.5 billion from merchants and their
guarantors, including an estimated $1.38 billion in interest. Businesses throughout
the country have been ruined as a result. Many, such as the popular New York
City-based City Bakery, have been forced to lay off their employees and go out of
business after being pushed by Respondents into deepening spirals of debt. When
one merchant, Jerry Bush, a plumber based in Virginia, was told by Respondent
Steve Davis that death was the only escape from his ballooning debts to
Yellowstone (or winning the lottery), the merchant attempted suicide in a desperate
attempt to save himself and his family from a bottomless pit of debt.
CAUTION: THIS DOCUMENT HAS NOT YET BEEN REVIEWED BY THE COUNTY CLERK. (See below.) INDEX NO. UNASSIGNED
NYSCEF DOC. NO. 1 RECEIVED NYSCEF: 03/05/2024
This is a copy of a pleading filed electronically pursuant to New York State court rules (22 NYCRR §202.5-b(d)(3)(i))
which, at the time of its printout from the court system's electronic website, had not yet been reviewed and
approved by the County Clerk. Because court rules (22 NYCRR §202.5[d]) authorize the County Clerk to reject
filings for various reasons, readers should be aware that documents bearing this legend may not have been
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22. Petitioner now seeks relief for the merchants that have been harmed
by Respondents’ repeated and persistent fraud and illegality and an injunction
prohibiting Respondents from engaging in similar conduct in the future.
23. Pursuant to New York Executive Law § 63(12), Petitioner seeks an
order:
a. Permanently enjoining Respondents from engaging in the fraudulent
and illegal practices alleged herein;
b. Permanently enjoining Respondent Glass from engaging in or profiting
from MCAs, loans, or business funding in the future, and enjoining all
other Respondents from involvement in the Merchant Cash Advance
business for no less than ten years;
c. Ordering Respondents to cease all collection of payments on MCAs
pending the hearing of this Petition;
d. Declaring void and ordering rescission of each of Respondents’
usurious, fraudulent, and illegal agreements;
e. Ordering Respondents to file papers sufficient to obtain vacatur of all
judgments obtained by them pursuant to such agreements;
f. Staying all marshals, sheriffs, and collection agents from executing or
collecting upon such judgments;
g. Ordering Respondents to apply for dismissal of all pending court
proceedings concerning such agreements;
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h. Ordering Respondents to file papers sufficient to terminate all liens or
security interests related to their cash advances;
i. Ordering Respondents to provide a detailed accounting of all moneys
collected;
j. Ordering Respondents to pay full restitution and damages to
merchants in the amount of every dollar of interest Respondents have
illegally collected from merchants, every dollar Respondents have
fraudulently overcollected from merchants beyond the total collection
amounts represented, every dollar of their fraudulent fees, and every
dollar they have collected through execution of their fraudulently
obtained court judgments;
k. Ordering Respondents to disgorge all profits;
l. Awarding civil penalties and costs to the NYAG;
m. Setting aside the asset transfer between Yellowstone and Delta Bridge;
and
n. Granting such other and further relief as the Court deems just and
proper.
PARTIES AND JURISDICTION
24. Petitioner is the People of the State of New York.
25. The NYAG brings this special proceeding on behalf of the People
pursuant to, inter alia, Executive Law § 63(12), which authorizes the NYAG to seek
injunctive relief, restitution, damages, and costs when any person or entity has
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engaged in repeated fraudulent or illegal acts or has otherwise demonstrated
persistent fraud or illegality in conducting its business.
I. CORPORATE RESPONDENTS
A. Yellowstone Capital and Fundry
26. Respondent Yellowstone Capital LLC is a limited liability company
organized under New York law in 2009. Ex. 436 (Articles of Organization).
1
From
2009 until 2016, Yellowstone Capital LLC was headquartered at 160 Pearl Street in
Manhattan. See Kern Tr. at 29:14-25; Melnikoff Tr. at 41:14-18.
2
27. After 2016, Yellowstone and its subsidiaries maintained offices in
Manhattan at 30 Broad Street, 14
th
Floor, and 116 Nassau Street, Suite 804, and in
New Jersey at One Evertrust Plaza, Jersey City. In all of their MCA transactions
with merchants, Yellowstone and its subsidiaries prominently listed one of their
Manhattan addresses, locating themselves in the Financial District of the financial
capital of the world. E.g., Ex. 1 (hereinafter “Yellowstone 2018 Exemplar”) at 2; Ex.
2 (hereinafter “Yellowstone 2020 Exemplar”) at 1.
28. The MCA agreements that Yellowstone and its subsidiaries entered
into with merchants were all negotiated and carried out in New York, and each of
the payments collected from merchants was delivered to Yellowstone in New York,
as expressly stated in the agreements. See, e.g., Yellowstone 2020 Exemplar at 11-
1
Exhibits cited herein are exhibits to the Affirmation of Adam J. Riff, filed
herewith.
2
Transcripts are identified by exhibit number in paragraphs 83 and 112, infra.
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12 § 43; Ex. 87 at 11 § 43 (Nov. 2018 Green Capital contract); see also infra ¶¶ 466-
472 (discussing Respondents’ targeting of New York as an essential part of their
fraudulent and illegal usury scheme).
29. Respondent Fundry LLC is a limited liability company organized
under New York law in 2015. See Ex. 437 at 28 (Fundry Articles of Organization).
Fundry is an alias for Yellowstone Capital LLC, and its employees and
representatives have used the two names “interchangeably.” Stern Tr. at 31:19-20;
see also Reece Tr. at 24:24-25:2.
30. Yellowstone Capital LLC and Fundry currently have no offices of their
own, but instead do business from the offices of Delta Bridge, as set forth infra
¶¶ 637-651, and from the homes of their officers, Respondents Stern, Reece, and
Glass.
31. Yellowstone purportedly ceased issuing new MCAs in May 2021. In
reality, Yellowstone has continued to operate under the Delta Bridge name, as set
forth below. See infra Part IV. Yellowstone also continues to collect on certain
outstanding MCAs that were issued prior to May 2021. See, e.g., Stern Tr. at
150:11-151:17.
B. Yellowstone Subsidiaries
32. Yellowstone Capital LLC issued and collected on its MCAs through
numerous subordinate limited liability corporations (“Yellowstone Subsidiaries”).
See Ex. 47 (Yellowstone Organization Charts) (defining such entities as “Funding
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Platforms”); see also infra ¶¶ 59-69 (explaining that Yellowstone and the
Subsidiaries form a common enterprise).
33. As used in this Petition, the name “Yellowstone” refers collectively to
Yellowstone Capital LLC, Fundry, and all Yellowstone Subsidiaries.
34. Each of the Yellowstone Subsidiaries identified herein on information
and belief operated from Yellowstone Capital LLC’s offices.
35. Respondent ABC Merchant Solutions, LLC, is a Yellowstone
Subsidiary and a limited liability company organized under New York law in 2016.
See Ex. 437 at 1 (New York Department of State (“NY DOS”) Entity Information).
36. Respondent Advance Merchant Services LLC is a Yellowstone
Subsidiary and a limited liability company organized under New York law in 2015.
See id. at 4 (NY DOS Entity Information).
37. Respondent Business Advance Team LLC is a Yellowstone Subsidiary
and a limited liability company organized under New York law in 2016. See id. at 7
(NY DOS Entity Information). Business Advance Team LLC did business under its
own name and the names Accel Funding, BRC, and Everyday Capital. See Ex. 47
(Yellowstone Organization Chart).
38. Respondent Capital Advance Services LLC is a Yellowstone Subsidiary
and a limited liability company organized under New York law in 2015. See Ex. 437
at 9 (NY DOS Entity Information).
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39. Respondent Capital Merchant Services, LLC, is a Yellowstone
Subsidiary and a limited liability company organized under New York law in 2015.
See id. at 12 (NY DOS Entity Information).
40. Respondent Cash Village Funding LLC is a Yellowstone Subsidiary
and a limited liability company organized under New York law in 2017. See id. at
15 (NY DOS Entity Information).
41. Respondent Fast Cash Advance LLC is a Yellowstone Subsidiary and a
limited liability company organized under New York law in 2018. See id. at 25 (NY
DOS Entity Information).
42. Respondent Fundzio LLC is a Yellowstone Subsidiary and a limited
liability company organized under New York law in 2017. See id. at 31 (NY DOS
Entity Information).
43. Respondent Green Capital Funding LLC is a Yellowstone Subsidiary
and a limited liability company organized under New York law in 2015. See id. at
37 (NY DOS Entity Information).
44. Respondent HFH Merchant Services LLC is a Yellowstone Subsidiary
and a limited liability company organized under New York law in 2017. See id. at
40 (NY DOS Entity Information).
45. Respondent High Speed Capital LLC is a Yellowstone Subsidiary and a
limited liability company organized under New York law in 2014. See id. at 43 (NY
DOS Entity Information).
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46. Respondent Merchant Capital Pay LLC is a Yellowstone Subsidiary
and a limited liability company organized under New York law in 2018. See id. at
46 (NY DOS Entity Information).
47. Respondent Merchant Funding Services LLC is a Yellowstone
Subsidiary and a limited liability company organized under Florida law in 2013.
See id. at 49 (Articles of Organization).
48. Respondent Midnight Advance Capital LLC is a Yellowstone
Subsidiary and a limited liability company organized under New York law in 2016.
See id. at 53 (NY DOS Entity Information).
49. Respondent Mr. Advance Capital LLC is a Yellowstone Subsidiary and
a limited liability company organized under New York law in 2019. See id. at 56
(NY DOS Entity Information).
50. Respondent Ocean 1213 LLC is a Yellowstone Subsidiary and a limited
liability company organized under New York law in 2017. See id. at 59 (NY DOS
Entity Information).
51. Respondent Simply Equities LLC is a Yellowstone Subsidiary and a
limited liability company organized under New York law in 2018. See id. at 62
(Articles of Organization).
52. Respondent Thryve Capital Funding LLC is a Yellowstone Subsidiary
and a limited liability company organized under New York law in 2016. See id. at
65 (NY DOS Entity Information).
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53. Respondent TVT Cap Fund LLC is a Yellowstone Subsidiary and a
limited liability company organized under New York law in 2016. See id. at 68 (NY
DOS Entity Information).
54. Respondent TVT Capital HR, LLC, is a Yellowstone Subsidiary and a
limited liability company organized under New York law in 2018. See id. at 71 (NY
DOS Entity Information).
55. Respondent WCM Funding LLC is a Yellowstone Subsidiary and a
limited liability company organized under New York law in 2017. See id. at 74 (NY
DOS Entity Information).
56. Respondent West Coast Business Capital, LLC (“West Coast Capital”),
is a Yellowstone Subsidiary and a limited liability company organized under New
York law in 2012. See id. at 77 (NY DOS Entity Information). West Coast Capital
was known as Yellowstone Capital West LLC until 2018, when it changed its name
to West Coast Business Capital, LLC. See id. at 82 (Certificate of Amendment).
57. Respondent World Global Capital LLC (“World Global”) is a
Yellowstone Subsidiary and a limited liability company organized under New York
law in 2016. See id. at 80 (NY DOS Entity Information). World Global has done
business under its own name and over forty additional entity names (“World Global
DBAs”), as identified in its MCA agreements and in Yellowstone’s Organization
Chart. See Ex. 47. The World Global DBAs include:
1) 1 West Financial
2) 24 Capital
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3) ABC Merchant Solutions
4) Accel Capital Services
5) Blue Rock Capital
6) Cardinal Advance
7) Cardinal Funding
8) Citi Cap
9) Clara Capital
10) Crestmont Capital
11) Direct Capital Source
12) EIN Cap
13) Everlasting Capital
14) Fast Cash Advance
15) Fast Cash Funding
16) Fastline Capital
17) Flash Advance
18) Fortress Advance
19) Funderslink
20) Fundit Lending Solutions
21) Fundkite Funding
22) Fundworks
23) Grand Capital Funding
24) Ibex Funding Group
25) Ifundco
26) Karish Funding
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27) Main Street Merchant Services
28) Mainstreet Capital Group
29) Mass Capital Funding
30) New Era Advance
31) One Funder
32) One World Funding
33) PBS Capital
34) Prosperum Funding
35) RBS Funding
36) RTR Funding
37) Richmond Funding
38) SBG Funding
39) Samson Advance
40) Simple Funding Solutions
41) Smart Business High Risk
42) Sprout Funding
43) Standard Financing
44) Three Tree Funding
45) Velocity Capital Group
46) Velocity Funding Group
47) Westwood Funding
48) Yes Funding
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58. The Yellowstone Subsidiaries memorialized their MCAs in agreements
substantially identical to the Yellowstone agreements. See generally Exs. 462 and
463 (exemplar agreements in alphabetical order by Yellowstone Subsidiary).
C. Yellowstone, Its Subsidiaries, and Fundry Form a
Common Enterprise
59. Yellowstone Capital LLC, Fundry, and the Yellowstone Subsidiaries
form a common enterprise.
60. Respondent Stern, Yellowstone’s co-founder and CEO, explained that
“Yellowstone issued merchant cash advances through various LLCs.” Stern Tr. at
54:8-11. He testified that the LLCs were simply “Yellowstone entities” that “were
owned and controlled by Yellowstone” and used simply as “different Yellowstone
brands,” id. at 54:25-55:9, and treated as “just the [contractual] paper that the
merchant cash advances were funded on,” id. at 56:17-19; accord Maczuga Tr. at
112:22-113:11; S. Davis Tr. at 214:9-24.
61. Stern testified that “there were no differences among [the] merchant
cash advances that the [subordinate] entities offered,” and Yellowstone’s personnel
“use[d] the entities interchangeably.” Stern Tr. at 56:3-5, 62:24-63:2; accord S.
Davis Tr. at 24:18-25:13; Ehrlich Tr. at 66:22-67:4; Kern Tr. at 165:16-166:7; McNeil
Tr. at 103:1-104:16; Melnikoff Tr. at 86:18-25; Saffer Tr. at 35:12-24, 104:7-20,
155:25-156:4; Schwartz Tr. at 72:14-73:7, 79:8-15; Worch Tr. at 42:21-44:25, 144:24-
145:5; Yagecic I Tr. at 127:22-128:6.
62. Respondents occasionally referred to such Yellowstone brands as
“white labels.”
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63. The Yellowstone Subsidiaries were “identical in terms of their
operations, personnel, [and] location.” Stern Tr. at 70:6-11; accord Reece Tr. at
58:12-59:25. They had no separate officers, employees, boards of directors, legal
counsel, office addresses, Stern Tr. at 58:6-20, or phone numbers aside from those
of Yellowstone Capital LLC, see, e.g., Ex. 117 at 9, 15 (Mar. 8, 2018 Yellowstone
Capital LLC agreement); Ex. 106 at 9-10 (Green Capital Funding LLC agreement of
the same date); Ex. 89 at 7 (May 29, 2015 Merchant Funding Services LLC
agreement); Ex. 119 at 1 (May 28, 2015 Yellowstone Capital LLC agreement); Ex.
98 at 1, 10 (Jan. 19, 2017 Yellowstone Capital West LLC agreement).
64. The Yellowstone Subsidiaries were operationally identical, with no
differences in underwriting, servicing, or collections. See Stern Tr. at 61:18-63:5.
The Yellowstone Subsidiaries were financially identical, including in their
distribution of revenues and profits. Stern Tr. at 61:14-17. The Yellowstone
Subsidiaries differed only in their names and in their use of different bank accounts
to collect payments. Stern Tr. at 70:6-11; McNeil Tr. at 113:6-10.
65. Yellowstone issued its MCAs through subsidiary names such as Green
Capital Funding and High Speed Capital largely to conceal from merchants
Yellowstone’s involvement in its MCA transactions. See Ex. 325 at 5 (email to all
Yellowstone personnel, stating: “We are treating Green Capital with the same level
of discretion as HighSpeed; looking to avoid a direct Yellowstone connection”).
Yellowstone had a “particularly bad” relationship in the MCA industry, Ehrlich Tr.
at 70:22-71:3, so it “tr[ied] to obscure its involvement in deals through the use of . . .
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different entities,” Williams Tr. at 60:12-18; accord id. at 58:14-19, 61:24-62:5;
Yagecic I Tr. at 131:20-22; Vasquez Tr. at 37:11-13, 38:6-12.
66. Around 2015, for example, Yellowstone began selling MCAs through
Green Capital, a Yellowstone Subsidiary, “the whole purpose” of which “was to try
to separate from the extremely negative reputation that Yellowstone had.” Ehrlich
Tr. at 69:9-70:5; see Ex. 325 at 5. Merchants “knew to stay away from Yellowstone,
but then they would come to Green Capital, thinking they were speaking with a
new company, but it’s the same paper.” Ehrlich Tr. at 70:14-19; see, e.g. Alabudi
Aff. ¶¶ 65-66, 70, 73.
67. For example, the merchant Austin’s Habibi entered into an MCA
agreement with High Speed Capital in March 2018 in part because its owner had
previously had a bad experience with a different Yellowstone Subsidiary and
believed that High Speed was not Yellowstone-affiliated—an understanding that
was fraudulently confirmed by a broker working with High Speed Capital, who
falsely “confirmed that they were ‘different’ companies.” Alabudi Aff. ¶ 70.
68. Also in 2015, Respondents created the company Fundry LLC, and they
began using Fundry as a “brand name” for Yellowstone’s overall operation. See
Stern Tr. at 51:16-52:18; accord Reece Tr. at 24:24-25:2 (“Fundry is the rebranding
of Yellowstone.”).
69. For “operational and financial purposes,” there was no difference
between Fundry and Yellowstone Capital LLC. Stern Tr. at 51:18-22; accord Glass
Tr. at 44:24:45:4. Fundry had no personnel, office address, or phone lines separate
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from those of Yellowstone Capital LLC. Stern Tr. at 52:13-18. Respondents used
the Yellowstone and Fundry names “interchangeably.” Stern Tr. at 31:19-20.
D. Delta Bridge Entities
70. Respondent Delta Bridge Funding LLC is a limited liability company
organized under Delaware law in 2021. See Ex. 437 at 21 (Certificate of
Formation). Delta Bridge Funding LLC maintains offices in Suffern, New York,
and in Fort Lauderdale and Aventura, Florida. See Ex. 53.
71. In its MCA transactions with merchants, Delta Bridge prominently
lists its Suffern address, continuing Yellowstone’s practice of outwardly identifying
itself as a New York-based company. E.g., Ex. 3 (hereinafter “Delta Bridge
Exemplar”) at 1; see also infra ¶¶ 466-472.
72. The MCA agreements that Delta Bridge has entered into with
merchants were all negotiated and carried out in New York, and each of the
payments collected from merchants was delivered to Delta Bridge in New York, as
expressly stated in the agreements. See, e.g., Delta Bridge Exemplar at 10 § 38; see
also infra ¶¶ 466-472 (discussing Respondents’ targeting of New York as an
essential part of their fraudulent and illegal usury scheme).
73. Respondent Cloudfund LLC is a limited liability company organized
under New York law in 2021. See Ex. 437 at 18 (Articles of Organization).
Cloudfund is an affiliate of Delta Bridge Funding LLC and is operated from the
same offices. Maczuga Tr. at 114:8-25. Cloudfund does business both under its own
name and under other names, including: Samson Group, Unique Capital,
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Alternative Fast Source, Red Hawk Funding, and WWF Funding Group. E.g., Exs.
63, 69, 99, 91, 56.
74. Since May 2021, Respondents’ MCA agreements have identified
Cloudfund as party to its agreements and Delta Bridge Funding LLC as
Cloudfund’s “servicing agent,” responsible for servicing the transactions. Serebro
Tr. at 97:17-25; e.g., Delta Bridge Exemplar at 1, 3 § 8.
75. In fact, Delta Bridge Funding LLC and Cloudfund operate as a
common enterprise. The two entities are referred to collectively as “Delta Bridge” in
this Petition.
76. As Respondent Bart Maczuga—CEO of both entities—testified, “[I]t’s
all one . . . it’s one company.” Maczuga Tr. at 114:8-15; see also Saffer Tr. at 37:12-
18 (“Cloud Fund and Delta Bridge are the same”).
77. Cloudfund is simply a “brand name,” or “platform,” for Delta Bridge’s
MCAs, created for the “sole purpose of being . . . [named] on the contract” for Delta
Bridge’s MCAs. Maczuga Tr. at 113:12-114:12.
78. Cloudfund has no employees of its own apart from those who work for
Delta Bridge Funding LLC. See id. at 114:8-9; Serebro Tr. at 89:14-90:6, 91:25-92:8.
79. Cloudfund has no offices separate from those of Delta Bridge Funding
LLC. See Maczuga Tr. at 114:8-25.
80. Cloudfund has no directors or officers separate from those of Delta
Bridge Funding LLC. See id. at 114:4-15; Serebro Tr. at 89:14-90:6, 91:25-92:8.
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81. On information and belief, Cloudfund has no telephone lines separate
from those of Delta Bridge Funding LLC.
82. Delta Bridge is also Yellowstone’s legal successor, as set forth below.
Infra Part IV.
II. INDIVIDUAL RESPONDENTS
83. The individual Respondents, who are detailed in this Part, are
summarized in this chart:
RESPONDENT
ROLE
TESTIMONY
David Glass
Yellowstone de facto officer, part owner,
and co-founder (2015-present)
Yellowstone CFO, part owner
(2009-2014)
Ex. 9 (“Glass Tr.”)
Ex. 10 (“Glass Strike
Tr.”) (see infra
¶ 600 & n.13)
Yitzhak (“Isaac”)
Stern
Yellowstone CEO, part owner, and co-
founder (2009-present)
Ex. 20 (“Stern Tr.”)
Jeffrey Reece
Yellowstone president and part owner
(2015-present)
Ex. 15 (“Reece Tr.”)
Bartosz (“Bart”)
Maczuga
Delta Bridge CEO, majority owner, and
co-founder (2021-present)
Yellowstone Co-CEO and part owner
(2019-2021)
Yellowstone Funder (2012-2019)
Ex. 12 (“Maczuga
Tr.”)
Vadim Serebro
Delta Bridge general counsel, part
owner, and co-founder (2021-present)
Yellowstone general counsel
(2018-present)
Ex. 18 (“Serebro
Tr.”)
Aaron Davis
Yellowstone & Delta Bridge Funder
(to present)
Ex. 6 (“A. Davis
Tr.”)
Tsvi (“Steve”)
Davis
Yellowstone Funder (to 2018) and part
owner (to present)
Ex. 7 (“S. Davis Tr.”)
Matthew
Melnikoff
Yellowstone & Delta Bridge Funder
(to present)
Ex. 14 (“Melnikoff
Tr.”)
Mark Sanders
Yellowstone & Delta Bridge Funder
(to present)
N/A (see infra ¶ 107)
David Singfer
Yellowstone & Delta Bridge Funder
(to present)
Ex. 19 (“Singfer
Tr.”)
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A. Officer Respondents
84. Respondents Glass, Stern, Reece, Maczuga, and Serebro, each of whom
has served as an officer of Yellowstone and/or Delta Bridge, are collectively referred
to herein as Officer Respondents.
85. Respondent David Glass currently resides in Fort Lauderdale, Florida.
Glass Tr. at 13:11-13. Glass co-founded Yellowstone with Isaac Stern in 2009, id. at
39:5-6, served as its managing member and chief financial officer through 2014, id.
at 29:25-30:5; Ex. 409 at 1 (identifying Glass as Yellowstone’s Managing Member);
Ex. 414 at 2 (same), and has since January 2015 remained active in planning
Respondents’ operations and transactions as an undisclosed, de facto officer and
shareholder, as set forth below.
86. Glass was Yellowstone Capital LLC’s registered agent when the entity
was organized in 2009, listing his Manhattan residence as the place of service. Ex.
436 (Articles of Organization). Glass managed Yellowstone working out of
Yellowstone’s Manhattan office at 160 Pearl Street through at least 2014. Glass Tr.
at 35:23-25, 59:2-5, 63:21-64:10.
87. Glass has maintained his ownership share in Yellowstone through
New York entities including Grace Capital LLC. See Ex. 417. According to the New
York Department of State, Glass is the registered agent for Grace Capital, at
residential addresses in Brooklyn and Southhampton, New York. See Ex. 437 at 34
(NY DOS entity information for Grace Capital); see also Ex. 368 at 1 (reference to a
gathering at “glass’s hamptons place” in 2019); Saffer Tr. at 224:18-25.
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88. Respondent Yitzhak (“Isaac”) Stern resides in Hillside, New Jersey.
Stern co-founded Yellowstone with Glass in 2009 and since that time has led the
company as its chief executive officer (“CEO”). Stern Tr. at 14:6-7, 82:4.
89. Stern managed Yellowstone working out of Yellowstone’s Manhattan
office at 160 Pearl Street until 2016. Glass Tr. at 35:23-25, 59:2-5, 63:21-64:10.
90. Respondent Jeffrey Reece currently resides in Providence, Utah. Reece
joined Yellowstone’s management team in 2015, serves as its president, and is a
part owner of Yellowstone. Reece Tr. at 13:9-10, 21:7-8; Stern Tr. at 28:23-29:3.
91. Reece managed Yellowstone working out of Yellowstone’s Manhattan
office at 160 Pearl Street until 2016. Reece Tr. at 39:13-17.
92. Respondent Bartosz (“Bart”) Maczuga currently resides in Sunny Isles
Beach, Florida. Maczuga Tr. at 19:19-24. Maczuga started at Yellowstone in 2011
in a behind-the-scenes role working for David Glass, who recruited him for the role,
and then became a Funder the next year. Id. at 38:2-39:25, 43:19-45:8; see infra
¶ 97 (defining “Funder”). During the years 2016 through 2018, Maczuga was
ranked as one of Yellowstone’s top Funders. See Ex. 54. Maczuga was a Funder on
Yellowstone transactions, working out of Yellowstone’s Manhattan office at 160
Pearl Street until 2016.
93. In February 2019 Maczuga was promoted to co-CEO of Yellowstone,
serving alongside Stern. Maczuga Tr. at 34:7-8; 374:24-25. From May 2021 until
the present Maczuga has served as CEO of Delta Bridge, which company he co-owns
with Respondent Vadim Serebro. Maczuga Tr. at 28:15-19; Serebro Tr. at 68:3-12.
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94. Respondent Vadim Serebro resides in Yonkers, New York. Serebro Tr.
at 12:19-24. Together with Maczuga, Serebro is co-founder and co-owner of Delta
Bridge. See Ex. 52. Serebro is also the sole owner of an affiliated collections firm
dedicated to collecting on defaulted Delta Bridge MCAs, called Max Recovery, which
previously performed the same function at Yellowstone. See infra ¶¶ 587-590;
Serebro Tr. at 68:20-69:17, 74:11-21.
95. Serebro is Delta Bridge’s general counsel (2021 to present) as well as
Yellowstone’s general counsel (2018 to present), where he worked beginning in
2013. See Exs. 50, 51; Serebro Tr. at 19:16-20:14; Stern Tr. at 135:8-11. Serebro
also uses the title of general counsel at Max Recovery, the collections firm he solely
owns and manages. Serebro Tr. at 20:23-24, 69:9-17. In addition, Serebro holds the
title of Chief Strategy Officer at Delta Bridge. Id. at 51:25-52:17.
96. Serebro has personally invested in hundreds of Respondents’
individual MCA transactions as a “participant” (defined infra ¶ 98), through an
entity he owns called VS Ventures. Serebro Tr. at 58:14-59:7, 62:7-63:3, 103:13-
107:7; 130:24-133:18.
B. Funder Respondents
97. Both Yellowstone and Delta Bridge operate through individuals they
refer to as “funders” (“Funders”), who purportedly serve as independent contractors
and are responsible for negotiating, underwriting, issuing, servicing, and collecting
upon the companies’ MCAs, as set forth herein. E.g., Melnikoff Tr. at 28:16-29:7;
Maczuga Tr. at 76:14-80:19; A. Davis Tr. at 31:25-32:13; S. Davis Tr. at 47:25-15,
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50:14-51:13; Singfer Tr. at 21:8-20; Saffer Tr. at 39:4-41:11; see also infra ¶¶ 327-
331 (discussing Funders’ negotiations with merchants).
98. Yellowstone’s and Delta Bridge’s Funders participate financially in
each of the MCAs they manage by investing money into the transactions and
sharing in the profits and losses that result. See Glass Tr. at 133:9-15; Kern Tr. at
38:12-19; S. Davis Tr. at 41:6-13; Ehrlich Tr. at 20:4-15, 59:6-25, 83:7-84:14; see also
infra ¶ 630 (Funder compensation same at Yellowstone and Delta Bridge).
Yellowstone and Delta Bridge’s Funders also regularly invest in individual
Yellowstone and Delta Bridge MCA deals managed by other Funders through so-
called “participation” or “syndication” arrangements. Maczuga Tr. at 55:4-10; Reece
Tr. at 45:11-20; Saffer Tr. at 63:15-20; Yagecic II Tr. at 93:2-6; McNeil Tr. at 142:6-
24 (testifying about Ex. 288).
99. The Funder respondents identified herein include Maczuga, who
served as a Funder at Yellowstone prior to being named Yellowstone’s co-CEO, and
five of Respondents’ top ten additional Funders from 2016 through 2022, as
determined by total dollars advanced to merchants in Yellowstone’s and Delta
Bridge’s MCAs (“Funder Respondents”). See Ex. 54 (list of top Yellowstone/Delta
Bridge Funders by year by dollars advanced). Each Funder Respondent remains
active in the MCA industry as of at least 2023.
100. The Funder Respondents include the following individuals.
101. Respondent Aaron Davis resides in Pomona, New York. A. Davis Tr.
at 12:17-21. Aaron Davis worked as a Funder at Yellowstone from around 2009
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until at least May 2021 and at Delta Bridge from May 2021 to the present. See id.
at 20:15-18, 41:7-17. Respondents Aaron Davis and Steve Davis are brothers.
102. Respondent Tsvi (“Steve”) Davis currently resides in Miami Beach,
Florida. S. Davis Tr. at 13:9-11. He previously resided in Brooklyn, as of 2018. See
Ex. 415 at 1. Steve Davis joined Yellowstone at its inception in 2009, became a
Yellowstone shareholder in 2011, worked at Yellowstone until at least 2018, and
remains a part owner of the company to the present. Id. at 22:3-8, 28:6-16; Stern
Tr. at 37:22-24, 105:2-11.
103. Steve Davis was consistently Respondents’ highest-ranking Funder
while working at Yellowstone. See Ex. 54 at 1. In 2017, for example, Davis funded
$195.5 million in MCA deals, which was over five times what Yellowstone’s second-
highest Funder funded that year. Id.
104. In addition to retaining an ownership stake in Yellowstone, Steve
Davis has remained active in the MCA industry through his ownership of Nomas
Recovery LLC, a company operated by Davis’s nephew, Avraham Weinstein, that
collects payments for MCA issuers. See Ex. 338 at 2; Ex. 146 at 1; Maczuga Tr. at
406:6-407:25.
105. Respondent Matthew Melnikoff resides in Roslyn, New York.
Melnikoff Tr. at 13:9-12. Melnikoff worked as a Funder at Yellowstone from 2012
until at least May 2021 and at Delta Bridge from May 2021 to the present. Id. at
16:8-13, 20:10-12, 59:14-25.
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106. Respondent Mark Sanders resides in Port Washington, New York. See
Ex. 48. Sanders worked as a Funder at Yellowstone from 2014 until at least May
2021 and at Delta Bridge from May 2021 to the present. Melnikoff Tr. at 32:11-22.
107. Respondents Sanders and Melnikoff are partners on each of the
Yellowstone and Delta Bridge MCA deals for which they serve as Funder.
Melnikoff testified that at both Yellowstone and Delta Bridge, he and Sanders have
“shared everything 50/50,” and that their approach to Yellowstone and Delta Bridge
MCA deals was exactly the same. Melnikoff Tr. at 33:18-35:21, 36:16-37:23.
108. Respondent David Singfer resides in Teaneck, New Jersey. Singfer Tr.
at 11:15-18. Singfer worked as a Funder at Yellowstone from March 2013 until at
least May 2021 and at Delta Bridge from May 2021 to the present. Id. at 16:16-18,
28:3-8.
109. The Funder Respondents were personally involved in and/or
responsible for, negotiating the MCA agreements they managed, carrying out the
transactions, and collecting payments from merchants. See supra ¶ 97. Each of
these occurred in New York, as expressly stated in the agreements. See, e.g., Delta
Bridge Exemplar at 10 § 38 (“[T]he transaction contemplated in this Agreement was
negotiated, and is being carried out, in New York.”); Yellowstone 2020 Exemplar at
11-12 § 43 (same). In addition, until at least 2016, the Funder Respondents
managed their Yellowstone MCAs working out of Yellowstone’s Manhattan office at
160 Pearl Street. See McNeil Tr. at 41:8-12; Schwartz Tr. at 35:2-12; Singfer Tr. at
24:3-11; S. Davis Tr. at 112:17-113:2.
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110. Yellowstone and Delta Bridge engaged sales representatives (called
“Sales Reps”
3
) to connect merchants with Funders. Sales Reps often acted as
intermediaries in the negotiations between Funders and merchants. See infra
¶¶ 163, 327, 329, 607, 631. Sales Reps had access to the internal Yellowstone and
Delta Bridge systems, were required to adhere to internal Yellowstone and Delta
Bridge rules and policies, and worked side-by-side with Funders in the Yellowstone
offices. Aryeh Tr. at 38:17-39:3, 70:22-71:13, 126:7-25. Sales Reps often worked
with outside brokers (sometimes called independent sales organizations, or “ISOs”),
who were also engaged with Yellowstone and Delta Bridge, to obtain merchant
referrals.
4
See infra ¶¶ 163, 327, 420, 607, 631.
THE ATTORNEY GENERAL’S INVESTIGATION
111. Prior to bringing this proceeding, the NYAG conducted an extensive
investigation of Respondents and their business practices in marketing, issuing,
3
Sales Reps at Delta Bridge are called “Platform ISOs.” See Maczuga Tr. at 80:24-
82:13. As used in this Petition, “Sales Rep” refers to sales representatives at both
Yellowstone and Delta Bridge.
4
Yellowstone’s brokers included Jonathan Braun, who worked with Yellowstone
from 2013 through 2018, and Tzvi Reich, who worked with Yellowstone from 2014
until at least April 2018. See Tr. of Test. Hrg. of Jonathan Braun (“Braun Tr.”), Ex.
443, at 12:13-13:24; Tr. of Test. Hrg. of Tzvi Reich (“Reich Tr.”), Ex. 442, at 24:5-
26:10; Alabudi Aff. ¶¶ 34-47; Ostrowski Aff. ¶¶ 19, 36. In addition to their work
with Yellowstone, Braun and Reich were principal decision-makers of Richmond
Capital Group LLC (“Richmond”) and Ram Capital Funding LLC (“Ram”), two
companies that also purported to issue MCAs. See People v. Richmond Capital
Group LLC, No. 451368/2020, 2023 WL 6053768, at *1, *6 & n.11 (Sup. Ct. N.Y.
Cnty. Sept. 15, 2023). In fact, Braun, Reich, Richmond, and Ram were “predatory
lenders,” and their so-called MCAs were “loans, not . . . legitimate purchase[s] of
accounts receivables.” Id. at *1, *16.
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servicing, and collecting upon MCAs. The investigation was initially prompted by
public reports of merchants abused by Yellowstone and others in the MCA industry.
See, e.g., Zachary R. Mider & Zeke Faux, Sign Here to Lose Everything, Part 1: I
Hereby Confess Judgment, Bloomberg (Nov. 20, 2018), Ex. 438 (including Parts 2-5
of the series); Bethany McLean, ‘We’re coming after you’: Inside the Merchant Cash
Advance Industry, Yahoo! Finance (Dec. 8, 2018), Ex. 439.
112. During its investigation, the NYAG has obtained the testimony of
numerous current and former officers, owners, associates, agents, and employees of
Yellowstone and Delta Bridge—including some of the companies’ top Funders, see
Ex. 54—pursuant to testimonial subpoenas issued under Executive Law § 63(12).
In addition to the testimony of Respondents listed above, supra ¶ 83, several
individual Respondents produced documents, and the NYAG has obtained
documents and testimony from other individuals not named in this proceeding,
including the following:
• Yeohonatan (“Jonathan”) Aryeh, a Sales Rep for Delta Bridge and a
former Yellowstone Sales Rep (“Aryeh Tr.”), Ex. 4.
• Avraham (“Avi”) Dahan, a former Yellowstone and Delta Bridge
Funder (“Dahan Tr.”), Ex. 5.
• Scott Ehrlich, a former Yellowstone Funder and Sales Rep (“Ehrlich
Tr.”), Ex. 8.
• Michael (“Mark”) Kern, a former Yellowstone and Delta Bridge Funder
(“Kern Tr.”), Ex. 11.
• Desmond Miller, a former Yellowstone Funder (“Miller Aff.”), Ex. 34;
see also Ex. 35 (exhibits to Miller Aff.); Ex. 324 (supplemental
affidavit); Ex. 325 (exhibits to supplemental affidavit).
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• James (“Jim”) McNeil, a former Yellowstone and Delta Bridge Funder
(“McNeil Tr.”), Ex. 13.
• Steven Saffer, a former Yellowstone and Delta Bridge Funder (“Saffer
Tr.”), Ex. 16.
• Michael Schwartz, a former Yellowstone and Delta Bridge Funder
(“Schwartz Tr.”), Ex. 17.
5
• Shabely Vasquez, a former assistant to a Yellowstone Sales Rep
(“Vasquez Tr.”), Ex. 21.
• Kevin Williams, a former Yellowstone Funder (“Williams Tr.”), Ex. 22.
• Mendy (“Mark”) Worch, a former Yellowstone Funder (“Worch Tr.”),
Ex. 23.
• Arlena Yagecic, Yellowstone’s former operations manager, Ex. 24
(“Yagecic I Tr.”) and Ex. 25 (“Yagecic II Tr.”).
113. The NYAG has also interviewed and gathered affidavits from
numerous merchants that lost significant sums of money after obtaining MCAs
from Respondents, including the following:
• Ali Alabudi, owner of Austin’s Habibi, Austin, TX (“Alabudi Aff.”), Ex.
26; see also Ex. 27 (exhibits to Alabudi Aff.).
• Jerry Bush, Jr., former owner of J.B. Plumbing & Heating of Virginia,
Inc. (“J.B. Plumbing”), Richmond, VA (“Bush Aff.”), Ex. 28; see also Ex.
29 (exhibits to Bush Aff.).
• David Israel, owner of Elite Lanes LLC, Round Rock, TX (“Israel Aff.”),
Ex. 30; see also Ex. 31 (exhibits to Israel Aff.).
• Kelly Sean Karcher, founder and president of Hygge Supply Inc.,
Grand Traverse, MI (“Karcher Aff.”), Ex. 32; see also Ex. 33 (exhibits to
Karcher Aff.).
5
Schwartz used the name “Michael Samuels” when working at Yellowstone and
Delta Bridge. Schwartz Tr. at 11:13-23, 21:11-14.
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• Jeremy Ostrowski, CEO of Zomongo.TV USA Inc. (“Zomongo”),
Calgary, Alberta, Canada (“Ostrowski Aff.”), Ex. 36; see also Ex. 37
(exhibits to Ostrowski Aff.).
• Maury Rubin, former owner of The City Bakery, New York, NY
(“Rubin Aff.”), Ex. 38; see also Ex. 39 (exhibits to Rubin Aff.).
• Vahe Shahinian, owner of It’s My Seat, Inc., Glendale, CA (“Shahinian
Aff.”), Ex. 40; see also Ex. 41 (exhibits to Shahinian Aff.).
• Jerome Turner, Jr., founder of Metropolitan Security Associates Inc.,
Fayetteville, Georgia (“Turner Aff.”), Ex. 42; see also Ex. 43 (exhibits to
Turner Aff.).
114. As part of its investigation, the NYAG also served upon Yellowstone
and Delta Bridge investigative subpoenas pursuant to Executive Law § 63(12). Exs.
445, 446. In response, Respondents produced to the NYAG extensive documents
showing their business practices in detail.
6
115. The NYAG has also gathered, pursuant to subpoena, documents from
payment processors that provided Automated Clearing House (“ACH”) payment
processing services to Yellowstone showing in detail the amounts and dates of funds
collected by Respondents from merchants pursuant to MCAs. E.g., Ex. 403. Such
payment processors included ACH Works, Actum Processing LLC, Nuvei Commerce
6
Yellowstone failed to produce any documents or information in response to the
Subpoena dated October 20, 2023, and Delta Bridge failed to produce any
documents or information in response to the second and third requests of the
Subpoena of the same date. See Ex. 445 at 18; Ex. 446 at 18.
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LLC, and Global Holdings LLC.
7
See Ex. 469 (affidavits certifying business
records).
116. During the time period at issue, Respondents Yellowstone, Stern, and
Reece, were also the targets of investigations by other government agencies. The
Federal Trade Commission sued Yellowstone, Stern, and Reece on August 3, 2020,
and settled on May 4, 2021, and the State of New Jersey sued Yellowstone on
December 8, 2020, and settled on December 27, 2022. See infra ¶ 655; Complaint,
FTC v. Yellowstone Capital LLC et al., No. 20-cv-06023 (S.D.N.Y. Aug. 3, 2020),
ECF No. 1; Consent Order, In re Yellowstone Capital LLC et al., No. C-000180-20
(Dec. 27, 2022).
STATUTE OF LIMITATIONS AND TIME PERIOD AT ISSUE
117. The applicable statute of limitations for Petitioner’s claims against
Respondents brought pursuant to Executive Law § 63(12) is six years. CPLR
213(9).
118. In addition, the NYAG entered into a series of tolling agreements from
March 7, 2019 until October 7, 2023, with Yellowstone Capital LLC, which was
defined to include its “respective affiliates, predecessors, shareholders, officers,
7
Yellowstone used ACH Works, Actum Processing, and platforms called “Go ACH”
and “Paysmith” for its payment processing. See Reece Tr. at 155:10-14 (Actum);
Glass Tr. at 77:7-12 (ACH Works); Kern Tr. at 219:10-18 (ACH Works and Go
ACH); Ehrlich Tr. at 129:24-130:2 (same); Exs. 255, 320 (Paysmith). Nuvei
Commerce LLC is a successor to Check Gateway, which handled the processing for
transactions on the Go ACH platform, and Global Holdings is a successor to the
entity that handled processing for transactions on the Paysmith platform.
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directors, heirs, executors, administrators, representatives, successors, and assigns
and all other persons or entities acting on [its] behalf or under [its] control,
including but not limited to the entities listed” in an attached appendix (“Tolling
Agreements”). Ex. 449.
119. Each Respondent belongs to one or more of the categories identified in
the foregoing paragraph 118.
120. As a result, Petitioner’s claims are timely as to all Respondents to the
extent they accrued in or after August 2013.
FACTS
I. RESPONDENTS’ ILLEGAL PRACTICE OF USURY
121. The facts set forth below show that Yellowstone and Delta Bridge’s so-
called MCAs are in fact loans. The MCAs regularly carried interest rates in the
triple digits, far higher than the maximum permissible rates under New York usury
laws, rendering them usurious and illegal. See infra ¶ 465.
122. Respondents’ MCA transactions are straightforward: In exchange for a
lump sum payment to a merchant, Respondents debit fixed payments from the
merchant each business day until Respondents have collected the lump sum, plus a
premium. The lump sum to the merchant is called the “Purchase Price”; the fixed
payments are referred to herein as the “Daily Amount”
8
; and the lump sum plus the
8
At various times, Respondents’ contracts used the terms “Daily Payment,” “Initial
Daily Installment,” or “Remittance Amount.” E.g. Yellowstone 2018 Exemplar at 10
(Addendum); Yellowstone 2020 Exemplar at 1; Delta Bridge Exemplar at 1. In
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premium is called the “Purchased Amount.” See, e.g., Yellowstone 2018 Exemplar
at 2, 10; Yellowstone 2020 Exemplar at 1; Delta Bridge Exemplar at 1. The
Purchase Price and the Purchased Amount are sometimes referred to as the
“Funding Amount” and the “Payback Amount,” respectively. The number of fixed
daily debits, calculated by simply dividing the Payback Amount by the Daily
Amount, is called the “Term” or “Length” of the transaction. See infra ¶¶ 142-143.
123. In their Agreements, however—the text of which is not negotiated with
merchants and is drafted entirely by Respondents, Rubin Aff. ¶ 19; Bush Aff. ¶ 6;
Ostrowski Aff. ¶ 7—Respondents describe their MCA transactions are something
different: a purchase of a percentage—the “Specified Percentage”—of the
merchant’s daily revenue received for the sale of goods and services.
9
See, e.g.,
Yellowstone 2018 Exemplar at 2; Yellowstone 2020 Exemplar at 1; Delta Bridge
Exemplar at 1. These and similar statements are fraudulent and misleading. They
were also essential to Respondents’ illegal scheme: Had Respondents disclosed that
the transactions were loans based on fixed payments and finite terms, the
addition, some Yellowstone and Delta Bridge MCA transactions employed weekly or
biweekly payments, rather than daily payments. See infra ¶ 132.
9
Respondents have used the terms “receivables,” “receipts,” and “revenue”
interchangeably. E.g., Maczuga Tr. at 159:2-6; Reece Tr. at 61:7-11; Ex. 126.
Respondents’ agreements typically purported to purchase a share merchants’
receipts of revenue—that is, a share of moneys the merchant received for “the sale of
goods and services,” see infra ¶ 371, limited to “payments or deliveries of monies”
actually received by merchants, rather than money owed but not yet paid, see Delta
Bridge Exemplar at 2 § 1(c); Yellowstone 2020 Exemplar at 2 § 1(c); accord
Yellowstone 2018 Exemplar at 1. Accordingly, as used herein, the term “revenue” is
used to mean “receipts of revenue.”
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agreements would have been plainly void and unenforceable because of their
astronomic interest rates.
124. In truth, as detailed herein, Respondents’ agreements are designed
and enforced to virtually guarantee their continued collection of the fixed Daily
Amount from merchants. The value of the fixed Daily Amount is disconnected from
any fluctuations in the merchant’s revenue, and—just like loan remittances—the
payment amounts are altered only through the merchant’s default or through
Respondents’ lowering the payment amount through an “adjustment”—a
discretionary exercise of beneficence that sets a new payment amount prospectively,
but without any consideration of or reference to the percentage of revenue
Respondents purportedly purchased. See infra Part I.B and ¶¶ 305-316.
125. Respondents also make it virtually impossible for merchants to adjust
their payments retroactively by obtaining a refund of excess payments following a
drop in revenue—a process called “Reconciliation.” See infra ¶¶ 193-304. Until at
least 2018, Yellowstone failed to affirmatively notify merchants of their right to
Reconcile, had no procedure in place if a merchant requested a Reconciliation, and
used contract language that made Reconciliation needlessly difficult and ultimately
discretionary. See infra ¶¶ 193-202. Following increased scrutiny of the MCA
industry and Yellowstone specifically, Yellowstone changed its agreements and
implemented a process that made it easier for merchants to request a
Reconciliation—but structured its agreements so that the result of the
Reconciliation would almost never be a refund to the merchant. See infra ¶¶ 203-
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248. Indeed, Yellowstone did not issue a single Reconciliation refund throughout its
entire existence until 2020, and only very rarely after that. See infra ¶¶ 186-191.
Yellowstone accomplished this chiefly by manipulating the Specified Percentages
stated in its agreements with merchants—a practice that Delta Bridge continued.
See infra ¶¶ 203-248.
126. For nearly all of Yellowstone’s and Delta Bridge’s existence, the
“Specified Percentage” has been mostly an afterthought—Funders described it as
“irrelevant,” just “a number on the contract,” and something that was included in
the agreements for ambiguous “legal purposes” but was almost never discussed
internally or negotiated with merchants. See infra ¶¶ 317-378. Although
Yellowstone’s and Delta Bridge’s agreements state that the Daily Amount is
intended to approximate the Specified Percentage of the merchant’s daily revenue,
the reality is the Funders negotiated and set the Daily Amount based on how
quickly they wanted to be repaid and did not use the Specified Percentage at all.
See infra ¶¶ 134-151. Yellowstone and Delta Bridge provided Funders with no
guidance on how to set the Specified Percentage in their MCA agreements and took
no interest in examining how the Specified Percentages were in fact being set. See
infra ¶¶ 318-321. Both companies routinely entered into multiple concurrent MCA
agreements with individual merchants, with a combined Specified Percentage that
could reach as high as—or higher than—100%. See infra ¶¶ 342-357. As a result,
the Specified Percentage could not, in fact, be the percentage of revenue that
Yellowstone and Delta Bridge purchased from merchants.
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127. Instead, the main function of the Specified Percentage was to serve as
a barrier to Reconciliation. See infra ¶¶ 203-248. Starting around the same time
that Yellowstone adjusted the boilerplate language in its MCA agreements to make
Reconciliation theoretically more available, it also began to fix the Specified
Percentage on most of its agreements, using values that rose steadily over time. See
id. Over the next several years, the gap between merchants’ Daily Amounts, and
the percentage of revenue that those amounts were purportedly intended to
approximate, widened considerably, as Specified Percentages rose from 10 or 15% to
25%. See id. By March 2020, the most common Specified Percentage that
Yellowstone used in its agreements with merchants was 49%. See infra ¶ 226. The
result was that only the few merchants who experienced a drop in revenue so
precipitous that Yellowstone’s total collections actually amounted to fully half of
their revenue during the term of the MCA could potentially receive a Reconciliation
refund—and a very small refund at that. See infra ¶¶ 209-212. Delta Bridge
continued this practice through at least August 2022. See infra ¶ 248.
128. Because the “MCAs” issued by Yellowstone and Delta Bridge were
monies to be paid back with interest in fixed payments alterable only at the whim of
a Funder—and for the additional reasons that follow—Yellowstone’s and Delta
Bridge’s so-called MCA transactions with merchants were and are usurious loans,
fraudulently cloaked as purchases of revenue.
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A. New York Law Prohibits Usurious Loans When Cloaked
as Purchases of Revenue
129. Courts have repeatedly held that under certain circumstances, a so-
called merchant cash advance or purchase of revenue may actually be a usurious
loan. E.g., Davis v. Richmond Capital, 194 A.D.3d 516 (1st Dep’t 2021); LG
Funding, LLC v. United Senior Props. of Olathe, LLC, 181 A.D.3d 664 (2d Dep’t
2020); People v. Richmond Capital Group LLC, No. 451368/2020, 2023 WL 6053768,
at *16 (Sup. Ct. N.Y. Cnty. Sept. 15, 2023); Fleetwood Servs., LLC v. Richmond Cap.
Grp. LLC, No. 22-1885-CV, 2023 WL 3882697, at *2 (2d Cir. June 8, 2023).
130. In determining whether such a transaction is a loan, a court considers
several non-dispositive factors, including:
[1] the discretionary nature of [provisions providing for reconciliation of
payments based actual receivables], [2] the allegations that defendants
refused to permit reconciliation, [3] the selection of daily payment rates
that did not appear to represent a good faith estimate of receivables, [4]
provisions making rejection of an automated debit on two or three
occasions without prior notice an event of default entitling defendants
to immediate repayment of the full uncollected purchased amount, and
[5] provisions authorizing defendants to collect on the personal guaranty
in the event of plaintiff business’s inability to pay or bankruptcy[.]
Davis, 194 A.D.3d at 517. A loan is also indicated when a transaction is “negotiated
and understood to be based on a fixed term with a fixed repayment schedule” and
the creditors “advertise[] themselves as lenders.” Richmond Capital, 2023 WL
6053768 at *3 (emphasis omitted); see also id. at *10 (loan indicated when
“Borrowers and their Guarantors remain[] liable for repayment in the event of
bankruptcy”); Fleetwood Servs., LLC v. Ram Capital Funding, LLC, No. 20-CV-5120
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(LJL), 2022 WL 1997207, at *13 (S.D.N.Y. June 6, 2022) (loan indicated by “nominal
reconciliation provision” that is “largely illusory”).
B. Respondents’ MCAs Have Fixed Durations and Payment
Amounts that Do Not Approximate a Specified
Percentage of Revenue
131. In setting the Daily Amounts and Lengths of their MCA transactions,
Respondents did not consider the percentage of revenue they were purportedly
agreeing to purchase. This is a key factor showing usury. See Davis, 194 A.D.3d at
517 (“selection of daily payment rates that did not appear to represent a good faith
estimate of receivables”).
132. A minority of Respondents’ MCA transactions were based on payments
that were collected weekly or biweekly, rather than daily. See Maczuga Tr. at
203:8-20; see also Ex. 468. In all respects material to this Petition, such payments
were identical to daily payments except that they purported to approximate the
Specified Percentage of merchants’ weekly or biweekly revenue, rather than daily.
As used in this Petition, the term “Daily Amount” includes such weekly or biweekly
payments.
1. The Daily Amounts Are Fixed and Do Not
Approximate a Specified Percentage of Revenue
133. Yellowstone and Delta Bridge collected Daily Amounts from merchants
in fixed amounts that typically did not fluctuate from day to day. Melnikoff Tr. at
79:7-15, 92:24-93:3, 99:12-15, 100:19-24, 108:5-9; McNeil Tr. at 72:3-21, 83:17-21;
Dahan Tr. at 85:5-8, 88:10-14, 118:14-17; Yagecic I Tr. at 178:20-23; Alabudi Aff.
¶ 18; Karcher Aff. ¶ 23; Shahinian Aff. ¶ 21; Turner Aff. ¶ 22; see, e.g. Ex. 403
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(spreadsheet produced by ACHWorks, one of Yellowstone’s payment processors,
reflecting some of the payments it processed for Yellowstone); see also Ex. 144
(payment “per business day”); Ex. 129 at 9 (same). Starting in 2015, Yellowstone
required that all Yellowstone MCA agreements include what Respondent Stern
called a “Fixed Payment Addendum.” Ex. 325 at 9; see also infra ¶¶ 194-196
(discussing Fixed Payment Addendum).
134. Yellowstone’s and Delta Bridge’s MCA agreements stated that the
Daily Amount reflected “a good-faith approximation of the Specified Percentage,
based on the Merchant’s prior receipts due to [Yellowstone] pursuant [to] the
Agreement,” or similar language. E.g. Yellowstone 2018 Exemplar at 10 Addendum
§ 1(a); Yellowstone 2020 Exemplar at 2 § 1(g) (“good faith approximation of the
Specified Percentage of [the merchant’s] Future Receipts”); Delta Bridge Exemplar
at 2 § 1(i) (same). Some versions of the agreements also stated that the Daily
Amounts were fixed at merchants’ request; however, merchants rarely, if ever,
requested such an arrangement. Miller Aff. ¶¶ 37-38.
135. Setting the Daily Amount was left up to the discretion of individual
Funders. Reece Tr. at 62:25-63:7; Maczuga Tr. at 153:14-154:11.
136. Apart from the language in the agreements, Yellowstone and Delta
Bridge did not provide any policy or guidance concerning how to set the Daily
Amount, including that the Daily Amount should approximate a Specified
Percentage of the merchant’s daily receipts of revenue. See Maczuga Tr. at 153:14-
19; Reece Tr. at 62:25-63:7, 189:21-190:5; Stern Tr. at 261:23-262:9 (“The
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Yellowstone model as a whole allowed funders the freedom to price deals in any way
they wanted.”); Worch Tr. at 226:5-12.
137. Yellowstone and Delta Bridge took no measures to determine whether
the Daily Amount on its agreements in fact reflected an estimate of the Specified
Percentage of the merchant’s receipts of revenue. In fact, Yellowstone’s president,
Respondent Reece, testified that “at the outset of the transaction there’s no way to
determine whether the daily payment amount reflects an estimate of the specified
percentage of the merchant’s receivables,” flatly contradicting the representation in
Yellowstone’s MCA agreements. Reece Tr. at 194:25-195:21 (emphasis added); see
also Reece Tr. at 189:21-190:5, 195:9-15. Nor did Yellowstone have any way to
check the Daily Amount during the term of the transaction unless and until a
Reconciliation was performed, Reece Tr. at 170:18-25, 189:21-190:2, 194:24-195:15,
which was exceedingly rare, infra ¶¶ 186-190.
138. Respondent Maczuga, the Delta Bridge CEO who was formerly co-CEO
of Yellowstone and one of its biggest Funders, testified that Respondents relied on
merchants to confirm whether the Daily Amount approximated a Specified
Percentage of the merchant’s future revenue. Maczuga Tr. at 210:7-17.
139. In reality, Funders fixed the Daily Amount without regard to the
Specified Percentage stated in the Yellowstone or Delta Bridge MCA agreement.
Funder Respondents were clear about this in their testimony. For example,
Respondent Melnikoff admitted that “deals are not based on a specified
percentage, they’re based on the fixed daily amount.” Melnikoff Tr. at 97:8-
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98:25 (emphasis added), 106:15-107:18; see also id. at 102:10-19 (explaining to a
hypothetical merchant: “[T]his is not based off of a percentage of your revenue, it’s
based off $146 a day . . . .”); id. at 130:5-9 (unable to identify “any way that the
specified percentage was used in calculating the daily payment amount”), 134:8-21.
One former Yellowstone and Delta Bridge Funder testified that “the daily payment
amount has nothing to do with the specified percentage of receivables.” McNeil Tr.
at 108:14-17; accord id. at 120:3-5 (“[I]t’s not being calculated . . . on individual
deals generally . . . .”), 99:19-100:2, 119:2-6, 121:13-21, 123:6-20; Melnikoff Tr. at
131:11-132:2; Aryeh Tr. at 94:6-17; Ehrlich Tr. at 114:19-21; Dahan Tr. at 69:2-8,
71:19-72:6; Williams Tr. at 88:18-89:13, 125:9-17; Worch Tr. at 129:20-130:9
(discussing Ex. 304); Miller Aff. ¶ 39; Alabudi Aff. ¶ 24; Shahinian Aff. ¶ 15.
140. Another former Yellowstone and Delta Bridge Funder testified that as
a Funder he did not “ever calculate the daily payment amount by approximating the
specified percentage based on the merchant’s prior receipts.” Dahan Tr. at 69:2-8,
71:25-72:6. He testified further that, when acting as the Sales Rep on deals with
other Funders, he was unaware of anyone else at Yellowstone who “calculate[d] the
daily payment amount by approximating the specified percentage based on the
merchant’s prior receipts.” Dahan Tr. at 69:2-8; accord McNeil Tr. at 99:10-100:2.
141. Rather, Funder Respondents admitted in testimony that the Daily
Amount was a function of how long the transaction was intended to last. A higher
Daily Amount meant a faster payoff, and a lower Daily Amount meant that the
merchant would have longer to pay the Payback Amount. Melnikoff Tr. at 131:11-
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132:2; Singfer Tr. at 57:23-58:5; see also Dahan Tr. at 69:22-70:6, 72:17-25 (“[T]his
is what the funder thinks the merchant can handle and what would make sense for
his business . . . .”); Worch Tr. at 125:20-126:2, 242:17-244:2, 266:9-12; Saffer Tr. at
124:4-10.
142. Accordingly, Funders admitted in testimony that they calculated the
Daily Amount for Yellowstone and Delta Bridge MCAs by simply “dividing the
purchased amount,” i.e., the Payback Amount, “by the . . . term of the transaction,
the fixed number of daily payments.” Melnikoff Tr. at 128:5-19; accord id. 102:2-7;
Singfer Tr. at 56:18-58:5; Kern Tr. at 74:12-16, 96:7-23; McNeil Tr. at 84:19-22,
96:25-97:8, 99:10-100:2, 108:8-13; Schwartz Tr. at 58:11-22; Dahan Tr. at 69:9-70:6,
118:14-20; Saffer Tr. at 95:2-18, 124:4-10, 158:12-159:1; Aryeh Tr. at 100:10-15;
Ehrlich Tr. at 112:20-113:3; Vasquez Tr. at 46:13-16, 48:9-18; Miller Aff. ¶ 54;
Alabudi Aff. ¶ 24; Ex. 299 at 5 (“We are giving you more money so the cost of the
daily has to go up”); Ex. 228 at 1-2 (email negotiating deal); Ex. 113 at 2, 13
(resulting agreement); Ex. 202 (email negotiating deal); Ex. 110 at 2 (resulting
agreement).
143. According to Respondent Maczuga, “there is no other way to
calculate” the Daily Amount than by dividing the Payback Amount by the number
of days in the term. Maczuga Tr. at 153:8-13 (emphasis added); see also id. at
145:22-146:11, 151:3-9, 164:3-7, 205:3-8.
144. Rather than approximating the Daily Amount, Yellowstone’s President
and many Funders understood that the Specified Percentage reflected a “ceiling,”
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and was therefore properly set at a value exceeding the percentage of the merchant’s
revenue actually approximated by the Daily Amount. Infra ¶ 240.
145. The fact that the Daily Amount was fixed without regard to the
Specified Percentage is particularly evident in so-called “Side-by-Side” deals, where
Yellowstone and Delta Bridge entered into two or more simultaneous MCA
transactions with a merchant. See Reece Tr. at 148:18-21, 149:3-5 (defining side-by-
side deal); Maczuga Tr. at 193:5-18 (same), 196:11-15 (admitting that Delta Bridge
also does Side-by-Side deals); Melnikoff Tr. at 124:3-22.
146. For example, on September 5, 2018, Yellowstone (through Yellowstone
Subsidiaries) entered into three separate MCA transactions on three separate
agreements with a single merchant, Maslow Media Group, Inc. Exs. 93, 94, 95.
Each of the three agreements purported to purchase the same percentage of Maslow
Media Group’s receipts of revenue, because each stated a Specified Percentage of
25%. Id. However, each agreement fixed a wildly different Daily Amount—$1,490,
$4,470, and $7,450—and each agreement represented that its Daily Amount
represented “a good-faith approximation” of 25% of Maslow Media Group’s daily
revenue. Id. at 12. In fact, the Daily Amounts were not an approximation of
Maslow Media Group’s revenue, which is clear because under no circumstances
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could 25% of a single company’s revenue, approximated as of the exact same date,
equal three different amounts.
10
147. The different Daily Amounts were not attributable to different revenue
projections; that would have been impossible, given that Yellowstone approximated
all three on the same date. Instead, according to Respondent Melnikoff, who was
the Funder on one of the three deals, Yellowstone set different Daily Amounts
because the agreements stated different Purchased Amounts. Melnikoff Tr. at
127:19-128:9. Other Funders and Sales Reps testifying about Side-by-Side deals—
and Respondent Maczuga—acknowledged that the different Daily Amounts were
explained by the fact that the agreements stated different Purchased Amounts.
Aryeh Tr. at 160:21-161:21; Saffer Tr. at 161:7-14; Maczuga Tr. at 204:20-205:8.
This is consistent with the fact that the Daily Amount is simply the Payback
Amount divided by the Length of the transaction, and is calculated without regard
to the percentage of revenue Respondents were purportedly purchasing.
10
After Maslow Media Group supposedly defaulted, Yellowstone filed three
separate court actions, based on each of the three agreements, in Richmond County
Supreme Court. Infra ¶¶ 477-483. Respondent Serebro represented Yellowstone in
those actions, and filed the papers on its behalf. Id.
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148. Additional examples of Side-by-Side deals at Yellowstone include the
following:
Contract
Date
Yellowstone
Subsidiary
Specified
Percentage
Daily
Amount
Purchased
Amount
Exhibit No.
Merchant: ADM Group, LLC
9/24/2018
9/24/2018
Green Cap. Funding
ABC Merch. Solutions
25%
25%
$13,500
$13,500
(weekly)
$384,725
$384,725
57
58
Merchant: Cumberland Surgical Hospital of San Antonio, LLC
9/18/2018
9/18/2018
Green Capital
Samson Advance
25%
25%
$1,737
$2,896
$208,500
$347,500
71
72
Merchant: FTE Networks, Inc.
9/21/2018
9/21/2018
Green Capital
Capital Merch.
Servs.
15%
15%
$8,999
$5,999
$749,500
$374,750
80
81
Merchant: Maslow Media Group, Inc.
9/5/2018
9/5/2018
9/5/2018
Everyday Capital
Advance Merch. Svcs.
Capital Advance Svcs.
25%
25%
25%
$7,450
$4,470
$1,490
$745,000
$447,000
$149,000
93
94
95
Merchant: RCS Safety LLC
3/18/2019
3/19/2019
West Coast Bus. Cap.
West Coast Bus. Cap.
25%
25%
$1,890
$1,859
$188,874
$185,876
103
102
Merchant: Stradmont Oak Investments LLC
3/20/2018
3/20/2018
Yellowstone Cap.
Yellowstone Cap.
25%
25%
$610
$689
$50,750
$58,000
108
109
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NYSCEF DOC. NO. 1 RECEIVED NYSCEF: 03/05/2024
This is a copy of a pleading filed electronically pursuant to New York State court rules (22 NYCRR §202.5-b(d)(3)(i))
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149. Additional examples of Side-by-Side deals at Delta Bridge include the
following:
Date
Specified
Percentage
Daily
Amount
Purchased
Amount
Contract ID
Merchant: B&H Pizza LLC
7/27/2022
39%
$600
$111,200
5092488-404
8/2/2022
39%
$100
$16,390
5321588-765
Merchant: Barrels & Bouchons LLC
1/7/2022
49%
$337
$26,982
5095979-584
1/26/2022
49%
$210
$17,988
5095979-315
Merchant: Bath Pros LLC
10/12/2021
45%
$300
$27,600
5084718-331
10/15/2021
35%
$750
$61,650
5088187-179
Merchant: Coastal Carolina Radio LLC
9/7/2022
13%
$4,375
$43,570
5000951-004
9/19/2022
9%
$625
$37,500
5186103-772
Merchant: Dale’s Auto Service Centers, Inc.
7/19/2022
32%
$165
$14,500
5204372-020
7/19/2022
25%
$315
$36,250
5163498-177
Merchant: Loan X Mortgage LLC
2/18/2022
49%
$5,612 (weekly)
$82,445
5182993-460
2/18/2022
49%
$878
$67,455
5182993-054
Merchant: One Twenty Clothing Company US LLC
7/27/2021
39%
$1600
$117,300
5035751-393
7/30/2021
39%
$1600
$117,300
5038480-757
Merchant: Rod Bowers Construction Inc.
10/6/2021
20%
$2,983
$347,500
5011526-701
10/6/2021
39%
$2,983
$347,500
5020998-135
Merchant: Roy’s GJD Detail Wash & Maintenance
11/22/2021
39%
$1,200
$31,477.50
5058081-086
11/24/2021
40%
$194
$12,401.50
5069077-836
Merchant: Television Korea 24 Inc
6/15/2022
45%
$3,923
$102,000
5206395-638
6/27/2022
45%
$2,877
$74,800
5031827-727
Merchant: Television Korea 24 Inc
9/6/2022
21%
$4,446 (weekly)
$115,600
5206395-384
9/12/2022
17%
$3,400 (weekly)
$88,400
5031827-667
Merchant: Thaitran Inc.
5/24/2021
25%
$589
$56,000
5000126-414
5/25/2021
25%
$412
$35,000
5000126-307
CAUTION: THIS DOCUMENT HAS NOT YET BEEN REVIEWED BY THE COUNTY CLERK. (See below.) INDEX NO. UNASSIGNED
NYSCEF DOC. NO. 1 RECEIVED NYSCEF: 03/05/2024
This is a copy of a pleading filed electronically pursuant to New York State court rules (22 NYCRR §202.5-b(d)(3)(i))
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Merchant: The Carrie Brazer Center for Autism, Inc.
5/23/2022
25%
$1,500 (weekly)
$70,000
5015246-611
5/27/2022
25%
$667 (weekly)
$28,000
5258504-361
Merchant: Wak21 LLC
7/27/2022
45%
$759
$121,352
5069385-632
8/2/2022
45%
$276
$41,370
5319819-641
See Ex. 395; see also Maczuga Tr. at 197:2-199:23, 271:15-272:15.
150. Merchants also understood that the Daily Amount was simply the
Payback Amount divided by the Length of the transaction. See, e.g., Rubin Aff.
¶ 14.
151. Merchants affirmed that the Daily Amounts set in their agreements
with Yellowstone and Delta Bridge did not approximate a Specified Percentage of
their daily revenue. Alabudi Aff. ¶¶ 14, 18, 68; Bush Aff. ¶¶ 16-20; Israel Aff. ¶ 11;
Karcher Aff. ¶ 20; Ostrowski Aff. ¶¶ 13-14, 30-31, 43-44; Rubin Aff. ¶¶ 14, 32;
Turner Aff. ¶¶ 17-19. Furthermore, they affirmed that if the Daily Amounts had
approximated a Specified Percentage of their daily revenue, the Daily Amounts
would have been far higher than anything their business could sustain, and they
never would have agreed to the transaction. Israel Aff. ¶ 12; Karcher Aff. ¶¶ 20-21;
Rubin Aff. ¶ 31; Turner Aff. ¶¶ 17-19.
2. The Lengths of the Transactions Are Fixed and Do
Not Vary Based on a Specified Percentage of
Revenue
152. As noted above, the Length of a Yellowstone or Delta Bridge MCA was
the quotient of the Payback Amount and the Daily Amount. Supra ¶ 142. The
Daily Amount was not even indirectly linked to the Specified Percentage, because
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the Length of the transaction was also determined without regard to the Specified
Percentage.
153. For example, one Funder, Respondent Melnikoff, testified that “we
would give [prospective merchants] the amount of days that we were comfortable in
the deal, not a specified percentage.” Melnikoff Tr. at 92:24-93:3 (emphasis
added); see also Singfer Tr. at 88:6-15 (“Q. So what are the sort of factors that would
make you want to go under a shorter term with a merchant? . . . A. . . . . It’s not so
much revenue related, it’s just how much, you know, I like the deal based on a
combination of similar factors.” (emphasis added)). One former Yellowstone and
Delta Bridge Funder testified the Specified Percentage generally played no role in
formulating the funding amount and Term of an offer. See McNeil Tr. at 119:2-6;
see also Williams Tr. at 116:5-12 (“[The Specified Percentage is] not telling me how
long the deal is paying back.”).
154. Yellowstone and Delta Bridge did not provide any policy or guidance
concerning how to set the Length of a transaction, including that the Length should
vary based on a Specified Percentage of the merchant’s future daily revenue. Stern
Tr. at 257:7-24; Singfer Tr. at 87:8-12. Respondent Isaac Stern, Yellowstone’s co-
founder and CEO, testified that the company was not “set up” to provide such
guidance. Stern Tr. at 257:7-24 (“[T]o tell funder A, Hey, you should really be doing
this . . . or funder B, You should really be doing that . . . that’s not the way that the
company was set up.”).
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NYSCEF DOC. NO. 1 RECEIVED NYSCEF: 03/05/2024
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155. In practice, Funders typically determined the Length of MCA
transactions based on their perceived “riskiness”: riskier transactions had shorter
Terms, and less risky transactions had longer Terms. For example, one former
Yellowstone and Delta Bridge Funder testified, “If I was concerned [an MCA] would
be more of a credit risk, the terms would be a little shorter . . . .” Schwartz Tr. at
50:25-51:3. Another former Funder testified that “the riskier the deal, typically the
shorter, the less amount of days, and the better the deal, the more the amount of
days.” McNeil Tr. at 115:15-18; see also McNeil Tr. at 98:16-99:3, 117:2-10; Dahan
Tr. at 99:15-19; S. Davis Tr. at 142:6-25 (“[W]e’ll change the terms a little bit to
speed it up, to make it, you know, a little bit less risk on our end.”); Melnikoff Tr. at
118:12-23; see also Miller Aff. ¶¶ 59-60 (“We made such pre-funding adjustments to
term lengths not based on any Specified Percentage but instead by arbitrary
amounts as a means of closing MCA deals and winning merchants’ business.”);
Williams Tr. at 110:14-20, 117:10-23, 118:24-119:14; Worch Tr. at 125:20-126:2,
173:10-20 (discussing Ex. 251), 177:2-178:23, 188:6-189:13 (discussing Ex. 279).
156. Factors that were relevant to individual determinations of “riskiness”
included the size of the Funding Amount, merchant’s bank balances, credit report,
credit score, industry, business size, history of payments on other MCAs, and the
payments the merchant was making concurrently to other MCA companies. See
A. Davis Tr. at 79:11-13, 80:7-81:14; Singfer Tr. at 87:13-88:15; S. Davis Tr. at
141:5-20; Dahan Tr. at 96:11-99:19; Melnikoff Tr. at 118:12-23; McNeil Tr. at
115:19-117:10; Aryeh Tr. at 151:3-7; see also Williams Tr. at 110:14-113:9 (risk
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factors suggesting a shorter Term included if the merchant was a gambler or didn’t
pay child support); Worch Tr. at 177:2-178:23.
157. For example, in December 2022, Delta Bridge issued an MCA that its
Funders, Respondents Melnikoff and Sanders, set to be paid back by the merchant
in just “15 pmts.” Ex. 125 at 1; see Ex. 62 (resulting agreement signed by
merchant). The transaction was unquestionably risky: the merchant was already
paying off ten cash advances to other MCA companies and had a bank balance of
negative $18,000. See Ex. 125 at 1; see also infra ¶¶ 358-369 (discussing
transactions with merchants who already had preexisting MCAs, also known as
Stacking).
158. As a consequence, Funders often sent concurrent offers that defied the
purported operation of the Specified Percentage as setting the share of revenue
purchased by Yellowstone or Delta Bridge. If the MCA transactions were in fact
purchases of a Specified Percentage of revenue, offers with larger Funding Amounts
would necessarily have been for longer Terms—more money takes longer to pay off.
But often the reverse was true: Funders would shorten the Length of an MCA offer
for a higher Funding Amount. E.g., Dahan Tr. at 96:11-97:21 (testifying about Ex.
289); Exs. 199, 221, 289; 198, 190; see also Rubin Aff. ¶ 32 (explaining that the
Specified Percentages and Daily Amounts stated in consecutive agreements with
Yellowstone suggested a 90% drop in revenue, but no such drop occurred).
159. Funders testified that this was consistent with their underwriting
practices, which set the Term based on perceived riskiness, not any Specified
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NYSCEF DOC. NO. 1 RECEIVED NYSCEF: 03/05/2024
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Percentage: it was considered riskier to give a merchant more money. See Dahan
Tr. at 96:11-99:19; Saffer Tr. at 97:8-21.
160. Similarly, another Funder, Respondent Steve Davis, testified that he
had a practice of increasing merchants’ Daily Amounts if they were making
concurrent payments to other MCA companies—even though the effect of such
“Stacked” deals (defined infra ¶ 358) would be to reduce the revenue available to
pay Yellowstone. See S. Davis Tr. at 141:5-20.
161. Indeed, it was typical that Funders would—while underwriting and
negotiating prospective MCA transactions—make adjustments to the proposed
Length or the Daily Amount without regard to how the Specified Percentage—
which was typically fixed, see infra ¶¶ 218, 222, 234—would bear on those
adjustments (or vice versa). See McNeil Tr. at 85:3-13 (admitting that Yellowstone
was “agreeing to change the term of the offer [for an MCA], the number of daily
payments, but everything else about the offer was to remain the same”); Saffer Tr.
at 101:12-102:2 (testifying that he extended an MCA’s term length, at a merchant’s
request, while keeping all other values in the offer the same); Dahan Tr. at 87:15-
90:22; Worch Tr. at 242:17-244:2.
162. Respondent Glass was closely involved in establishing Yellowstone’s
practice of using fixed Terms for its MCAs. One Funder, Respondent Melnikoff,
testified that Glass personally taught him “how long to make the deal,” “how long to
price the deal out for,” and how to “calculate[] daily payments . . . by dividing the
purchase amount by the term of the transaction.” Melnikoff Tr. at 63:16-64:20,
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NYSCEF DOC. NO. 1 RECEIVED NYSCEF: 03/05/2024
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128:15-19. Melnikoff testified repeatedly that Glass taught him to “keep deals
short,” id. at 215:15-18, 217:23-24, 219:13-15-25 (emphasis added).
163. Funders and Sales Reps working on Yellowstone and Delta Bridge
MCA transactions regularly discussed such finite repayment Terms, measured by
days, in internal communications and in communications with merchants and
brokers. E.g., Alabudi Aff. ¶ 28; Bush Aff. ¶¶ 11-12; Aryeh Tr. at 142:6-17, 143:13-
16, 179:25-180:6; Dahan Tr. at 84:25-85:8, 88:7-14, 90:23-91:3, 118:14-17; S. Davis
Tr. at 182:24-183:4; Ehrlich Tr. at 37:18-38:9; Kern Tr. at 86:7-19; McNeil Tr. at
70:12-72:21; Miller Aff. ¶¶ 41, 53-54, 57-58; Vasquez Tr. at 81:17-23; Williams Tr. at
75:18-24, 115:11-16; see also Ex. 323 (compiled communications in which
Respondents discussed and negotiated term lengths).
164. At least one Funder sent marketing emails to merchants offering
MCAs with “longer terms.” E.g., Exs. 182, 183; Rubin Aff. ¶ 35.
165. The circumstances that could alter the fixed Term of a Yellowstone or
Delta Bridge MCA include: (a) “Refinancing” the MCA (as defined infra ¶ 336) or
other prepayment by the merchant; (b) the merchant’s default; and (c) bounced
payments due to insufficient funds in the merchant’s bank account. Melnikoff Tr. at
79:7-19 (“[I]f no payments bounce, if all payments are made, then it’s an 80-day
deal, yes.”); Dahan Tr. at 70:18-24; McNeil Tr. at 72:9-21 (“[I]f the merchant
bounced payments or if the merchant requested lowered payments, it could get
extended, but . . . with perfect pace . . . [i]t should be 75 payments.”); Maczuga Tr. at
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NYSCEF DOC. NO. 1 RECEIVED NYSCEF: 03/05/2024
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92:16-93:15; Kern Tr. at 162:25-163:10; Saffer Tr. at 97:22-98:10; Yagecic II Tr. at
184:25-185:16; Williams Tr. at 99:2-14; Miller Aff. ¶ 62.
166. Adjustments to the Daily Amount also altered the fixed Term of a
Yellowstone or Delta Bridge MCA; however, such Adjustments were wholly
discretionary and did not operate to align the Daily Amount with a Specified
Percentage of the merchant’s daily revenue. See infra ¶¶ 305-316.
167. Although the circumstances listed in the foregoing two paragraphs
could change the Term of an MCA, none of them changed the Term based on the
percentage of revenue that Respondents had purportedly purchased.
168. Yellowstone and Delta Bridge sometimes described the Term as an
“estimated term,” or a “projected duration.” See, e.g., Ex. 153. However,
Yellowstone and Delta Bridge’s Terms were only “estimates” or “projections” in the
sense that they could be lengthened or shortened in the circumstances listed in the
foregoing paragraphs 165-166, which are not based on a Specified Percentage of the
merchant’s revenue.
169. Absent a Funder’s discretionary Adjustment of the Daily Amount (or a
merchant’s early payoff), Respondents required merchants to continue paying the
Daily Amount at the fixed rate, for the fixed number of days, even if the merchant’s
revenue had dropped to little or nothing. See, e.g., infra ¶¶ 405-412.
170. In extremely rare instances, Reconciliation altered the Term of
Yellowstone and Delta Bridge MCAs. However, as discussed below, Yellowstone
and Delta Bridge strategically structured their agreements to make Reconciliation
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NYSCEF DOC. NO. 1 RECEIVED NYSCEF: 03/05/2024
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unavailable to virtually all merchants. Furthermore, on the rare occasions that
Respondents did grant a Reconciliation, they Reconciled the merchant’s payments
against the made-up percentage that they had grossly inflated, and therefore did
not align the merchant’s payments with the percentage of revenue actually
represented by the Daily Amount negotiated and agreed to in the contract.
171. At times, Respondents included boilerplate statements in their
agreements with merchants claiming that the agreement had no “fixed duration or
term,” referencing the merchants’ purported right to Reconciliation and
Adjustment. E.g., Yellowstone 2020 Exemplar at 3 § 2; Delta Bridge Exemplar at 3
§ 2. These statements were fraudulent and misleading: As just described,
Reconciliation was unavailable to virtually all merchants, and Adjustments were
discretionary and not based on the percentage of revenue purchased. See supra
¶¶ 166-170.
3. Respondents Ignored the Specified Percentage
Altogether When Underwriting MCA Transactions
172. Neither Yellowstone nor Delta Bridge had any policy or guidance
concerning how—or whether—Funders were supposed to account for the Specified
Percentage when underwriting potential transactions and when formulating and
modifying offers to merchants. See Maczuga Tr. at 142:23-143:14; 153:14-154:11;
Stern Tr. at 261:23-262:9 (“The Yellowstone model as a whole allowed funders the
freedom to price deals in any way they wanted.”).
173. In practice, the Specified Percentage—i.e., the percentage of the
merchant’s revenue that Respondents were purportedly purchasing—did not factor
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NYSCEF DOC. NO. 1 RECEIVED NYSCEF: 03/05/2024
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into the Funders’ underwriting process at all. See A. Davis Tr. at 104:13-19; Singfer
Tr. at 95:25-96:14, 142:9-21; McNeil Tr. at 123:6-20; Dahan Tr. at 67:10-18. One
Funder, Respondent Matthew Melnikoff stated, “[T]he specified percentage was just
a number that relates to what we’re thereabouts taking a daily basis, but we’re
basing this [MCA] off of fixed daily, so that number [Specified Percentage]
doesn’t really matter. If it’s $100 a day, it’s $100 a day.” Melnikoff Tr. at 100:2-
24 (emphasis added) (explaining what he told merchants who complained about the
size of Yellowstone’s Specified Percentages); accord id. at 131:20-23 (stating that
the Specified Percentage “wasn’t really calculated” at Yellowstone). Melnikoff
testified that the Specified Percentage was irrelevant to the process of formulating
an initial offer, because “we based our . . . offers off fixed daily amounts.” Id. at
106:15-108:9; see also id. at 102:10-15, 119:25-120:4; 130:5-9; Ex. 171.
174. Numerous Funder Respondents testified similarly:
• Respondent David Singfer, asked how he would “factor in the specified
percentage in the process of underwriting a deal,” testified: “It didn’t
factor into what I felt comfortable extending to a merchant.” Singfer
Tr. at 95:25-96:14.
• Respondent Aaron Davis confirmed that the Specified Percentage did
not factor in “for purposes of underwriting” because he knew that the
number would be fixed by the contract generator “and I’ll leave it at
that.” A. Davis Tr. at 104:13-19.
• Former Yellowstone and Delta Bridge Funder Jim McNeil testified
that it was important in the underwriting process “to make sure that
the merchants can handle the daily payments and that . . . the daily
payments aren’t eating up too much of their business . . . . But as far
as comparing it against any specified percentage, that’s not
something that you do because it’s enough to make sure that
they can handle the daily payments and your assumption is that’s
going to be lower than any specified percentage anyway.” McNeil Tr.
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NYSCEF DOC. NO. 1 RECEIVED NYSCEF: 03/05/2024
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at 123:6-20 (emphasis added); see also id. at 119:2-19 (“Q: When you’re
formulating an initial offer . . . does the specified percentage play a role
in your consideration? A: Again, generally, no.”).
• Former Yellowstone and Delta Bridge Funder Michael Kern testified
that an email containing the Key Terms (defined infra ¶ 327) provided
“sufficient information for preparing a merchant cash advance
agreement,” even though they did not state a Specified Percentage.
Kern Tr. at 86:7-24 (discussing Ex. 200 at 2); accord id. at 88:23-89:15
(discussing Ex. 187). Kern also testified that an email, which failed to
identify any Specified Percentage, summarized “the final terms of the
[MCA] deal.” Id. at 94:16-95:5; see Ex. 240.
• Former Yellowstone and Delta Bridge Funder Michael Schwartz
testified that “The specified percentage was not really a factor [during
underwriting].” Schwartz Tr. at 69:8-12; see also id. at 67:7-14 (“when
you are underwriting a deal, you are not really looking at the specified
percentage” and “[y]ou are looking at indications of how much money
[merchants] have coming in and the length of the term that you want
for the deal”).
• Former Yellowstone and Delta Bridge Funder Avi Dahan testified that
the Specified Percentage was not “used in any underwriting at
Yellowstone” and was not “used in planning new contracts.” Dahan Tr.
at 67:10-18; see also id. at 91:22-25, 118:21-119:21.
• Former Yellowstone Funder Kevin Williams testified that the
“Specified percentage has nothing to do with anything.” Williams Tr.
at 138:13-14; accord id. at 115:17-116:12 (“The specified percentage is
irrelevant.”); id. at 67:10-21, 69:2-8, 80:10-14, 87:20-89:13, 138:13-14,
141:15-142:2; see also Aryeh Tr. at 91:6-13; Ehrlich Tr. at 91:20-92:24.
175. Respondent David Glass, who designed Yellowstone’s underwriting
process and trained Funders in “how to underwrite [an MCA] file,” Melnikoff Tr. at
63:16-24, taught Funders to plan their MCAs based on “fixed daily amounts,” not
“specified percentage[s],” id. at 107:19-108:9; see also id. at 173:20-24 (testifying
that neither Glass nor Respondent Stern “said anything about the specified
percentage”). Glass taught Funders methods for determining “how much to give [a
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merchant], . . . how much to purchase, . . . and how long to price the deal out for.”
Melnikoff Tr. at 64:8-65:8.
176. When discussing prospective deals with Yellowstone management,
including Respondents Isaac Stern and Jeffrey Reece, Funders would typically
reference the Funding Amount, the Payback Amount, and the Length of the
transaction—not any Specified Percentage. Saffer Tr. at 192:3-194:10; see, e.g., Ex.
467 at 1, 3 (text messages between Respondents Saffer and Reece); see also infra
¶ 327 (defining the “Key Terms”). Maczuga confirmed that Funders reference the
same terms—and not any Specified Percentage—in their internal communications
about Delta Bridge MCA transactions. Maczuga Tr. at 164:8-15; see, e.g., Ex. 134.
177. Funders testified that their responsibilities and practices remained the
same following the switch from Yellowstone to Delta Bridge. For example, one
former Yellowstone and Delta Bridge Funder testified that “we underwrote cash
advances [at Delta Bridge] just like we did at Yellowstone.” Dahan Tr. at 145:25-
146:2. Likewise, when Respondent Aaron Davis was asked whether “the
underwriting process that you used at Delta Bridge is the same as the one that you
used at Yellowstone,” he replied, “Yes. It’s my underwriting process . . . .” A. Davis
Tr. at 53:5-10; accord McNeil Tr. at 190:11-15 (acknowledging that Delta Bridge’s
and Yellowstone’s underwriting practices were “basically the same”); Saffer Tr. at
41:9-11 (“Any funder responsibilities different at Delta Bridge than at
Yellowstone[?] Not that I can think of.”); Kern Tr. at 178:21-179:3 (unaware of any
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difference in Delta Bridge’s underwriting practices and those of Yellowstone);
Melnikoff Tr. at 107:8-18, 206:22-207:17; Singfer Tr. at 44:11-46:21.
178. The insignificance of the Specified Percentage in the context of a
typical Yellowstone and Delta Bridge deal stood in stark contrast to its centrality in
the tiny fraction of “Split Funding” deals (also known as “Credit Card” deals) that
Yellowstone and Delta Bridge did. McNeil Tr. at 93:14-95:8, 100:17-102:12;
Maczuga Tr. at 135:21-136:4; Dahan Tr. at 78:16-79:15; Miller Aff. ¶¶ 75-79. But,
with the exception of its first year in business, Split Funding deals have never been
more than a small fraction of Respondents’ deals. Glass Tr. at 73:17-24; Kern Tr. at
61:7-24; Miller Aff. ¶ 79. In Split Funding deals—where Yellowstone or Delta
Bridge automatically debited a percentage of the merchant’s credit card
transactions each day, Yagecic II Tr. at 162:11-19; Maczuga Tr. at 131:19-132:15,
134:4-25; Dahan Tr. at 78:16-79:15; Miller Aff. ¶¶ 75-79—the Specified Percentage
mattered a lot, unlike the vast majority of transactions that were fixed payment
deals.
C. During the Repayment Period, Respondents Do Not
Change the Fixed Durations and Payment Amounts
Based on a Specified Percentage of Revenue
179. As noted in the foregoing section, Respondents entered into MCA
transactions with fixed Daily Amounts and Lengths that ignored the percentage of
revenue that Respondents were purportedly purchasing.
180. Likewise, Respondents ensured that when merchants’ revenue
declined during the term of the MCA transaction, the merchants had no ability to
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make corresponding changes to their payments to Respondents—even though the
transaction was purportedly a purchase of a percentage of that revenue.
181. Prospective changes to Daily Amounts, called “Adjustments,” were
wholly discretionary and did not operate to align the Daily Amount with the
percentage of revenue that Respondents had purportedly purchased.
182. And Respondents made it all but impossible for merchants to adjust
their payments retroactively through Reconciliation, the process of obtaining a
refund of excess payments following a drop in revenue. Respondents protected
themselves from having to issue refunds through a number of strategies, including
by incorporating contractual language that rendered Reconciliation illusory, and
then by manipulating the Specified Percentages stated in the contracts which had
the same effect. Respondents’ manipulation of the Reconciliation process through
such tactics is a key factor showing usury. See Davis, 194 A.D.3d at 517 (usury
indicated by “discretionary nature of the reconciliation provisions” and “allegations
that defendants refused to permit reconciliation”); Fleetwood, 2022 WL 1997207, at
*13 (“nominal[] . . . reconciliation provision,” that is “largely illusory”).
183. As a result, Respondents virtually never issued any refunds to
merchants as the result of a Reconciliation. Respondents issued Reconciliation
refunds on just 2.4% of their more recent Delta Bridge MCA deals since August
2022, 0.37% of their earlier Delta Bridge deals, and 0.06% of their MCA deals at
Yellowstone—including zero prior to 2020. See infra ¶¶ 186-189.
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184. By itself, the unavailability of Reconciliation confirmed that
Respondents’ MCAs were loans. As Respondent Glass explained to a Funder in
February 2020: “The merchants[’] right to a reconciliation is what makes ou[r]
product not a loan. If the merchant’s right to reconciliation is a sham then
the product is a loan.” Ex. 359 at 2. Respondent Stern chimed in: “The only
reasons MCA’s are not a loan is because we purchase a percentage of their sales and
every month they have the ability to review if we possibly overcollected that
percentage and receive a refund.” Id. at 3.
1. Respondents Virtually Never Issued Reconciliation
Refunds
185. The strategies that Respondents used as barriers to Reconciliation
were enormously successful in ensuring that Respondents did not have to issue
Reconciliation refunds, which confirms that the Reconciliation rights in
Respondents’ MCAs were “a sham.” Id. at 2.
186. Out of the approximately 87,180 MCA agreements that Yellowstone
entered into before January 13, 2020, Yellowstone never issued any refund to a
merchant as the result of a Reconciliation. See Ex. 399 (deal list); Ex. 398
(reconciliation records). None of the witnesses who testified in the investigation
were able to identify any such refund, e.g., Maczuga Tr. at 233:12-22; Kern Tr. at
162:4-19, and no such refund was evident in the documents Yellowstone produced in
the NYAG’s investigation.
187. From January 13, 2020 until it stopped entering into new MCA
agreements on May 21, 2021, Yellowstone entered into a total of approximately
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11,133 MCA agreements with 7,489 merchants, but only issued 56 Reconciliation
refunds in connection with 56 deals (0.5% Reconciliation refund rate); six additional
refunds have been issued since Yellowstone stopped entering into new MCA
agreements. See Ex. 397 (deal list); Ex. 398 (reconciliation records); see also
Maczuga Tr. at 234:9-21.
188. From Delta Bridge’s inception on May 24, 2021, until it modified how
the Specified Percentage is suggested in its Contract Generator on August 9, 2022,
Delta Bridge entered into a total of approximately 11,472 MCA agreements with
7,533 merchants, but only issued 53 refunds in connection with 43 deals (0.37%
Reconciliation refund rate). See Ex. 394 (deal list and reconciliation records).
189. From August 9, 2022, when Delta Bridge modified how the Specified
Percentage is suggested in its Contract Generator, until April 28, 2023 (the most
recent data available), Delta Bridge entered into a total of approximately 6,048
MCA agreements with 4,515 merchants, but only issued 194 refunds in connection
with 145 deals (2.4% Reconciliation refund rate). See Ex. 394 (reconciliation
records).
190. Reconciliation refunds were so rare that during testimony, Funders
and Sales Reps were almost uniformly unable to identify a single Reconciliation
that was performed on a Yellowstone or Delta Bridge MCA transaction. Aryeh Tr.
at 167:20-25; A. Davis Tr. at 149:4-7; Reece Tr. at 173:7-17; Schwartz Tr. at 116:18-
24; Saffer Tr. at 177:5-178:11; Kern Tr. at 158:13-160:10, 181:4-182:4; Melnikoff Tr.
at 173:25-174:9; Singfer Tr. at 131:5-16; Dahan Tr. at 128:5-14, 137:11-15; S. Davis
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Tr. at 244:22-245:3, 246:12-247:4; Williams Tr. at 138:20-25, 140:8-16; Worch Tr. at
206:5-11, 208:20-25, 214:24-215:11; Miller Aff. ¶ 45; see also Yagecic I Tr. at 210:11-
16; Vasquez Tr. at 135:15-136:4; Ehrlich Tr. at 127:15-23; Reich Tr. at 145:2-16;
McNeil Tr. at 94:13-16.
191. Respondent Maczuga testified that in deals he had funded at
Yellowstone, there were in fact no instances in which money was refunded back to a
merchant as the result of Reconciliation, nor was he aware of any such refunds in
deals by the team of Funders he supervised. Maczuga Tr. at 224:4-9, 225:22-226:5.
Respondent Steve Davis, Yellowstone’s biggest Funder, likewise testified that no
Reconciliation refund was ever issued on any deal he funded. S. Davis Tr. at
244:22-245:11.
192. Even as late as 2020, Yellowstone’s President, Respondent Jeffrey
Reece, reported to the rest of the management team—Respondents Bart Maczuga,
David Glass, and Isaac Stern—that Funders did not even understand
Reconciliation. He wrote that every Funder still required “3-4 explanations” about
Reconciliation, and that his conversations with them left him “deeply concerned.”
Ex. 358 at 3-4; see id. at 5 (Maczuga confirming).
2. Respondents Made Reconciliation Expressly
Discretionary Until 2018
193. Until at least 2018, Yellowstone used MCA contracts with a
Reconciliation clause that did not give merchants any enforceable right to have
their account Reconciled, and which was therefore illusory on its face. Instead, the
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clause left the decision whether to perform a Reconciliation within Yellowstone’s
discretion (“Discretionary Reconciliation Clause”).
194. The clause, which was part of the mandatory Fixed Payment
Addendum to Yellowstone’s form MCA contracts, stated as follows (or similar
phrasing):
At the Merchant’s option, within five (5) business [days] following the
end of a calendar month, the Merchant may request a reconciliation to
take place, whereby Yellowstone may ensure that the cumulative
amount remitted for the subject month via the Daily Payment is equal
to the amount of the Specified Percentage. . . .
. . . The Merchant specifically acknowledges that . . . the potential
reconciliation discussed above [is] being provided to the Merchant as a
courtesy, and that Yellowstone is under no obligation to provide
same . . . .
E.g., Yellowstone 2018 Exemplar at 10 Addendum § 1(c, d) (emphases added).
195. The Fixed Payment Addendum also granted Yellowstone the “sole and
absolute discretion” to dictate which “evidence and documentation” the merchant
needed to provide as a precondition to Reconciliation, and allowed Yellowstone to
refuse any Reconciliation if the merchant failed to provide such documentation
within five days. E.g., id. at 10 Addendum § 1(c).
196. In August 2015, Respondents Stern and Vadim Serebro directed
everyone at Yellowstone to use the Fixed Payment Addendum, which included the
Discretionary Reconciliation Clause, in all Yellowstone MCA agreements. Ex. 325
at 9 (email from Serebro, forwarded by Stern to “Yellowstone All”).
197. Yellowstone’s Discretionary Reconciliation Clause ensured that
merchants had no enforceable right to demand that Yellowstone perform a
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Reconciliation and refund excess payments, since Reconciliation expressly was not
an “obligation” but instead merely an accommodation that Respondents “may” (or
may not) provide as they wished, “as a courtesy.” Supra ¶ 194.
198. Because the Discretionary Reconciliation Clause deprived merchants of
the right to ensure that their payments were actually based on a Specified
Percentage of revenue, Yellowstone’s agreements containing this clause were
usurious on their face.
199. Yellowstone’s agreements containing the Discretionary Reconciliation
Clause were also usurious in practice. During the time the clause was included in
Yellowstone’s MCA agreements (until at least 2018, see supra ¶ 194) Respondents
did not provide a single Reconciliation refund. In fact, Respondents issued no such
refunds until at least 2020, as discussed above. See supra ¶ 186.
200. Moreover, despite the inclusion of the Discretionary Reconciliation
Clause in its contracts, Yellowstone did not actually have any policies or procedures
concerning Reconciliation until late 2018. Yagecic I Tr. at 202:18-204:11; McNeil
Tr. at 92:9-21, 160:8-14; Maczuga Tr. at 226:7-19; Dahan Tr. at 139:15-20; see
generally Ex. 408 (“Internal Procedures for Sales Reps, ISOs, and Funding”). Nor
did Yellowstone take steps to inform merchants that they were eligible for a
Reconciliation. Alabudi Aff. ¶¶ 14, 35; Shahinian Aff. ¶ 14; see infra ¶ 330.
201. In fact, Yellowstone “did not see itself as involved in the reconciliation
process” at all during that period. Glass Tr. at 144:8-10; id. at 129:14-22.
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202. Funders who separated from Yellowstone prior to (or close to) that date
were not even familiar with the term “Reconciliation” in the MCA context. Scott
Ehrlich, who stopped funding new deals in 2017 and separated from Yellowstone in
2018, understood Reconciliation to describe a scenario where a merchant in default
paid the balance on an MCA in order to be released from a judgment. See Ehrlich
Tr. at 125:9-126:23. Mark Worch, who was terminated by Yellowstone in April or
May of 2019, understood Reconciliation to be the same as an Adjustment, and
testified that he “never had a case” where a Reconciliation resulted in a refund.
Worch Tr. at 203:3-204:25, 206:5-11, 208:20-25, 214:24-215:11, 267:25-268:6. Kevin
Williams, who separated from Yellowstone in 2018 or 2019, understood
Reconciliation to include both of the scenarios described by Ehrlich and Worch, and
testified that the “[s]pecified percentage has nothing to do with” Reconciliation—or,
for that matter, anything else at Yellowstone. Williams Tr. at 134:14-22, 136:25-
138:18.
3. Starting Around 2018, Respondents Used Fixed
Specified Percentages that Were Grossly Inflated to
Ensure that Merchants Would Still Be Unable to
Adjust Payments Retroactively Through
Reconciliation
203. Beginning in 2018, Yellowstone experienced a period of intense
scrutiny from the press and government regulators, including the New York
Attorney General.
204. In response, Yellowstone engaged in a series of sham changes to make
it seem like it was complying with the law when it was not. Yellowstone updated its
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contracts, procedures, and disclosures, to make it easier for merchants to request
that Yellowstone reconcile past payments against the Specified Percentage of the
business’s actual receipts of revenue. See Ex. 235 (Sept. 20, 2018 email from Reece
regarding “new merchant agreement”); McNeil Tr. at 148:10-15; see also Glass Tr.
at 129:14-130:5 (reminder emails prompted by NYAG investigation). In testimony,
Yellowstone’s former operations manager described these efforts as a “get this done
over the weekend kind of thing.” Yagecic I Tr. at 203:24-204:11.
205. At the same time, as described herein, Yellowstone began inflating the
Specified Percentages used on its MCA agreements. See infra ¶¶ 217-228. The
purpose and effect of this change was to ensure that Yellowstone would never have
to actually refund payments as a result of a Reconciliation. Infra ¶¶ 230-232. The
change took place at the direction and with the support of Yellowstone
management, including Respondents Stern, Glass, and Reece. See infra ¶¶ 219-
232. Delta Bridge, under the direction of Respondents Maczuga and Serebro,
continued the practice of using inflated Specified Percentages on its MCA contracts.
Infra ¶ 248.
206. Using higher Specified Percentages on the MCA agreements made it
less likely that Yellowstone or Delta Bridge would ever owe merchants any refund.
Reece Tr. at 205:25-206:5; Maczuga Tr. at 232:24-233:5, 269:8-13; McNeil Tr. at
161:7-11, 181:18-21; Saffer Tr. at 182:12-19; Singfer Tr. at 138:17-21; Melnikoff Tr.
at 170:11-17. In addition to Respondents’ testimony, this is confirmed by data
produced by Delta Bridge which reflects that Delta Bridge contracts with higher
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Specified Percentages resulted in vastly fewer refunds than Delta Bridge contracts
with lower Specified Percentages. See Second Expert Affidavit of Blake Rubey
(“Rubey Figures Aff.”), Ex. 472 at ¶ 16.
207. Thwarting Reconciliation refunds was exactly Respondents’ objective
in increasing the Specified Percentages. As Respondent Stern wrote to Respondent
Glass in a September 2019 text message that anticipated even greater increases: “If
funders don[’t] want” to issue refunds, they can “[m]ake the specified
[percentage] high.” Ex. 367 at 13 (emphasis added). Glass replied: “[R]ight. The
funders will learn quickly.” Id.
208. Likewise, Respondent Maczuga, the Delta Bridge CEO and former
Yellowstone co-CEO, explained in a 2022 text message: “[E]veryone was making
[the Specified Percentage] higher than they should to protect themselves,
thus making it a sham to begin with.” Ex. 331 at 4; see also Ex. 292 at 1
(January 2018 email from former Yellowstone and Delta Bridge Funder to a
merchant, stating that “[o]ur legal department changed all of our contracts to reflect
a higher amount to protect ourselves”).
209. Inflating the Specified Percentages “protect[ed]” Respondents, Ex. 331
at 4, by insulating them from ever having to actually refund payments as a result of
a Reconciliation—“thus making [Reconciliation] a sham to begin with,” id.; accord
McNeil Tr. at 181:4-182:22 (testifying that the reason Specified Percentages were
increased was because “that made it less likely that a reconciliation would require
any refund back to the merchant”).
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210. By Reconciling merchants’ payments against a made-up, inflated
Specified Percentage number that bore no relation to the Daily Amount actually
negotiated by the parties, Yellowstone, Delta Bridge, and their Funders made it
virtually impossible for merchants to qualify for any Reconciliation refund. As one
merchant explained, “I cannot imagine that [my business] would have taken
advantage of this reconciliation process, since reconciling [my business’s] payments
based on this 15% ‘Specified Percentage’ likely would have caused its payment
amount not to decrease but to increase.” Ostrowski Aff. ¶¶ 30-31; see also id. ¶ 16.
211. Furthermore, for the very few merchants who did qualify, the limited
refund ensured only that the merchant’s payments were Reconciled to the made-up
number. As Respondent Maczuga acknowledged in his testimony, a higher specified
percentage “mean[s] that, if [a] merchant does qualify for a refund, the amount of
the refund would be a lot less.” Maczuga Tr. at 233:6-11; see also Kern Tr. at
212:23-213:6 (agreeing that a merchant whose revenues “fall off a cliff” would only
be entitled to a very small refund through Reconciliation).
212. For example, consider a merchant whose Daily Amount in fact
represented 5% of her business’s daily revenue. If the Daily Amount and the
Specified Percentage approximated one another—that is, if the Specified Percentage
was also 5%—the merchant would be eligible for a Reconciliation refund as soon as
her revenue dropped to the point where the amount paid to Delta Bridge
represented more than 5% of her business’s revenue. But if the merchant’s MCA
contract set the Specified Percentage at 25%, she would not be eligible for any
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Reconciliation refund until her revenue dropped much farther—to the point where
the amount paid to Delta Bridge represented almost a quarter of her business’s
revenue. Furthermore, the amount of the refund would be limited to the amount by
which her payments exceeded 25% of revenue, rather than the amount by which her
payments exceeded 5% of revenue.
213. Testifying about the Reconciliation process Yellowstone eventually
established, Isaac Stern, Yellowstone’s co-founder and CEO, said that it was
important for merchants to be able to request a Reconciliation and to have those
requests evaluated. Stern Tr. at 296:24-299:24. But once the process was in place,
Stern was indifferent to the results of the process and whether it actually resulted
in refunds to merchants. Id.
214. As Yellowstone’s former operations manager acknowledged in her
testimony, although Yellowstone “create[d] a process that made it easier for
merchants to request a reconciliation, . . . because the specified percentage was
fixed, it was actually harder or just as hard for merchants to actually receive a
refund as a result of the reconciliation.” Yagecic II Tr. at 169:13-172:11 (emphasis
added).
215. One former Yellowstone and Delta Bridge Funder eventually caught on
to the fact that inflating the Specified Percentages made it harder for merchants to
ever receive a refund. In his testimony, the Funder explained that “the specified
percentage, you know, needed to be lower and that way I could do more
reconciliations.” Saffer Tr. at 252:22-253:1; see also id. at 247:21-24 (“Q. So were
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there merchants who were not qualifying for reconciliations because their specified
percentage was too high? A. That could have been the case . . . .”); Kern Tr. at 210:5-
18 (agreeing that “if a merchant’s revenue stays roughly the same as what it had
been immediately prior to the agreement, it would not benefit from reconciliation, it
would actually owe money”).
216. Yellowstone implemented its policy of inflating the Specified
Percentage through its “Contract Generator,” which was contained within Panther,
Yellowstone’s proprietary customer relationship management software. Starting in
or around 2017, Funders were instructed to use the Contract Generator to create
Yellowstone’s MCA contracts with merchants. See Ex. 305; Reece Tr. at 57:25-58:3.
As discussed more fully herein, Delta Bridge acquired Panther from Yellowstone
and changed its name to Bobcat. Infra ¶¶ 599, 624. Bobcat includes the Contract
Generator originally developed by Yellowstone, with some modifications made by
Delta Bridge.
217. Contracts predating the Contract Generator were created using
Microsoft Word templates, with the value for the Specified Percentage generally
preset by Yellowstone at 10 to 15%. Id.; Melnikoff Tr. at 173:13-15; Schwartz Tr. at
66:2-13; McNeil Tr. at 90:5-9, 175:18-176:6; Saffer Tr. at 106:6-19; Ehrlich Tr. at
91:20-92:24, 98:3-7; see also Yagecic I Tr. at 173:9-17; Yagecic II Tr. at 142:22-25,
143:15-22; Saffer Tr. at 107:3-9 (testifying that Yellowstone “changed the default
percentage in the generator and they changed it from 15 to 25”); McNeil Tr. at
90:12-17; Melnikoff Tr. at 93:9-14, 173:13-15 (testifying that the default Specified
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Percentage was initially “10 to 15 percent” but then “changed to 25 percent”);
Schwartz Tr. at 66:5-13 (testifying that “at some point the percentage went from 15
percent to 25 percent”).
218. When the Contract Generator launched, the Specified Percentages
were vastly increased to a fixed 25%. Ex. 373 at 6 (January 2019 text from Reece to
Glass and Stern: “It was at 15% for years. Then 25% when we introduced the
generator.”).
219. The direction to increase the Specified Percentage to 25% came directly
from Yellowstone management. A May 2018 email from Respondent Jeffrey Reece
to Respondent Glass and others stated that “we changed [the Specified Percentage
in the Contract Generator] from 15% -> 25%.” Ex. 266 (emphasis added); see also
id. (Glass email approving a rule that Specified Percentages “must be 25%”); see
also McNeil Tr. at 179:4-180:2 (Stern and Reece must have been involved).
220. Lena Yagecic, who managed the Contract Generator as Yellowstone’s
operations manager (supervised by Reece) testified that Respondents Glass and
Serebro instructed her to set the Specified Percentage at 25%. Yagecic II Tr. at
143:15-22. Yagecic attempted to persuade Glass that the Specified Percentage
should be calculated as a function of the merchant’s revenue and the Daily Amount,
but Glass wanted it set at 25%, and his word was final. Yagecic II Tr. at 150:4-
151:7.
221. Funders understood that Yellowstone was responsible for setting the
Specified Percentage at 25%, and attributed that decision to its “legal department.”
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E.g., Ex. 292 (January 2018 email from former Funder McNeil to a merchant,
stating that “[o]ur legal department changed all of our contracts to reflect a higher
amount to protect ourselves.”); see also McNeil Tr. at 175:25-176:15; Saffer Tr. at
110:22-111:7; Dahan Tr. at 67:19-21; accord Yagecic II Tr. at 143:15-22.
222. At times, the default Specified Percentage was actually fixed within
the Contract Generator and could only be altered by Yellowstone’s operations staff
upon request from a Funder. Yagecic II Tr. at 158:14-159:9, 160:2-6; A. Davis Tr. at
103:11-104:5. The Specified Percentage was fixed at the direction of Yellowstone
management, including through an email from Respondent Reece directing that “all
contracts coming out of the generator have a 25% of sales on the front page.” Ex.
266. At one point, Respondent Glass expressed surprise to Yagecic that Funders
even had the ability to adjust the Specified Percentage and directed that it be fixed
at 25%. Yagecic II Tr. at 150:4-151:7.
223. At other times, it was technically possible for Funders to alter the
preset Specified Percentage within the Contract Generator, but Yellowstone used
other strategies to ensure that the Specified Percentage remained consistent. For
example, from at least May 2018 through February 2019, a message in the
generator directed that the Specified Percentage “[m]ust be 25%” (with the rare
exception of Split Funding deals, as defined supra ¶ 178). See Ex. 254 (emphasis
added); Exs. 195, 256, 264 (same). Respondent Glass insisted on the inclusion of
that message in the Contract Generator, even overruling Respondent Stern,
ostensibly Yellowstone’s CEO, who wanted the message excluded. See Ex. 254
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(“[Isaac] wants the message removed. Dave wants it there.”); Yagecic II Tr. at 164:7-
165:13, 167:5-10.
224. For another example, as of December 2018, Yellowstone set a limit
prohibiting Specified Percentages lower than 10%. See Ex. 208 (Funder’s assistant
writing that “the lowest we can put is 10%”). This limit applied regardless of how
the percentage related to the Daily Amount and to a merchants’ revenue.
225. Until approximately October 2019, Yellowstone management used the
Contract Generator to ensure that the Specified Percentages on virtually all of
Yellowstone’s MCA agreements were not only inflated but were also uniform. See
infra ¶ 226 (bar graph); see also Maczuga Tr. at 262:15-23 (confirming that the
graph is “consistent with what [he] know[s] about Yellowstone’s MCA contracts”); A.
Davis Tr. at 103:11-104:5; Saffer Tr. at 106:9-107:19, 127:19-20; Melnikoff Tr. at
100:10-16; Worch Tr. at 194:3-17, 196:2-15. The Specified Percentages remained
the same on virtually all of Yellowstone’s MCA agreements regardless of how the
designated percentage related to the Daily Amount and to a merchants’ revenue.
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226. In approximately October 2019, the Specified Percentages on
Yellowstone’s MCA contracts began to increase even further, as shown in the bar
graph below.
Rubey Figures Aff. Ex. 1. This bar graph shows the proportion of Respondents’
MCA agreements stating a given Specified Percentage, for each month since
January 2019. This graph shows that the Specified Percentages on Yellowstone’s
MCA contracts were almost uniformly 25% until October 2019. In October 2019,
approximately ten percent of Yellowstone’s MCA contracts stated a Specified
Percentage of 49%. Id. By April of 2020, 49% was the most used Specified
Percentage on Yellowstone’s MCA contracts. Id. And 49% remained the most
used Specified Percentage through the remainder of the Yellowstone period and the
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transition to Delta Bridge (indicated by the vertical dashed line), and on Delta
Bridge’s MCA contracts through July 2022. Id. Virtually all of Yellowstone and
Delta Bridge’s other MCA contracts stated Specified Percentages of 25, 30, 39, or
45%. Id.
227. Yellowstone expressly permitted Specified Percentages as high as 49%.
See Reece Tr. at 72:14-18.
228. The further increase in Specified Percentages from October 2019 to
April 2020 coincided with Yellowstone’s preparations to implement additional
measures to ostensibly make it easier for merchants to request a Reconciliation,
such as email reminders and a process for submitting such requests. See Ex. 367 at
12-13; Ex. 366 at 8-10; see also Glass Tr. at 129:14-130:5 (reminder emails prompted
by NYAG investigation).
229. Yellowstone’s management, including Respondents Glass and
Maczuga, were directly involved in establishing Yellowstone’s responses to
Reconciliation requests from merchants when the process was eventually
implemented in 2020. See Ex. 363 at 12 (Glass text to Stern, Reece, and Maczuga in
Jan. 2020: “I want to low key be involved in first couple of [Reconciliation]
controversies. So we can sorta decide together how to handle.” Maczuga: “dont
worry. . . . I will be getting advised by you to set some ground rules for sure.”
Reece: “This will be . . . [a]ll [Glass] and [Maczuga].”); Ex. 362 at 4-6 (Glass
involved in response to first Reconciliation call from merchant in January 2020).
Maczuga confirmed this in his testimony, explaining that Glass was “involved” and
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“very aware of the [Reconciliation] process and how it was handled.” Maczuga Tr.
at 230:10-18. Respondents Glass, Stern, Maczuga, Reece, and Serebro participated
in discussions about how to handle specific Reconciliation requests; these
discussions took place in an ongoing groupchat called the “GC Chat.” Reece Tr. at
186:23-187:16.
230. The further increase in Specified Percentages was another protective
measure by Respondents against ever having to actually issue any Reconciliation
refund to merchants. In a September 2019 text message exchange that anticipated
the increase, Stern wrote to Glass: “If funders don[’t] want” to issue refunds, they
can “[m]ake the specified [percentage] high.” Ex. 367 at 13. Glass replied:
“[R]ight. The funders will learn quickly.” Id. The next day Glass wrote to Stern:
“Specified percentages will explode[.] And that’s good.” Ex. 366 at 10; see
also Ex. 363 at 12 (Glass to Stern, Reece, Maczuga in January 2020: “Really don’t
know what to expect. I guess purchase percentages will go up.”); Maczuga Tr. at
231:20-232:7 (confirming that “purchase percentages” referred to the Specified
Percentages on Yellowstone’s MCA contracts).
231. Respondent Maczuga, who was Yellowstone’s co-CEO at the time,
agreed that “funders were raising the specified percentage because of the
increased availability of reconciliation.” Maczuga Tr. at 270:6-10.
232. The point of the increase was to maintain the status quo of never
having to actually issue any Reconciliation refund to a merchant, while misleading
courts and regulators into believing that Respondents were complying with legal
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requirements because Reconciliation was nominally available. As Glass wrote to
Stern, Reece, and Maczuga in January 2020: “The ideal scenario is this. Isaac gets
asked in a deposition one day, ‘out of 30,000 merchants you refunded 5 why is that.’
And his answer is ‘they weren’t eligible for refunds.’” Ex. 362 at 6. During a text
message exchange earlier in 2019, Glass had asked Stern and Reece whether “it
looks bad if specified percentages start to rise,” and pointed out that “we won’t be
collecting one penny faster than we were before[.] It will just be more legal. . . .
Reconciliation issue solved.” Ex. 373 at 5; accord Ex. 372 at 3 (similar
conversation with a Yellowstone employee).
233. Although the Specified Percentages stated on Yellowstone’s
agreements were no longer uniform, they largely stratified into four or five
categories, of 25, 30, 39, 45, or 49%. See supra ¶ 226 (bar graph).
234. This limited variation across all Yellowstone and Delta Bridge
agreements masked the fact that individual Funders typically used the same one or
two Specified Percentages for all of their Yellowstone and Delta Bridge MCA deals.
See A. Davis Tr. at 103:11-104:5; Saffer Tr. at 106:9-107:19, 127:19-20; Schwartz Tr.
at 65:25-66:9 (testifying that the Specified Percentage “was always a set number”
and that “all funders would generally have the same number that it would be set
to”); Dahan Tr. at 62:22-63:3 (“In general it [the Specified Percentage] stayed the
same.”); Kern Tr. at 109:20-23; McNeil Tr. at 88:10-25; Melnikoff Tr. at 100:10-16;
Worch Tr. at 194:3-17, 196:2-15, 256:23-257:3; see also Ex. 335 at 5 (Maczuga text in
April 2022: “The funders getting mad lazy with the 49 [percent]”).
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235. During his testimony, Yellowstone’s president was able to identify only
one single Funder who modified the Specified Percentage based on merchants’
revenue expectations. See Reece Tr. at 197:18-198:10. That one Funder specialized
in Credit Card deals where the Specified Percentage is critical (see supra ¶ 178),
was not one of Yellowstone’s top funders, and stopped funding altogether in
approximately 2017 to become Yellowstone’s operations manager. See Yagecic I Tr.
at 35:3-8, 171:18-19.
236. Steven Saffer, a former Yellowstone and Delta Bridge Funder, grew
concerned as the Specified Percentages were inflated higher and higher. After the
New Jersey Attorney General sued Yellowstone in December 2020, Saffer worried
that these practices could threaten the long-term viability of the MCA business, and
he reported his concerns about the Specified Percentage to Respondent Vadim
Serebro. Saffer testified that he told Serebro:
Clearly the specified percentage is going to be an issue because you let
funders choose whatever specified percentage they want and they can
make a specified percentage on a contract 49 percent and that’s not a
realistic percentage and where’s the longevity of [the MCA business]
going to be if [the Specified Percentage is] not truly connected to where
it’s supposed to be.
Saffer Tr. at 237:25-238:22. Saffer continued to raise these concerns with Serebro
at Yellowstone and then at Delta Bridge up through 2022, but never had the
impression “that it really mattered.” Saffer Tr. at 236:6-238:22. He also expressed
the concerns to Respondent Maczuga, Delta Bridge’s CEO. Saffer Tr. at 234:20-
236:5.
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237. The Specified Percentages were inflated compared to what they would
have been had they reflected the Daily Amounts as a percentage of merchants’
revenue. This is shown in the affidavit of Blake Rubey, Data Analyst for the Office
of the Attorney General, who analyzed three agreements with merchants and the
merchants’ receipts of revenue, and concluded that “the Stated Specified
Percentages in Respondents’ Agreements were far higher than what they would
have been had the Daily Amounts in the Agreements in fact amounted to a
Specified Percentage of the merchants’ Average Daily Revenue.” First Expert
Affidavit of Blake Rubey (“Rubey Aff.”), Ex. 470 at ¶¶ 29, 54; see also Exhibits to
Rubey Aff. (“Rubey Aff. Exs.”), Ex. 471.
238. Respondent Maczuga, Delta Bridge’s CEO, admitted in an August 2022
text message that the Specified Percentages were inflated, writing that Delta
Bridge’s MCA contracts “are just defaulting to 30-50% of receivables by default
(which after doing some math, is way way way higher than you need to grab
the agreed upon estimated daily payments).” Ex. 331 at 4 (emphasis added); see
also Yagecic II Tr. at 151:8-18 (“[I]t’s likely that most of the time [the Specified
Percentage] was higher . . . .”); Saffer Tr. at 247:21-24 (“Q. So were there merchants
who were not qualifying for reconciliations because their specified percentage was
too high? A. That could have been the case . . . .”); Kern Tr. at 210:5-18 (agreeing
that “if a merchant’s revenue stays roughly the same as what it had been
immediately prior to the agreement, it would not benefit from reconciliation, it
would actually owe money”).
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239. Indeed, Delta Bridge’s Specified Percentages dropped dramatically
starting in August 2022, when Delta Bridge purportedly began, to some extent, to
tie the Specified Percentage to the Daily Amount, as shown in the bar graph below.
See also Maczuga Tr. at 389:5-16; infra ¶¶ 249-260 (describing policy change).
Rubey Figures Aff. Ex. 2. This bar graph shows the proportion of Delta Bridge’s
MCA agreements stating a given Specified Percentage for each month from Delta
Bridge’s inception through April 2023. It shows that after August 2022 (indicated
by the vertical dashed line), virtually all of Delta Bridge’s MCA agreements stated a
Specified Percentage below 20%, when previously, virtually none of Delta Bridge’s
agreements stated a Specified Percentage below 20%; indeed, the majority of
agreements prior to August 2022 stated Specified Percentages of 45% or higher. Id.
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(As described herein, the change that occurred in August 2022 was not enough to
make Reconciliation a real option for merchants and did not cure other aspects of
Respondents’ transactions that made them loans. Infra ¶¶ 252-260.)
240. Respondents’ practice of setting Specified Percentages that
dramatically exceeded the Daily Amounts was entirely consistent with the widely
held view among management and Funders that the Specified Percentage was a
ceiling on collections, i.e., that the Specified Percentage could be any number so long
as it exceeded the percentage of the merchant’s revenue actually approximated by
the Daily Amount. As Delta Bridge CEO, Respondent Maczuga advised a Funder in
August 2021 that a merchant’s MCA agreement with Delta Bridge was a purchase
of “UP TO 49%” of the merchant’s revenue. Ex. 343 at 3 (emphasis in original). In
addition:
• Respondent Jeffrey Reece, Yellowstone’s president, admitted that the
Specified Percentage was treated as “an upper limit, like a ceiling, on
what Yellowstone could collect from the merchant each day.” Reece Tr.
at 204:25-205:13.
• Respondent Steve Davis testified that the Specified Percentage “was
the ceiling,” and the Daily Amount “wasn’t to exceed” the Specified
Percentage. S. Davis Tr. at 217:24-218:9; accord id. at 162:8-14
(agreeing that the Specified Percentage “reflected a ceiling”), 220:22-
221:7 (same). He also testified that, “[m]ost likely, [the Daily Amount]
did go below” the Specified Percentage. Id. at 161:19-162:19; see also
id. at 160:10-18 (testifying that the Daily Amount “would represent,
you know, up to [the specified] percent”), 217:4-7 (“as long as [the Daily
Amount] is under th[e] [Specified Percentage], you know, it’s ok”),
219:4-7 (agreeing that he understood “the daily payment to be a
number that was under the specified percentage”).
• Respondent Aaron Davis admitted, “the specified percentage was sort
of like a ceiling above which you knew that you could not collect more
than that,” and “you can maybe call it a cap . . . because I would say
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certainly far more often we’re collecting under that number as opposed
to over.” A. Davis Tr. at 162:8-17, 163:23-164:3.
• Former Yellowstone and Delta Bridge Funder Jim McNeil testified:
“[T]he daily payment . . . in general it was much lower than the 25
percent specified percentage threshold.” McNeil Tr. at 98:13-99:8
(“[O]n 90 plus percent of the deals it’s going to be well below that 25
percent of their real rev[enue].”); accord id. at 88:10-21 (“the specified
percentage basically says it enables us to collect up to 25 percent of the
merchant’s receivables”), 92:22-6, 94:7-10, 97:20-23, 119:17-120:5 (the
Specified Percentage is “just something that you want to make sure
you’re not going over. . . . it’s not being calculated, you know, on
individuals generally”), 121:22-122:3, 123:6-20.
• Former Yellowstone and Delta Bridge Funder Michael Schwartz
testified: “I would always go out of my way to make sure [the Daily
Amount] is under that specified percent . . . .” Schwartz Tr. at 68:5-7;
accord id. at 67:4-6 (“The specified percentage all that is so that I don’t
collect more than a certain percentage of the revenue.”); id. at 114:23-
25.
• Former Yellowstone Funder Mark Worch testified: “It hurt your
ability to collect if you did it wrong . . . . I always tried to use a higher
number on a contract . . . .” Worch Tr. at 193:7-20, 238:2-5, 272:12-20;
see also Aryeh Tr. at 91:2-23 (Specified Percentage ensures “that
Yellowstone doesn’t collect more than 25 percent of [a merchant’s]
income for the month”); Braun Tr. at 142:8-12; supra ¶ 110 n.4
(identifying Braun as former broker for Yellowstone).
241. But as Respondent Maczuga later explained, in an August 2022 text
message: “[I]f you draft the contract with 49% and you only really need 5, 10, 25,
29%, etc., then the whole idea of making it a sale of future receivable . . . is
thrown out the window.” Ex. 331 at 4.
242. An example illustrates how the Specified Percentage was used so
effectively to thwart merchants’ ability to Reconcile. Delta Bridge (via its affiliate,
Respondent Cloudfund) entered into an MCA agreement with the merchant Cookies
Restaurant Group LLC (“Cookies”) in Catskill, New York, on February 25, 2022.
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Rubey Aff. Ex. 2B. The agreement stated a Daily Amount of $208 and a Specified
Percentage of 49%, and stated that the Daily Amount was “a good faith
approximation of the Specified Percentage of [Cookies’] Future Receipts.” Id. at 1.
243. But a review of the bank statements that Cookies submitted to Delta
Bridge during the underwriting phase reflects that $208 was actually between 13%
and 18% of Cookies’ average daily revenue—not 49%, as stated in the agreement.
See Rubey Aff. ¶ 29 & Table 1. The Specified Percentage stated in Delta Bridge’s
agreement was about three times what it should have been. See id.
244. Cookies experienced a drop in revenue during the first months of the
agreement, and on May 5, 2022, Cookies submitted a Reconciliation request to
Delta Bridge. See Ex. 394 at 164 (row 26989). In the request, the merchant
reported having collected $37,041 in revenue since the start of the agreement,
which reflected a decrease of about half of Cookies’ revenue. See id. According to
Delta Bridge’s records, it had collected $6,953 from the merchant as of that date.
See id.
245. Applying the 49% Specified Percentage stated in the agreement to the
$37,041 in revenue reported by Cookies, Delta Bridge determined that it was
entitled to $18,150.09, and that since it had only collected $6,953, no refund was
due to Cookies. See Rubey Aff. ¶ 33; Ex. 394 at 164 (row 26989). As a result, Delta
Bridge denied the Reconciliation request summarily, without any further inquiry or
investigation. See Ex. 394 at 164 (row 26989) (“INELIGIBLE”).
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246. But Cookies would have been entitled to a refund if Delta Bridge had
not used an inflated Specified Percentage. If Delta Bridge had instead used a value
between 13% and 18%—which reflected the Daily Amount as a percentage of the
merchant’s actual revenue at the time of the agreement, supra ¶ 243—it would have
shown that Delta Bridge had in fact overcollected between $559 and $1,822 from
Cookies, and Cookies would have been entitled to a refund in that amount. See
Rubey Aff. ¶ 36.
247. Instead, Delta Bridge continued to debit Cookies’ bank account in fixed
amounts, and then refinanced the agreement the next month, driving the merchant
even further into debt. See Ex. 457 at 4; see also infra ¶ 432-444 (describing how
Respondents push struggling merchants to refinance). Two months later, Delta
Bridge filed a complaint against Cookies and its owner personally in Queens County
Supreme Court, claiming that Cookies was “depriving [Delta Bridge] of its Specified
Percentage of the Business Defendant’s daily receipts.” Id. at 28 ¶ 22. Default
judgement was entered in October 2022 and remains outstanding against the
merchant and owner. Id. at 2.
248. Until at least August 2022, Delta Bridge, and Funders at Delta Bridge,
continued to adhere to the same practices concerning the Specified Percentage when
working on Delta Bridge MCA deals. See supra ¶ 226 (bar graph); Maczuga Tr. at
153:14-154:11; supra ¶ 177.
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4. Delta Bridge’s New Practice of Suggesting a
Specified Percentage
249. On or about August 9, 2022—after issuing MCAs for more than a
year—Delta Bridge purportedly modified how the Specified Percentage is set in its
contract generator. Since implementing the modification, the Specified Percentages
on Delta Bridge’s contracts have reduced substantially. Nevertheless, as described
below, Delta Bridge maintains other barriers ensuring that merchants lack a
realistic opportunity to Reconcile, and it continues to include protections in its
agreements with merchants that are hallmarks of loans.
250. Delta Bridge has produced only one single document that supposedly
concerns the modification, Ex. 460, despite the NYAG’s subpoena calling for all
documents concerning the specified percentage, Ex. 446 at 8 (request 7), and all
documents concerning Delta Bridge’s policies and practices for setting the specified
percentage, id. (request 10), and the NYAG’s more specific follow-up request
specifically seeking “all documents concerning the [August 2022 modification], not
limited to formal written policies, and a Privilege Log listing any such documents
withheld on the claimed basis of privilege,” Ex. 461 at 2. As a result, the NYAG’s
understanding of the modification and its functionality is based on the self-serving
testimony of Delta Bridge’s CEO, a video created for the NYAG for demonstration
purposes, and the representations of Delta Bridge’s attorneys.
251. The modification was implemented less than two months after
Yellowstone’s counsel notified the NYAG that Delta Bridge had taken over
significant Yellowstone assets, see generally Part IV, infra, and about six weeks
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after the NYAG requested that Delta Bridge’s counsel explain how Delta Bridge’s
practices differed from Yellowstone’s and what steps Delta Bridge had taken to
prevent usury and fraud. Ex. 447 at 1. The modified contract generator contains a
new field for the merchant’s average monthly deposits, which are either entered by
the Funder directly, or pulled from the bank statements submitted by the
merchant. See Maczuga Tr. at 385:24-386:10, 394:21-395:14, 390:23-391:7.
According to Delta Bridge’s CEO, the contract generator then suggests a Specified
Percentage by dividing the Daily Amount by the merchant’s average daily deposits.
See Maczuga Tr. at 387:25-388:14.
252. However, Funders still have the ability to inflate the Specified
Percentage and set it at whatever value they like. See Maczuga Tr. at 394:7-14,
395:15-19.
253. Moreover, Funders continue to retain complete discretion in
determining which of the deposits reflected on a merchant’s bank statement count
as “revenue.” See Maczuga Tr. at 396:9-397:21; see also A. Davis Tr. at 109:19-
110:3. As before, these determinations are not disclosed to merchants. See
Maczuga Tr. at 397:22-398:3; see infra ¶¶ 370-378.
254. As before, Funders are permitted to change the Specified Percentage
for any reason at all, and do not even have to document or provide any justification
for the change. See Maczuga Tr. at 395:15-24.
255. As before, Delta Bridge does not have any safeguards, controls, or
other measures to ensure that the Specified Percentage that is ultimately set on its
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contracts with merchants is in fact an approximation of the Daily Amount as a
percent of the merchant’s average daily revenue. See Maczuga Tr. at 399:24-400:12.
256. Meanwhile, Delta Bridge did not announce, explain, or offer any
training concerning the modification to Funders when it was introduced or
thereafter. See A. Davis Tr. at 115:6-9, 118:17-25; Saffer Tr. at 122:1-8. After the
modification was implemented, Funders still struggled to explain or understand
how the contract generator calculates the suggested Specified Percentage. See
Melnikoff Tr. at 96:23-98:13, 108:21-23, 172:17-173:3 (testifying incorrectly that the
modification matches the Specified Percentage to the Factor Rate); Saffer Tr. at
120:13-121:18. One Funder, Respondent Aaron Davis, called it “a system that’s rife
with . . . big problems.” A. Davis Tr. at 109:19-20.
257. Delta Bridge is also continuing to collect on—and obtain judgments to
enforce—its MCA agreements that predated the August 2022 change in the contract
generator. See Maczuga Tr. at 401:9-21; see, e.g., infra ¶¶ 494-500 (judgment to
enforce June 2022 agreement with Specified Percentage of 49% obtained by Delta
Bridge in Oct. 2023). All of these agreements were subject to Respondents’ policy of
grossly inflating the Specified Percentages. See supra ¶ 248. Delta Bridge is aware
of this, because, at a minimum, it is aware that the average Specified Percentage
dropped substantially starting in August 2022. See Maczuga Tr. at 389:5-16; see
also supra ¶ 239 (showing the drop in Aug. 2022). The effect of these inflated
Specified Percentages is that it is virtually impossible for those merchants with
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earlier agreements to qualify for a Reconciliation refund, and any refund that they
do qualify for would be far less than they are entitled to. See supra ¶¶ 205-248.
258. Nevertheless, Delta Bridge has not taken any measures to examine
any older agreements, or to ensure that the merchants bound to those agreements
have a genuine opportunity to obtain a Reconciliation. See Maczuga Tr. at 402:13-
25. To the contrary, it is continuing to enforce them in New York State Supreme
Court. See id. at 401:9-21; see, e.g., infra ¶¶ 494-500.
259. Delta Bridge has also continued to let Funders exercise their own
discretion in deciding whether to grant prospective Adjustments to Daily Amounts,
and Funders do not recalculate Daily Amounts to align with the Specified
Percentage of the merchant’s daily revenue. Infra ¶¶ 309-316.
260. Furthermore, although inflating the Specified Percentage was
remarkably effective at preserving Respondents’ ability to collect fixed payments for
finite Terms, it was far from the only strategy they used. As detailed below,
Respondents have created a number of other barriers to avoid ever having to issue
Reconciliation refunds, and they do not modify merchants’ Daily Amounts
prospectively based on the Specified Percentage. And beyond Reconciliation,
Respondents’ practices have consistently treated the Specified Percentage as the
feint that it is, rather than the percentage of revenue they purportedly purchased.
Their Agreements with merchants have also preserved their authority to collect
even after the merchant was closed or bankrupt. These and other aspects of
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Respondents’ so-called MCAs are also hallmarks of loans, and most of them are
continuing today, as described in detail below.
5. Additional Barriers to Reconciliation
261. Respondents used a variety of strategies to insulate themselves from
having to provide Reconciliation refunds to merchants whose revenue declined
during the term of their MCA, in addition to inflating the Specified Percentage.
These strategies made it needlessly difficult, or even impossible, for merchants to
Reconcile their payments with the percentage of revenue Respondents had
purportedly purchased and helped to ensure that merchants’ right to Reconciliation
was “a sham.” Ex. 359 at 2 (“If the merchant’s right to reconciliation is a sham then
the product is a loan.”)
a. Respondents Use the Effects of Declining Revenues to
Disqualify Merchants from Reconciliation
262. According to Respondents’ agreements with merchants, Reconciliation
was not available at all to merchants whose declining revenues left insufficient
funds in their bank accounts to accommodate debits of the Daily Amounts. Yet
declining revenues were the very circumstance that was supposed to give rise to
merchants’ Reconciliation rights. E.g., Delta Bridge Agreement at 4 § 10(a)
(standard Delta Bridge MCA agreement granting merchant “the right” to
Reconciliation upon “unforeseen decrease” in revenue).
263. Respondents accomplished this through contractual language barring
merchants from Reconciliation if the merchant was “in default” of its Agreement,
and by deeming a “default” to include four bounced payments. E.g., Delta Bridge
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Exemplar at 4 § 10(a) (conditioning the availability of Reconciliation “so long as
[merchant] is not then in default under the terms of this Agreement”); id. at 9-10
§ 25(g) (defining “Events of Default” to include “[merchant] causes four (4) or more
ACH transactions attempted by [Delta Bridge] during any thirty-day period during
the term of this Agreement to be rejected by [merchant’s] bank”); Yellowstone 2020
Exemplar at 3 § 10(a); id. at 10 § 27(h).
264. As a result, the availability of Reconciliation was illusory for
merchants whose revenue declined such that their bank accounts were
insufficiently funded when Respondents attempted to debit the Daily Amounts. By
deeming such merchants in “default,” Respondents could refuse any Reconciliation
request, no matter if they had collected more than the percentage of the declining
revenue purportedly purchased.
b. Respondents Manipulate How Merchants’ Revenue Is
Calculated When Performing Reconciliations
265. As part of the Reconciliation process that Respondents eventually
established, Respondents reviewed merchants’ bank statements and determined
which of the credits listed on the statements qualified as revenue. Under
Respondents’ MCA agreements, revenue was merchants’ receipts for the “sale of
goods and services” (except for a period when it was all receipts from any source).
See supra ¶ 123 n.9; infra ¶¶ 445-448. Respondents manipulated this process in a
manner that made it more difficult for merchants to qualify for a Reconciliation
refund.
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266. Because Reconciliation was supposed to examine whether Respondents
had collected more than the percentage of revenue stated in the contract, it was
critical to determine which of the deposits into a merchant’s bank account were
revenue in the first place. If credits other than revenue (e.g., loans, investments,
refunds, chargebacks) were wrongly treated as revenue during the Reconciliation
process, the merchant’s total revenue would be artificially inflated, and the
merchant would be less likely to qualify for any refund as a result. See Glass Tr. at
139:24-140:2 (“The higher [the merchant’s] sales, the less likely they would be
eligible for a refund.”).
267. With limited exceptions, Yellowstone and Delta Bridge did not have
any policy or guidance concerning what qualifies as revenue under the terms of
their MCA agreements, when evaluating Reconciliation requests from merchants.
See Maczuga Tr. at 235:23-236:16.
268. As a result, Funders have treated merchants’ nonrevenue receipts—
such as loans from family members—as revenue, making it appear during the
Reconciliation process that merchants’ revenue had not in fact dropped. See Ex. 152
at 1-4 (Delta Bridge Funder informing merchant that a loan “[f]rom a family
member” counts as revenue for the purposes of a Reconciliation).
269. Furthermore, it was “common knowledge” among Respondents that
they treated funding that merchants received from MCA transactions with other
MCA companies as revenue when evaluating Reconciliation requests. Maczuga Tr.
at 236:7-21, 237:13-19; accord Singfer Tr. at 60:4-12; Reece Tr. at 179:21-180:21; Ex.
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361 at 7 (message from Maczuga to Reece, Stern, and Glass concerning
Reconciliation request: “MCA is revenue”); Ex. 210 (email from Funder refusing
merchant’s request for a Reconciliation refund, based in part on the treatment of
funding from another MCA company as revenue).
270. As a result, if a merchant received a cash infusion from another MCA
company during the term of a Yellowstone or Delta Bridge MCA—which was
common—the merchant would be hard-pressed to demonstrate that their business’s
revenue had fallen significantly enough to warrant a Reconciliation refund.
Moreover, at least some merchants who sought out cash infusions from other MCA
companies did so precisely because they had experienced a cash shortfall which
should have entitled them to Reconciliation. E.g. Alabudi Aff. ¶ 63.
271. For example, in December 2018, the merchant Get Me Placement
submitted a Reconciliation request to Yellowstone based on its “dramatic decrease
in our accounts receivable” during the month prior, and then followed up directly
with the Funder about the request. Exs. 214, 212. The Funder replied that the
merchant was not eligible for any refund because the business had received another
merchant cash advance, and that the merchant “actually owe[s] a balance to
[Yellowstone]” as a result of the supposed surge in revenue. Ex. 210 at 2. Rather
than agreeing to Reconcile, the Funder proposed suspending four payments as a
“middle ground.” Id. at 1; see also id. (merchant’s attorney noting that “If you
contend those are future receipts, th[e]n [Yellowstone] would not be allowed to
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consider the future receivables of those sales from its calculations, as that would
mean you are counting those deposits as ‘receipts’ 2 different times.”).
272. This practice of counting funding from other MCA companies as
revenue for purposes of a Reconciliation was not disclosed to merchants, see Reece
Tr. at 182:23-183:21; Maczuga Tr. at 237:20-238:6 (claiming incorrectly that the
agreements disclose this), and it was continued by Delta Bridge, see Maczuga Tr. at
236:17-21; Ex. 329 at 4 (Maczuga advising Funder in December 2022 that “MCA
deposit into account [] is . . . revenue as far as reconciliation goes”).
273. This practice of counting funding from other MCA companies as
revenue for purposes of a Reconciliation was also inconsistent with how
Respondents treated the very same deposits when pricing and underwriting
Yellowstone and Delta Bridge MCA transactions at their outset. According to
Respondent Maczuga, Yellowstone and Delta Bridge left it up to individual Funders
to decide whether to count funding from other MCA companies as revenue during
underwriting, and that it would be “perfectly consistent” with Delta Bridge’s
policies if Funders did not count such funding as revenue in their underwriting.
Maczuga Tr. at 239:6-18.
274. And Funders testified that indeed, they did not count funding from
other MCA companies as revenue for purposes of pricing and underwriting
Yellowstone and Delta Bridge MCA transactions. See Singfer Tr. at 59:17-60:12
(“Q. So funding from other MCA companies you generally did not count as revenue?
A. Not as far as determining how much I would feel comfortable giving, but in other
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cases I would consider it revenue. Q. In what other cases would you consider it
revenue? A. If it were for a reconciliation process.”); Kern Tr. at 98:23-99:2, 203:10-
15; Williams Tr. at 233:5-9.
275. As a result, Respondents used one standard for defining revenue when
setting the Specified Percentage and Daily Amount at the outset, and a different
standard when performing Reconciliations. See also infra ¶¶ 370-378 (describing
how Yellowstone and Delta Bridge allowed Funders to determine what counted as
revenue during underwriting). This discrepancy raised the bar substantially for
merchants to qualify for any Reconciliation refund, and ensured that the process
was not actually aimed at reconciling merchants’ payments with the percentage of
revenue Respondents had purportedly purchased. Furthermore, the discrepancy
was not disclosed to merchants. See Reece Tr. at 182:23-183:21.
276. This was a problem that infected Respondents’ Reconciliation process
more broadly. Yellowstone and Delta Bridge did not require Funders, when
evaluating Reconciliation requests, to be consistent with the revenue
determinations they used when underwriting the deal in the first place. See
Maczuga Tr. at 236:17-21, 239:6-18.
277. Yellowstone and Delta Bridge did not even require Funders to justify
the determinations that they made with respect to which deposits counted as
revenue when evaluating Reconciliation requests. For example, in February 2023,
the merchant Sirius Sage submitted a Reconciliation request to Delta Bridge, and
reported only $6,364 in sales, which would qualify the merchant for a $413 refund.
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See Ex. 394 at 347 (row 56199). The Funder responsible for the deal denied the
refund, and recorded a justification in Delta Bridge’s internal system: “I counted
13,298.74 in deposits since [the deal funded].” Id. (emphasis added). In denying the
refund, the Funder did not—and was not required to—explain the discrepancy
between the merchant’s revenue calculation ($6,364) and his own ($13,298.74),
including whether he treated any of the “deposits” as revenue in a manner that was
either incorrect, or inconsistent with how the deal was underwritten at the outset.
278. Delta Bridge’s own review of a Funder’s denial of a Reconciliation
refund did not cure this defect. Just like the Funder, the Delta Bridge staff member
reviewing the denial did not have any consistent company policy or guidance to
apply concerning which deposits qualified as revenue. See Maczuga Tr. at 235:23-
236:11. And even if such policies had existed, the staff member had no way of
knowing whether that approach was consistent with how the Funder had
underwritten the deal at the outset. Furthermore, Delta Bridge assigned members
of its staff (who were not underwriters) to undertake the review, and like the
Funders, they did not have to justify the determinations that they made with
respect to which deposits counted as revenue. In the case of the Reconciliation
request made by Sirius Sage described in the foregoing paragraph, a Delta Bridge
staff member agreed with the Funder’s refund denial, and recorded a meager
justification that made it impossible to tell whether any deposits were incorrectly
treated as revenue: “More than 13K in sales.” Ex. 394 at 347 (row 56199).
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c. Respondents Do Not Provide Relief to Merchants When
They Experience Sudden Drops in Revenue
279. Even when a Reconciliation warranted a refund to a merchant,
Respondents’ Reconciliation procedures ensured that they would not have to issue
any refund until well after the merchant’s business experienced a drop in revenue.
280. The Reconciliation provisions in Yellowstone and Delta Bridge’s MCA
agreements expressly provided that Reconciliation was “retroactive.” E.g.,
Yellowstone 2020 Exemplar at 3 § 10(a); Delta Bridge Exemplar at 4 § 10(a); see
Kern Tr. at 132:11-18. Reconciliation provided only a credit for past
overpayments—not any adjustment to current payments that a merchant lacked
funds to remit. See also infra ¶¶ 305-316 (explaining that Adjustments were
entirely discretionary on the part of Funders and did not operate to align the Daily
Amount with the percentage of merchants’ revenue that Respondents had
purportedly purchased).
281. In addition, because Yellowstone and Delta Bridge’s Reconciliation
procedures looked at merchants’ payments over the entire term of the MCA, see
Maczuga Tr. at 239:19-240:4, Reconciliation refunds continued to be unavailable in
the case of a sudden drop in revenue. Merchants did not qualify for a Reconciliation
refund until their cumulative payments to Yellowstone or Delta Bridge exceeded the
inflated percentage of their actual revenue over the entire term of the MCA. See
Kern Tr. at 134:7-17 (Reconciliation entailed evaluating merchant’s “total revenue
for that month”).
CAUTION: THIS DOCUMENT HAS NOT YET BEEN REVIEWED BY THE COUNTY CLERK. (See below.) INDEX NO. UNASSIGNED
NYSCEF DOC. NO. 1 RECEIVED NYSCEF: 03/05/2024
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282. As Glass explained to Reece, Yellowstone’s President, in reference to a
merchant who had submitted a Reconciliation request: “So if we collect 30% [of the
merchant’s revenue] for January and the overall percentage collected is still under
25%”—the Specified Percentage on the contract—“the [merchant] is NOT owed
money.” Ex. 360 at 6.
283. Accordingly, even when experiencing a substantial or complete loss of
revenue, Reconciliation afforded merchants no relief at all from Respondents’ debits
of the Daily Amount until the merchant qualified for a Reconciliation refund. As
one former Yellowstone and Delta Bridge Funder admitted, Reconciliation would
not necessarily help a merchant facing “lower revenues in the next few weeks.”
Kern Tr. at 137:11-24; see also id. at 130:12-137:24 (discussing Exs. 215, 295).
284. This allowed Yellowstone to reject Reconciliation requests from
merchants during the early days of the COVID pandemic, when local lockdowns had
a severe impact on many merchants’ revenues. For example, one merchant who
was denied a Reconciliation refund in April 2020 sent an email complaining that
Yellowstone was counting “income [from] before the covid outbreak. Now, my
income will be very limited.” Ex. 170.
285. By withholding Reconciliation refunds until well after the merchant
experienced the drop in revenue, Respondents also discouraged merchants from
availing themselves of the Reconciliation process at all. See Kern Tr. at 213:6-18
(acknowledging that merchants experiencing a revenue decrease did not want to
“wait[] for me to over debit and then refund”).
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NYSCEF DOC. NO. 1 RECEIVED NYSCEF: 03/05/2024
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286. Furthermore, until at least 2019, Yellowstone used MCA agreements
that limited Reconciliation altogether to the one month preceding the Reconciliation
request from the merchant. E.g., Ex. 111 at 3 § 10(a) (granting right to
Reconciliation “for one (1) full calendar month immediately preceding the day when
such request for reconciliation is received”); Yellowstone 2018 Exemplar at 10
Addendum § 1(c) (granting right to Reconciliation for the “subject month” preceding
the request). As a result, even if Yellowstone had, during earlier months, collected
more than the percentage of revenue it purportedly purchased, merchants were not
entitled to any refund at all.
287. In addition, until at least 2019, Yellowstone also used agreements that
imposed arbitrary and unreasonable hurdles on merchants seeking a Reconciliation,
including requiring them to submit Reconciliation requests within a narrow five-day
window after the close of each month. E.g., Ex. 111 at 4 § 11(c) (“[Yellowstone’s]
receipt of [merchant’s] request for Reconciliation after the expiration of the five (5)
Workday period following the last day of the Reconciliation Month for which such
Reconciliation is requested nullifies and makes obsolete [merchant’s] request for
Reconciliation for that specific Reconciliation Month.”). As a result, a merchant
that contacted Yellowstone concerning flagging revenues in mid-February would not
be entitled to Reconciliation but would instead be required to “wait until the
beginning of the following month, March 2019, to ask for a reconciliation of
February.” Kern Tr. at 145:25-148:11 (discussing Ex. 193).
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288. For example, one former Yellowstone and Delta Bridge Funder
testified about a merchant who contacted him on February 14, 2019, to report
difficulty keeping up with Yellowstone’s daily debits. See Kern Tr. at 146:12-148:11.
The Funder testified that under Yellowstone’s agreement, it was too late for the
merchant to obtain Reconciliation for January 2019, and that the merchant would
have to wait until March 2019 and request Reconciliation as to February. See id.;
see also Ex. 193. The Funder admitted that as a result of these limitations,
Reconciliation typically was not a meaningful option for merchants struggling to
sustain Respondents’ daily debits. See Kern Tr. at 212:23-213:19.
d. Yellowstone and Delta Bridge Disincentivized
Reconciliation, and Their Funders Disfavored It
289. Funders’ compensation was primarily centered on profit-and-loss
statements—which Respondents called “PNL” statements—that Yellowstone and
Delta Bridge sent to each Funder at the end of every month. See Reece Tr. at
210:14-25; Maczuga Tr. at 216:17-217:7. The PNL statements sent to each Funder
listed the Yellowstone or Delta Bridge MCA transactions that Funder was
responsible for, and identified as “Active” those transactions that had paid at least
three percent of the outstanding balance at the end of the previous month. See
Maczuga Tr. at 217:8-218:3; Reece Tr. at 211:2-7; McNeil Tr. at 157:21-24. Deals
that failed to pay at least three percent of the outstanding balance at the end of a
month were identified in the Funder’s PNL statement as in default (“PNL Default”),
except for limited cases where a one-month grace period was allowed. See Maczuga
Tr. at 218:5-19; McNeil Tr. at 157:21-158:12.
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290. Yellowstone and Delta Bridge’s compensation structure for Funders
disincentivized Reconciliation. See McNeil Tr. at 156:15-157:9 (“[R]econciliation . . .
[i]s kind of in a little bit of a conflict for the funder in the PNL.”); Saffer Tr. at
188:6-16 (testifying that Reconciliation could negatively impact a Funder’s PNL “if
you use too low of a specified percentage”).
291. The consequence of a Reconciliation refund could be that an otherwise-
performing transaction could enter PNL Default if the refund lowered the total
payments to Yellowstone or Delta Bridge below the three percent threshold. See
Reece Tr. at 211:8-13, 212:7-19; McNeil Tr. at 156:15-159:3; Yagecic I Tr. at 210:3-7,
217:20-24; Ex. 370 at 4 (Glass writing: “You refund it hurts ur pnl.”).
292. When a transaction entered PNL Default, the consequences were
serious for Funders’ compensation. See Reece Tr. at 214:17-22; Maczuga Tr. at
219:3-221:2; McNeil Tr. at 158:22-159:3. Once a transaction was determined to be
in PNL Default, Yellowstone or Delta Bridge deducted the full Funding Amount
(less payments received) from the profits allocated to the Funder. See Maczuga Tr.
at 219:3-221:2; Ehrlich Tr. at 110:18-111:10. That deduction could not be reversed
even if the merchant made up their missed payments, although any further
collections from the merchant would be applied to the Funder. See Maczuga Tr. at
219:3-221:2; Ex. 128 at 1.
293. Funders sometimes expressed alarm that a Reconciliation could have
this effect. One former Funder testified that he raised this issue with Yellowstone
and Delta Bridge management repeatedly between 2020 and 2022, telling them: “I
CAUTION: THIS DOCUMENT HAS NOT YET BEEN REVIEWED BY THE COUNTY CLERK. (See below.) INDEX NO. UNASSIGNED
NYSCEF DOC. NO. 1 RECEIVED NYSCEF: 03/05/2024
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don’t want [Reconciliation] to affect my PNL and I should be able to reconcile as
many times as I want without it affecting me.” Saffer Tr. at 236:6-19; see also
Saffer Tr. at 234:23-235:10, 237:25-238:6; Singfer Tr. at 137:10-20 (describing an
instance where this occurred); DS-AG-000106 at -113 (texts between Singfer and
Maczuga); Yagecic I Tr. at 210:3-7 (describing this as “one of [Funders’] overarching
concerns” with respect to Reconciliation); id. at 217:20-24.
294. Yellowstone management was aware of this, see Ex. 364 at 6-7 (Stern
and Reece discussing, and dismissing, Funders’ concerns); Yagecic I Tr. at 210:3-7,
217:20-24 (“I do remember [Funders] having that concern and voicing it.”), and even
implemented a policy that allowed Funders a one-month reprieve from PNL Default
if it were caused by a Reconciliation—but that policy was only effective for a brief
period during the height of the COVID pandemic in April 2020, see Singfer Tr. at
158:16-159:16 (testifying about Ex. 355).
295. Even for transactions that remained Active, a Reconciliation refund
could hit a Funder’s pocketbook by delaying payment to the Funder. Yagecic I Tr.
at 215:12-216:9. A consequence of any refund would be to push back the date by
which the balance would reach zero, and Yellowstone and Delta Bridge paid
Funders their share of the profits from an MCA deal only once the deal was paid in
full. See Yagecic I Tr. at 215:12-216:9; Miller Aff. ¶ 51.
296. Consistent with the financial incentives created by Yellowstone and
Delta Bridge, Funders who granted relief to merchants would typically agree to
make Adjustments rather than any Reconciliation. See A. Davis Tr. at 148:24-
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NYSCEF DOC. NO. 1 RECEIVED NYSCEF: 03/05/2024
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149:11; Singfer Tr. at 121:21-122:3; McNeil Tr. at 157:7-15; Dahan Tr. at 126:11-
127:16; Schwartz Tr. at 116:6-17 (admitting that he was “more likely to adjust . . .
payments than . . . to perform a reconciliation” upon learning that a merchant was
experiencing financial difficulties); Kern Tr. at 212:23-213:19; Miller Aff. ¶ 49; see
also Turner Aff. ¶¶ 23-25 (proposing lowering of weekly payment upon learning
merchant was experiencing shortage of funds); Alabudi Aff. ¶ 27 (proposing
Refinancing as a response to drop in revenue). As discussed below, such
Adjustments were discretionary on the part of the Funder, and even when granted,
did not operate to align the Daily Amount with an approximation of the Specified
Percentage of the merchant’s daily revenue. Infra ¶¶ 305-316.
297. As one Funder, Respondent Aaron Davis, put it: “I don’t think
[Reconciliation] would happen that often [at Yellowstone]. . . . A merchant would
call up and he would say I need—I need help, my revenues are down, and we would
deal with it in, you know, in our own way.” A. Davis Tr. at 148:24-149:11. One
former Yellowstone and Delta Bridge Funder explained that: “[Reconciliation]
wasn’t a thing that we liked doing . . . we were hoping that okay, the merchant’s
revenue dropped off somewhat and they should still be able to handle a [re]duced
payment as opposed to some type of reconciliation.” McNeil Tr. at 157:2-15.
298. When merchants proactively reported a drop in revenue, Funders
almost never raised the possibility of performing a Reconciliation to retroactively
adjust the merchant’s payments to match the Specified Percentage of their actual
revenue. E.g., McNeil Tr. at 156:8-13; Alabudi Aff. ¶¶ 27, 39.
CAUTION: THIS DOCUMENT HAS NOT YET BEEN REVIEWED BY THE COUNTY CLERK. (See below.) INDEX NO. UNASSIGNED
NYSCEF DOC. NO. 1 RECEIVED NYSCEF: 03/05/2024
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299. For example, in May 2019 a merchant wrote former Yellowstone
Funder Michael Kern that he “wanted to see [his] options” for coping with his
payments to Yellowstone in view of delayed payments coming into his business. Ex.
176 at 2. Although the merchant was eligible to seek Reconciliation at the time, see
Kern Tr. at 140:15-143:25, Kern failed to raise it, offering only to reduce the Daily
Amount for the next four days, see Ex. 176 at 2; see also, e.g., Ex. 224 at 1-3 (Funder
failing to offer Reconciliation in response to merchant’s report that her “income has
dropped” and that she was “down 10 clients,” instead stating that her “only options”
were to take out a renewal MCA or face a legal proceeding); Exs. 285, 149, 145 at 1.
300. Yellowstone and Delta Bridge also discouraged merchants from ever
requesting a Reconciliation by threatening to “increase” the Daily Amount, or debit
a lump sum, if the result of the requested Reconciliation was that the Specified
Percentage of merchants’ actual revenues was less than the amount debited. See
Delta Bridge Exemplar at 4 § 10(a, c); Yellowstone 2020 Exemplar at 3-4 § 10(a, c);
see also Ex. 174 (standard email to merchant stating: “Please be advised that a
reconciliation will not necessarily result in a refund, and may result in an amount
due to [Yellowstone].”).
301. One Funder, Respondent Steve Davis, explained the chilling effect
from the merchant’s perspective: “[I]f I call [Yellowstone] and start getting
technical with the contract, right, it can theoretically go both ways. . . And then
maybe [Yellowstone] can say that they want to raise the payments.” S. Davis Tr. at
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NYSCEF DOC. NO. 1 RECEIVED NYSCEF: 03/05/2024
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227:18-25; see also Kern Tr. at 127:13-128:23 (acknowledging that the
Reconciliation clause could obligate merchants to higher payments), 210:5-18.
302. Funders and their teams threatened to enforce this provision against
merchants who submitted Reconciliation requests. See supra ¶ 271 (describing
response to Reconciliation request in which Funder told the merchant he “actually
owe[s] a balance to [Yellowstone],” because the business had received a cash
advance from another MCA company).
303. In testimony, some Yellowstone and Delta Bridge individuals claimed
that no increase was ever actually applied—but that was not conveyed to
merchants, and the threat was left hanging over them. See Kern Tr. at 127:13-
128:8.
304. Yellowstone and Delta Bridge also required merchants to provide the
login and password to access their bank account in order to qualify for a
Reconciliation refund. Ex. 406 at 2; Maczuga Tr. at 240:8-20.
6. Prospective Payment Modifications—Which Are
Discretionary and Do Not Align Payments With the
Specified Percentage—Are Not a Substitute for
Reconciliation
305. When merchants reported difficulty keeping up with Respondents’
daily debits because of decreased revenue, Funders sometimes responded by
lowering the Daily Amount going forward—usually temporarily—or by temporarily
suspending the daily debits altogether. See Maczuga Tr. at 242:16-25; Singfer Tr. at
121:21-122:3, 124:8-11, 124:22-125:8, 126:9-13; Saffer Tr. at 164:12-165:6; A. Davis
Tr. at 136:14-20.
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NYSCEF DOC. NO. 1 RECEIVED NYSCEF: 03/05/2024
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306. However, the changes were not aimed at aligning the Daily Amounts
with the percentage of revenue that Respondents purportedly purchased. To the
contrary, Yellowstone and Delta Bridge expected that Funders would treat the
Specified Percentage as entirely irrelevant to (1) the decision whether to change the
Daily Amount, and (2) by how much. Respondent Maczuga, Delta Bridge’s CEO,
was clear about this in his testimony: “[T]he specified percentage does not play a
role in adjustments . . . .” Maczuga Tr. at 244:25-245:8.
307. Since at least September 2018, Respondents’ MCA contracts have
provided a process for merchants to request reductions to the Daily Amount
(“Adjustments”). See Ex. 235. The contracts that Yellowstone used did not explain
how the new Daily Amount would be calculated, or include any reference to the
Specified Percentage. See e.g., Yellowstone 2020 Exemplar at 4-5 §§ 12-13.
308. Yellowstone’s contracts also disallowed Adjustments unless a
Reconciliation had occurred and resulted in a refund of at least 15% of the total
amount collected. See id. at 4 § 12(b). As a result, Adjustments were unavailable to
virtually all merchants under the terms of Yellowstone’s agreements, since
Reconciliation was an explicit precondition, and Respondents made it virtually
impossible to obtain any Reconciliation as discussed above. See supra ¶¶ 179-304.
Yellowstone’s contracts also provided that any adjusted Daily Amount would
automatically revert to the original amount after 30 days. See Yellowstone 2020
Exemplar at 4 § 12(a, b).
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NYSCEF DOC. NO. 1 RECEIVED NYSCEF: 03/05/2024
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309. The form MCA contracts used by Delta Bridge, however, did include an
express promise that when performing an Adjustment, Delta Bridge would
determine a new Daily Amount that “more closely reflect[s] the [merchant’s] actual
[revenue] multiplied by the Specified Percentage.” See e.g., Delta Bridge Exemplar
at 4 § 12(a); see also id. at 5 § 12(a) (providing that the Daily Amounts would
automatically revert to the original amount after 30 days).
310. Despite promising merchants an opportunity to align their Daily
Amount with a Specified Percentage of their actual revenue, Delta Bridge never
actually did so. See Maczuga Tr. at 244:25-245:8. This continued the practice
concerning Adjustments that had been established at Yellowstone.
311. Yellowstone and Delta Bridge did not have any policies or guidance
concerning how to calculate a reduced payment amount. See Maczuga Tr. at
244:12-18; Reece Tr. at 208:8-25; McNeil Tr. at 153:20-24. Rather, Yellowstone and
Delta Bridge left the decision whether to adjust the Daily Amount, and by how
much, “wholly within the discretion of individual Funders.” Maczuga Tr. at 243:2-
18; accord Reece Tr. at 207:23-208:2; A. Davis Tr. at 139:13-20; Ehrlich Tr. at
116:23-117:7, 118:18-22; Singfer Tr. at 123:23-124:11; Kern Tr. at 179:20-22;
Williams Tr. at 130:14-19, 133:18-134:6.
312. At both Yellowstone and Delta Bridge, the Specified Percentage was
entirely irrelevant to the decision whether to grant reductions to the Daily Amount,
as well as the calculation of a new Daily Amount when a reduction was granted.
See Maczuga Tr. at 244:25-245:8; A. Davis Tr. at 139:21-140:2, 140:19-23; Singfer
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NYSCEF DOC. NO. 1 RECEIVED NYSCEF: 03/05/2024
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Tr. at 125:13-24; Dahan Tr. at 127:22-128:4; Saffer Tr. at 166:19-167:2; S. Davis Tr.
at 231:16-20, 232:18-22; Ehrlich Tr. at 127:15-23, 128:15-25; Vasquez Tr. at 136:20-
137:3; see, e.g., Ex. 229 (Oct. 2018 email from Melnikoff denying a 75% reduction
despite an 84.5% decrease in business revenue, and telling the merchant,
“unfortunately you are not the one that calls the shots here”).
313. Funder Respondents testified that they in fact never took the Specified
Percentage into account when adjusting the Daily Amount pursuant to Yellowstone
or Delta Bridge MCA contracts. See A. Davis Tr. at 139:21-140:2, 140:19-23; Singfer
Tr. at 125:13-24; S. Davis Tr. at 231:16-20, 232:18-22; accord Saffer Tr. at 165:7-
166:2, 166:19-167:2.
314. Instead, the decision whether to reduce the remittance amount was the
product of negotiation between the Funder and merchant, and ultimately within the
Funder’s discretion. See Maczuga Tr. at 243:19-244:2 (“[I]t’s just based on the
conversation . . . . It’s not an exact calculation.”); id. at 245:6-20; Reece Tr. at
207:23-208:7; Singfer Tr. at 125:13-24; Saffer Tr. at 165:13-20, 180:6-16; Kern Tr. at
179:4-180:5; A. Davis Tr. at 137:2-139:20; Melnikoff Tr. at 141:22-142:23; Dahan Tr.
at 127:22-128:4; S. Davis Tr. at 231:16-20, 232:18-22; Ehrlich Tr. at 116:23-117:15;
Williams Tr. at 130:14-19, 133:18-134:13; Worch Tr. at 217:14-218:21; see also
Miller Aff. ¶ 48; Karcher Aff. ¶ 27; Turner Aff. ¶ 25.
315. The primary factor Respondents used in determining whether to revise
the remittance amount following a merchant’s request for relief—and in calculating
the new remittance amount—was the merchant’s ability and willingness to pay.
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NYSCEF DOC. NO. 1 RECEIVED NYSCEF: 03/05/2024
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117 of 289
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See Singfer Tr. at 125:13-24; Saffer Tr. at 165:13-20, 180:6-16; A. Davis Tr. at 137:2-
139:20; Melnikoff Tr. at 141:22-142:23; Dahan Tr. at 127:22-128:4; S. Davis Tr. at
231:16-20, 232:18-22; Ehrlich Tr. at 116:23-117:15; Williams Tr. at 133:18-134:13;
Worch Tr. at 217:14-218:21.
316. Another key factor, according to Funders, was keeping the merchant’s
Daily Amounts high enough to keep the deal profitable for the Funder under
Yellowstone and Delta Bridge’s compensation structure, which allocated profits to
Funders only on deals that paid at least three percent of the outstanding balance at
the end of each month, and penalized Funders when a deal fell short of that
threshold. See Melnikoff Tr. at 142:23-144:3 (“In most situations I would not agree
to accept less on a daily that would” result in a hit to the monthly compensation);
Ehrlich Tr. at 116:23-117:7; see supra ¶¶ 289-292 (describing compensation
structure); see also Ex. 225 at 4 (Sept. 2018 email from Maczuga to merchant
seeking a “minimum payment” of “3% of the current balance” by the end of the
month).
D. Respondents Treat the Specified Percentage—
Purportedly the Share of Revenue That Respondents Are
Purchasing—As Irrelevant Except as a Barrier to
Reconciliation
317. Respondents sometimes described their MCA transactions as a
purchase, from the merchant’s business, of a Specified Percentage of the business’s
total receipts of revenue.
318. But the actual percentage that Yellowstone and Delta Bridge were
purportedly purchasing from the merchant—which would be a highly consequential
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figure in a true purchase of revenue—was treated as irrelevant by Yellowstone and
Delta Bridge’s Funders, Sales Reps, and executives. See Aryeh Tr. at 90:25-91:5;
McNeil Tr. at 91:18-93:7.
319. Yellowstone management did not monitor or analyze how the Specified
Percentage was actually set in its MCA contracts. For example, Respondent Stern
testified that the Specified Percentage was “not a number I tracked or—or knew.”
Stern Tr. at 279:14-18, 281:23-25. Respondents Reece and Maczuga testified that
they never analyzed or reviewed the Specified Percentages used on Yellowstone’s
MCA contracts, and were not aware of any such review ever being performed. See
Reece Tr. at 67:5-12, 192:22-193:21; Maczuga Tr. at 262:5-14; accord Glass Tr. at
203:14-19. Respondent Glass testified that “to the extent that Yellowstone ever
involved itself in specified percentages, to my knowledge it was always for what it
perceived to be legal reasons, not business . . . reasons.” Glass Tr. at 218:11-14
(emphasis added).
320. Until 2019, Yellowstone did not even track the Specified Percentages
stated on its MCA contracts at all.
321. At times, Yellowstone and Delta Bridge allowed Funders to set or
change the Specified Percentage on Yellowstone and Delta Bridge MCA contracts.
However, Yellowstone and Delta Bridge did not have any policies or guidelines
concerning how the Specified Percentage should properly be set. See Stern Tr. at
288:22-289:4; Reece Tr. at 66:16-20, 157:18-159:20; Maczuga Tr. at 142:15-143:22,
155:2-13; Dahan Tr. at 64:23-65:4 (no limits on setting the percentage); S. Davis Tr.
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at 163:9-14 (up to Funder to set the percentage); Yagecic I Tr. at 169:21-24, 172:15-
18, 174:11-24. Rather, as Maczuga testified, “it was wholly within the discretion of
the funder.” Maczuga Tr. at 143:15-22.
322. But Funders testified that the Specified Percentage was “irrelevant,”
just “a number on the contract” and something they “never really paid much
attention to” and weren’t “focused on,” and that was included on the contracts for
ambiguous “legal purposes” that somehow transformed the agreement into
something that was “not a loan.” A. Davis Tr. at 104:20-105:5; Dahan Tr. at 66:12-
14; McNeil Tr. at 91:18-93:7; Kern Tr. at 105:6-13; Williams Tr. at 71:22-72:13, 73:4-
20, 74:6-8, 81:8-22, 104:2-11, 116:5-12; Worch Tr. at 224:20-225:2, 270:8-12; accord
Dahan Tr. at 67:19-21 (“Q. Why is there a specified percentage on the MCA
contracts? A. I . . . don’t know. I’m not a lawyer.”); Glass Tr. at 218:11-14 (testifying
that Yellowstone only concerned itself with Specified Percentages for “legal reasons,
not business . . . reasons”); Vasquez Tr. at 44:19-45:15, 58:22-59:4.
323. Funder Respondents testified that they ignored the Specified
Percentage when underwriting potential transactions and when formulating and
modifying offers to merchants. See supra ¶¶ 172-177.
324. Funders almost uniformly testified that the only thing the Specified
Percentage was actually used for at Yellowstone and Delta Bridge was
Reconciliation (which was nonexistent until 2020) and collections. See Melnikoff Tr.
at 100:2-7; A. Davis Tr. at 120:7-17; McNeil Tr. at 91:18-94:24 (testifying that the
Specified Percentage “wasn’t really discussed among the firm” until Reconciliation
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became a priority); Dahan Tr. at 66:7-14 (“Q. What do you recall the specified
percentage being used for during your time at Yellowstone? A. It’s going to sound
funny, but nothing.”); Saffer Tr. at 117:5-119:7; Aryeh Tr. at 90:25-91:5.
325. Respondent Reece, Yellowstone’s president, agreed that the only thing
the Specified Percentage was actually used for at Yellowstone was Reconciliation.
See Reece Tr. at 74:15-75:3. Outside of the Reconciliation context, he could not
identify a single Yellowstone rule, regulation, or even guideline that in any way
concerned the Specified Percentage. See Reece Tr. at 159:4-20; accord Maczuga Tr.
at 192:11-19, 216:6-15.
326. Funders and Sales Reps were aware that Merchants who observed the
Specified Percentage on their MCA contracts with Yellowstone and Delta Bridge
often understood it (incorrectly) to describe an interest rate. See Schwartz Tr. at
106:18-21; McNeil Tr. at 90:15-91:17, 102:7-12; see also Alabudi Aff. ¶ 11 (merchant
explaining that he understood the Specified Percentage to be the interest rate);
Karcher Aff. ¶ 18 (same); Rubin Aff. ¶ 11 (same); Turner Aff. ¶ 15 (same).
Yellowstone management and staff were likewise aware of this. See Ex. 374 at 7
(Maczuga writing to Stern and Glass: “Ppl still think the 15-25% on page one is an
interest rate.”); Yagecic I Tr. at 167:20-22 (“[A] lot of merchants think the specified
percentage is like their interest rate.”).
1. Respondents Did Not Negotiate the Specified
Percentage With Merchants
327. The terms of Respondents’ MCA transactions were determined through
negotiation between Funders and merchants, with a Sales Rep typically acting as
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intermediary, and sometimes an outside broker as well. Those negotiations
typically focused on (1) the Funding Amount, (2) the Payback Amount (or the
“Factor Rate,” which was the multiplier applied to the Funding Amount to calculate
the Payback Amount), and (3) the fixed Daily Amount and/or Length of the
transaction (together, the “Key Terms”). See Maczuga Tr. at 163:15-164:7; Aryeh
Tr. at 88:21-89:20, 95:20-25, 143:9-21; Melnikoff Tr. at 77:21-24, 109:13-110:23;
Dahan Tr. at 90:23-91:25, 116:19-117:16; S. Davis Tr. at 181:2-12; Kern Tr. at 86:8-
23; McNeil Tr. at 70:12-23, 83:17-21; Saffer Tr. at 132:6-133:7; Worch Tr. at 124:23-
125:19, 129:20-130:17; Williams Tr. at 90:11-92:10; Ehrlich Tr. at 76:12-22; Vasquez
Tr. at 82:6-11; Alabudi Aff. ¶ 28; Bush Aff. ¶¶ 10-11, 15; Israel Aff. ¶ 13; Karcher
Aff. ¶¶ 11, 15; Ostrowski Aff. ¶ 10; Rubin Aff. ¶¶ 25, 33, 36. The Daily Amount and
the Length were related to one another as discussed above. See supra ¶¶ 142-143.
328. For example, when planning a typical MCA, an underwriter working
for Respondents Melnikoff and Sanders settled on an $8,000 Funding Amount, a
1.459 Factor Rate, and an 80-day term. See Ex. 326 at 2; Melnikoff Tr. at 74:7-14,
77:21-24 (testifying about Ex. 326). By multiplying the $8,000 Funding Amount by
the 1.459 Factor Rate, the underwriter determined a Payback Amount of
$11,672. See Melnikoff Tr. at 91:22-92:9 ($8,000 x 1.459 = $11,672). Then, by
dividing that $11,672 Payback Amount by the 80-day term, he determined a Daily
Amount rounded to $146 ($11,672 ÷ 80 = $145.90). See id. 102:2-10; see also McNeil
Tr. at 71:6-72:21 (providing another example); Saffer Tr. at 99:24-105:9, 123:24-
124:15 (same). The Funding Amount, Payback Amount, and Daily Amount were all
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then incorporated into a Yellowstone MCA agreement signed by the merchant; the
80-day term was incorporated as the quotient of the Payback Amount and the Daily
Amount. See Melnikoff Tr. at 91:16-92:9, 101:20-102:10 (testifying about Ex. 327 at
2, 12). Melnikoff approved the terms, instructing his team: “[P]lease fund.” Ex.
326 at 1.
329. When transmitting an offer to a merchant, and in the course of
negotiating offers, Funders, Sales Reps, and merchants all routinely focused on the
Key Terms, and virtually never discussed any percentage of revenue that
Yellowstone or Delta Bridge were purportedly offering to purchase. See Aryeh Tr.
at 88:21-89:20, 95:20-25, 97:15-17, 98:6-8, 143:9-21, 179:17-181:7, 191:3-192:11; A.
Davis Tr. at 104:6-12, 121:22-122:7; Singfer Tr. at 88:10-90:13, 96:6-9; Melnikoff Tr.
at 109:13-110:23; Dahan Tr. at 90:23-91:25, 116:19-117:16, 119:10-21; McNeil Tr. at
100:17-102:12; S. Davis Tr. at 181:2-12; Worch Tr. at 124:23-125:19, 129:20-130:17,
224:6-225:2, 228:7-11; Ehrlich Tr. at 76:12-22; Williams Tr. at 90:11-92:10; Vasquez
Tr. at 44:16-45:15, 58:22-59:7, 84:3-85:16, 93:13-96:4; Alabudi Aff. ¶¶ 7, 11, 14, 28,
35, 69; Bush Aff. ¶ 10-11, 15; Israel Aff. ¶¶ 9, 13, 17; Ostrowski Aff. ¶¶ 10, 28;
Rubin Aff. ¶¶ 16, 31; Shahinian Aff. ¶ 11; Turner Aff. ¶ 14; see also Reece Tr. at
68:3-7 (no knowledge that Funders and merchants were negotiating the specified
percentage “aside from the fact that it was a number on the contract”).
330. Likewise, Funders, Sales Reps, and brokers did not explain to or
discuss with merchants the notion that the Daily Amount was intended to
approximate a percentage of the merchants’ daily revenue. See Alabudi Aff. ¶ 14;
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Bush Aff. ¶ 10; Israel Aff. ¶ 10; Rubin Aff. ¶¶ 14, 16; Turner Aff. ¶¶ 14-16. Nor did
they discuss with or explain to merchants their purported Reconciliation rights, or
how the value of the Specified Percentage would impact those rights. See Alabudi
Aff. ¶¶ 14, 35; Bush Aff. ¶¶ 10, 15; Israel Aff. ¶ 14; Karcher Aff. ¶ 28; Ostrowski Aff.
¶¶ 16, 28; Rubin Aff. ¶¶ 16-17, 31, 45; Shahinian Aff. ¶ 14; Turner Aff. ¶ 20.
331. In addition to the testimony, documents produced by Delta Bridge
confirm that negotiations with merchants concerning Delta Bridge agreements
focused on the Key Terms, and virtually never discussed any percentage of revenue.
See, e.g., Exs. 148 (Melnikoff/Sanders team), 162 at 1-2 (Melnikoff/Sanders team),
156 (Singfer), 145 at 4-5 (Singfer), 130 (Ferry), 147 at 8 (Ferry), 129 at 9 (Vaysman),
127 (Kern), 151 (Kern), 137 at 4 (McNeil); accord Melnikoff Tr. at 109:13-110:23;
Singfer Tr. at 88:10-90:13. For example, in May 2022, former Delta Bridge Funder
Jim McNeil wrote to a merchant: “Ok, we are able to offer the following options:
75,000 paying back 100,425 with daily payment of 743[;] 90,0000 paying back
121,500 with a daily payment of 837[; or] 100,000 paying back 137,900 with a daily
payment of 859.” Ex. 137 at 4.
332. Respondent Melnikoff testified that he understood that merchants
entering MCA transactions with Yellowstone and Delta Bridge were contracting to
pay the Daily Amount—not the Specified Percentage stated on the contract. See
Melnikoff Tr. at 97:8-15, 134:22-135:9. Avi Dahan, a former Funder and Sales Rep
for Yellowstone and Delta Bridge, testified that when he was acting as the Sales
Rep on a deal, channeling the negotiations between Funder and merchant, he would
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not even know what the Specified Percentage was unless he reviewed the full MCA
contract himself. See Dahan Tr. at 63:20-25; accord Vasquez Tr. at 47:13-17.
333. Like the Funders, most merchants did not understand the deals they
were negotiating to be a sale of a Specified Percentage of revenue, or that the Daily
Amount was intended to approximate a percentage of their daily revenue. E.g.,
Alabudi Aff. ¶ 14; Rubin Aff. ¶ 31. If they had, the percent they were agreeing to
sell would have been a critically important term. But as one former Yellowstone
and Delta Bridge Funder testified, “the only time Specified Percentages were
discussed at all during the pre-funding phase was if a merchant raised it because
they were confusing it with an interest rate.” McNeil Tr. at 100:17-102:12. Another
former Yellowstone and Delta Bridge Funder testified that he “ha[s] never even
fielded a question from a merchant about [the Specified Percentage].” Dahan Tr. at
66:14-15; see also Dahan Tr. at 110:8-111:13, 119:10-21 (“Q. And you have no
recollection of the specified percentage ever being discussed before the contracts
were drawn up, right? A. Yes.”); Aryeh Tr. at 179:17-181:7 (Sales Rep testifying that
“I never really paid attention to [the Specified Percentage] much, unless it was
brought to my attention”).
334. In fact, unless a merchant raised the issue themselves, Funders and
Sales Reps typically did not discuss with merchants the fact that the transaction
was (ostensibly) a purchase of revenue at all. See Alabudi Aff. ¶¶ 7, 11, 14, 35, 69;
McNeil Tr. at 101:18-102:12; Aryeh Tr. at 179:17-181:7; Williams Tr. at 81:8-22;
Shahinian Aff. ¶ 11.
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335. In the rare instances when merchants did try to negotiate the Specified
Percentage, Funders would typically tell them to ignore it. One Funder,
Respondent Melnikoff, testified that he would rebuff such requests, and tell the
merchant that “we’re basing this off of a fixed daily, so [the Specified Percentage]
doesn’t really matter, if it’s $100 a day, it’s $100 a day,” or that “this is not based off
of a percentage of your revenue, it’s based off $146 a day.” Melnikoff Tr. at 100:8-
24, 102:10-19. Another Funder dismissed a merchant’s request for a lower Specified
Percentage by replying to the merchant: “This is a bit confusing but, [the Specified
Percentage] has nothing to do with the actual rate or cost of the advance.” Ex. 292
at 1.
336. When “Refinancing” an MCA deal with a merchant (where the Funding
Amount from a new Yellowstone or Delta Bridge MCA was applied to pay off the
balance of an earlier Yellowstone or Delta Bridge MCA, see Reece Tr. at 188:18-24),
the Specified Percentage on the new contract would sometimes increase
substantially. See, e.g., Ex. 292 at 1 (increase from 10% to 25%); Ex. 263 (same); Ex.
298 (same); Rubin Aff. ¶ 31 (same). Even then, Funders typically would not point
out or discuss the Specified Percentage, unless the merchant happened to notice the
increase and ask about it (often confusing it with an interest rate). See id.; S. Davis
Tr. at 172:7-173:5; McNeil Tr. at 172:13-174:21; Saffer Tr. at 111:21-112:8; Rubin
Aff. ¶ 31; see also Reece Tr. at 83:13-84:25.
337. For example, in late 2017 the merchant City Bakery refinanced an
MCA with the Yellowstone Subsidiary Capital Advance Services. The original MCA
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stated a Specified Percentage of 10%, and the new MCA stated a Specified
Percentage of 25%. But according to the merchant:
No one ever discussed this change with me, or the impact it could have
on City Bakery’s reconciliation rights. The notion that the agreement
was raising City Bakery’s obligation to Capital Advance from 10 percent
to a quarter of every dollar of City Bakery’s revenue would have been a
startling change—and impossible for City Bakery to bear—but it never
came up. This was consistent with my understanding that the
transaction was a loan to be repaid in fixed amounts, not a purchase of
future receivables.
Rubin Aff. ¶ 31; see also id. ¶ 32 (noting that while the Specified Percentage of
revenue increased, the Daily Amount actually decreased, even though there was no
corresponding drop in revenue).
338. Yellowstone produced approximately 1,346 recordings of “Funding
Calls”—phone calls between Funders and merchants to review key details of the
transaction just prior to Yellowstone’s transfer of the Funding Amount to the
merchant—and none of them included any mention of the Specified Percentage of
revenue that Yellowstone was supposedly purchasing from the merchant (with the
exception of Credit Card Deals, discussed supra ¶ 178). See also Bush Aff. ¶ 15.
339. Funders who testified about the Funding Call recordings confirmed
that the recordings were typical, notwithstanding their lack of discussion of the
Specified Percentage or any purchase of revenue. See Singfer Tr. at 68:25-69:4,
73:9-74:15; S. Davis Tr. at 145:13-146:9.
340. Neither Yellowstone nor Delta Bridge have any policy or guidance
concerning what—or whether—Funders and Sales Reps are supposed to
communicate to merchants about the nature of the transaction or the Specified
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Percentage. See Schwartz Tr. at 103:10-13; see also Ex. 374 at 7 (Maczuga reporting
to Glass and Stern, “Ppl are saying whatever the fuck they want” on Funding Calls
and suggesting that they should be “[s]tandardize[d] . . . a little bit.”); S. Davis Tr.
at 137:25-138:5 (“[Yellowstone] didn’t tell us what we have to ask for or what we
needed to hear” on Funding Calls). Yellowstone also had no way of tracking or
confirming what was discussed or disclosed on Funding Calls. See Reece Tr. at
184:15-19; Yagecic I Tr. at 143:8-11.
341. All this is true even though Respondents’ contracts purport to
purchase up to 49% of merchants’ receipts of revenue.
2. Respondents Purported to Purchase Shares of
Merchants’ Revenue that Were Improbably (or
Impossibly) Large
342. Yellowstone and Delta Bridge regularly entered into MCA contracts
with merchants with a Specified Percentage of 49%, purporting to purchase nearly
half of the stream of revenue—not profits—flowing into the merchant’s business.
Respondent Reece, Yellowstone’s president, testified that Yellowstone set 49% as
the maximum Specified Percentage allowed on its MCA contracts, although he was
not aware of any business reason for doing so. See Reece Tr. at 72:14-18, 74:11-14.
343. Indeed, from approximately March 2020 through July 2022, 49% was
the most commonly used Specified Percentage on Yellowstone and Delta Bridge
MCA contracts with merchants. See supra ¶ 226 (bar graph). Setting the Specified
Percentage at 49% was consistent with Yellowstone’s policies. See Reece Tr. at
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72:14-18; see also Ex. 406 at 1 (instructional materials provided to Delta Bridge
Funders with a sample MCA agreement stating a Specified Percentage of 45%).
344. Yellowstone even entered MCA transactions where it purported to
purchase all of a merchant’s revenue, setting the Specified Percentage at 100%—
and then filed those contracts in court actions against at least two of the merchants.
See Ex. 73, 120. In one case, Yellowstone purported to purchase 250% of the
revenues of a merchant called PLS Scientific. See Ex. 397 at 50 (row 4571).
345. As Respondent Glass wrote in a January 2019 text message to a
Yellowstone employee: “[T]he [merchants] that are desperate will sign on to 100[.]
So if they are willing to why wouldn’t we.” Ex. 372 at 3.
346. But as one former Yellowstone and Delta Bridge Funder
acknowledged, even 25% was not a realistic share of revenue for merchants to sell,
“because then he has other expenses, payroll, rent, he has to take money for
himself.” McNeil Tr. at 119:2-19; see also Saffer Tr. at 238:9-17 (“49 percent [is] not
a realistic percentage”). “[I]n general you’re not going anywhere near that 25
percent threshold because you’re going to kill the merchant if you do.” McNeil Tr.
at 122:22-24.
347. Moreover, Yellowstone also regularly entered into multiple concurrent
MCA transactions with a single merchant—a practice that Delta Bridge continued.
348. As a result, Yellowstone and Delta Bridge would end up purchasing
multiples of 15, 25, or 49% of a merchant’s revenue. See Maczuga Tr. at 210:18-
211:3 (admitting that Delta Bridge had purchased 98% of a merchant’s revenue,
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where the merchant had two concurrent Delta Bridge contracts, each with a
Specified Percentage of 49%).
349. For example, Yellowstone purchased 75% of a merchant’s revenue,
where the merchant (City Bakery) had three concurrent Yellowstone MCA
contracts, each with a Specified Percentage of 25%. See Rubin Aff. ¶¶ 43-45. When
the merchant was forced to close the business under the weight of the onerous
Yellowstone MCAs, Yellowstone procured a “Settlement Agreement” which stated
that City Bakery had separately defaulted under each of the three concurrent
agreements. See id. ¶¶ 48-49, 52.
350. For another example, Delta Bridge purchased 225% of a merchant’s
revenue, where the merchant had nine concurrent Delta Bridge MCA contracts,
each with a Specified Percentage of 25%. See Ex. 395 at 3 (Castilleja Auto Repair –
Contract IDs ending in 033, 263, 170, 238, 791, 729, 894, 834, 434).
351. Delta Bridge’s founder and CEO Respondent Bart Maczuga testified
that there is no problem with Delta Bridge purchasing more than 100% of a
merchant’s revenue, as long as the merchant and the Funder “are both comfortable”
with that arrangement. Maczuga Tr. at 211:20-24, 214:6-17. Delta Bridge does not
even monitor whether it has purchased more than 100% of a merchant’s revenue.
See Maczuga Tr. at 211:4-19.
352. Respondent Glass advocated allowing Funders to enter into concurrent
transactions with merchants. See Ex. 334 at 4 (May 2022 text from Glass to
Funder: “That’s why i pushed internal stacking years ago”).
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353. Concurrent transactions included Side-by-Side deals, where the
concurrent MCA transactions commenced on the same day, including the
Yellowstone and Delta Bridge transactions identified in paragraphs 148 and 149,
supra. Additional examples of concurrent transactions at Delta Bridge include:
Contract Date
Specified Percentage
Contract ID
Merchant: Associated Educational Services of Virginia Inc
6/24/2021
25%
5016615-586
7/19/2021
25%
5016615-459
8/2/2021
25%
5038966-756
8/19/2021
25%
5051958-067
9/14/2021
25%
5067484-629
10/1/2021
25%
5067484-339
10/15/2021
25%
5067484-855
11/1/2021
25%
5099885-730
Total: 200%
Merchant: Bubba’s Liquidation Country Store LLC
10/4/2021
49%
5079126-308
12/10/2021
49%
5130602-705
3/3/2022
25%
5192178-026
Total: 73%
Merchant: Castilleja Auto Repair
06/04/2021
25%
5005971-033
06/21/2021
25%
5005971-263
7/1/2021
25%
5005971-170
7/13/2021
25%
5005971-238
7/19/2021
25%
5005971-791
7/26/2021
25%
5005971-729
8/9/2021
25%
5043990-894
8/18/2021
25%
5050865-834
8/26/2021
25%
5056237-434
Total: 225%
Merchant: Michael J Batista
11/19/2021
25%
5114757-727
12/9/2021
25%
5128376-400
8/10/2022
3%
5162558-225
8/26/2022
12%
5080964-795
Total: 65%
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131 of 289
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Merchant: Palm Bay Collision Repair, Inc.
11/22/21
25%
5020031-625
2/25/22
20%
5187799-940
5/26/2022
25%
5020031-656
Total: 70%
Merchant: One Twenty Clothing Company US LLC
7/27/2021
39%
5035751-393
7/30/2021
39%
5038480-757
9/27/2021
39%
5074015-432
Total: 117%
Merchant: Physical Therapy Solutions Inc.
8/4/2021
23%
5040988-493
8/18/2021
25%
5051166-556
10/6/2021
25%
5009992-246
11/1/2021
25%
5023258-009
11/29/2021
25%
5040988-035
Total: 123%
Merchant: Prime Health Products LLC
1/18/2022
49%
5054284-700
2/23/2022
49%
5184513-463
5/12/2022
35%
5245192-965
Total: 133%
Merchant: Sinclair Custom Award Designs LLC
7/13/2021
25%
5026709-708
8/23/2021
25%
5053586-799
10/27/2021
25%
5097081-447
11/23/2021
25%
5117283-332
Total: 100%
Merchant: Todos LLC
7/12/2021
25%
5002382-829
7/27/2021
25%
5002382-388
8/18/2021
25%
5050962-644
9/15/2021
25%
5068454-407
11/17/2021
25%
5002382-672
Total: 125%
Merchant: Willie J Harvey
11/8/2021
25%
5039218-861
1/3/2022
25%
5144574-143
1/18/2022
25%
5068029-247
3/15/2022
20%
5200688-487
Total: 95%
See Ex. 395; see also Maczuga Tr. at 197:2-199:23, 271:15-272:15.
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132 of 289
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354. Yellowstone’s and Delta Bridge’s policies concerning Side-by-Side deals
were silent with respect to how the Specified Percentage should be set. See Ex. 407
at 7; Reece Tr. at 151:15-18; Maczuga Tr. at 195:7-19, 196:16-22.
355. The practice of entering into Side-by-Side deals was approved by
Yellowstone management, because it enabled Yellowstone’s Funders to compete for
bigger deals. See S. Davis Tr. at 206:9-22, 209:8-212:11; see also McNeil Tr. at
105:12-20, 109:2-10.
356. Concurrent transactions were sometimes contracted through different
Yellowstone entities and were sometimes handled by different Yellowstone Funders.
See Ex. 450 at 1; see, e.g., Melnikoff Tr. at 122:11-127:18.
357. Had the Specified Percentages on the concurrent contracts represented
the percentage of merchants’ revenue that Yellowstone and Delta Bridge were
purchasing, they would have added up to enormous percentages—sometimes more
than 100%—of the merchant’s revenue. But because the transactions were not
actual purchases of revenue, the Specified Percentages were irrelevant—according
to Funders, the Daily Amount was the only figure that mattered.
358. Similarly, Respondents knowingly entered into MCA contracts with
merchants who already had ongoing MCA agreements with other MCA companies—
a practice called “Stacking” or “Hopping.”
359. Stacking was a “very common” practice at Yellowstone and Delta
Bridge, according to Respondent Maczuga, the Delta Bridge CEO and former
Yellowstone Funder and co-CEO. Maczuga Tr. at 166:2-10; accord Dahan Tr. at
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126
100:23-101:5; McNeil Tr. at 135:20-25; S. Davis Tr. at 184:11-20; Melnikoff Tr. at
113:14-21; Saffer Tr. at 136:8-13; Vasquez Tr. at 96:11-17. In March 2019, Maczuga
wrote to the rest of the Yellowstone management team that “90% of Funders in
House don’t take first positions,” referring to transactions that did not have ongoing
MCA agreements with other MCA companies. Ex. 371 at 10. Some Yellowstone
and Delta Bridge Funders even had a preference for MCA transactions that were
Stacked. See McNeil Tr. at 139:12-140:10; Ehrlich Tr. at 24:13-25:5; see, e.g., Ex.
246 (Funder rejecting a merchant because “[I] don’t want to fund in a first
[position]”); Ex. 238 (same); Ex. 220 (same).
360. At both Yellowstone and Delta Bridge, Funders entered into MCA
transactions with merchants who were already paying off nine or more pending
MCA deals to other MCA companies. See Ex. 62 (Cloudfund agreement with Argo
Hardware Inc. dated Dec. 16, 2022); Ex. 125 (email with Respondent Melnikoff of
the same date reflecting that Argo already had “10 advances”); S. Davis Tr. at
183:24-184:5, 193:12-20 (testifying about a 10
th
position deal reflected in Ex. 265);
see also Ex. 205 (Respondents Melnikoff and Sanders sending contracts for a “7
th
position” deal); Ex. 244 at 3 (Melnikoff agreeing to a “6
th
position” deal); Ex. 189
(Respondent Singfer extending an offer on a “7
th
” position deal); Ex. 232 (same); Ex.
222 (same).
361. Yellowstone and Delta Bridge had no rules, policies, or limits
concerning the quantity of pending MCA transactions that a merchant was allowed
to have—or the percentage of revenue it was allowed to have already sold—when
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127
entering into a new MCA transaction with Yellowstone or Delta Bridge. See
Maczuga Tr. at 177:19-178:3 (“We give the discretion fully to the funders.”);
Williams Tr. at 121:6-14.
362. Yellowstone and Delta Bridge did not monitor or track the Specified
Percentages on a merchant’s pending MCA transactions—or even the quantity of
pending MCA transactions—as of the time Yellowstone and Delta Bridge entered
into an MCA contract with a merchant. See Maczuga Tr. at 173:24-174:14;
Melnikoff Tr. at 120:13-121:4; Saffer Tr. at 147:13-148:10; S. Davis Tr. at 197:25-
198:7.
363. According to Maczuga’s testimony, Delta Bridge has no problem
purchasing a share of a merchant’s revenue where the merchant has already sold
all of its revenue to other MCA companies. See Maczuga Tr. at 177:8-178:17. Delta
Bridge is perfectly comfortable with that scenario, according to its founder and
CEO, as long as there is “a comfort level between the merchant and funder.”
Maczuga Tr. at 174:8-25.
364. But Funders did not even know of, were not informed about, and did
not inquire about, the percentage of revenue that merchants had already sold to
other MCA companies. See Aryeh Tr. at 145:17-146:6; Singfer Tr. at 85:23-86:9;
McNeil Tr. at 139:2-5; Saffer Tr. at 140:17-141:15, 142:22-144:5; Dahan Tr. at
103:10-16; Melnikoff Tr. at 118:24-119:10; Williams Tr. at 122:9-123:13; S. Davis Tr.
at 191:22-193:4; Maczuga Tr. at 170:8, 171:17-22; Vasquez Tr. at 98:7-25.
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135 of 289
128
365. Funders did not even understand the Specified Percentages stated on
the other pending MCA transactions to be relevant to prospective Yellowstone or
Delta Bridge MCA deals. See Singfer Tr. at 85:23-86:9; Williams Tr. at 122:9-124:7;
S. Davis Tr. at 195:18-197:14; Saffer Tr. at 145:17-146:9 (“[T]he way it was
explained to me and the way I was trained was . . . it never mattered . . . what
percentage they pledge to another company. . . . [T]hat was on the merchant . . . .);
see also Saffer Tr. at 143:6-12 (Specified Percentage is only relevant “in the case of
reconciliation”).
366. For Funders, the most salient information about the other pending
MCA transactions was not their Specified Percentages, but the cumulative value of
the Daily Amounts as compared to the merchant’s total revenue, which Funders
would use to gauge whether the merchant had enough funds left in their accounts
for Yellowstone or Delta Bridge to debit. See, e.g., Melnikoff Tr. at 120:4-7 (“[I]f I
see another company taking a certain amount per day, then I can determine
whether the merchant can afford another daily payment.”); McNeil Tr. at 139:5-10;
S. Davis Tr. at 196:20-23.
367. Funders were indifferent to the percentage of revenue that merchants
had already sold, even though they invariably knew when a prospective merchant
had already sold portions of revenue through Stacked transactions. See Maczuga
Tr. at 167:9-25; S. Davis Tr. at 190:4-191:6; Kern Tr. at 196:15-23; Saffer Tr. at
126:13-19; Vasquez Tr. at 96:11-98:25; see, e.g., Ex. 192 (email exchange between
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136 of 289
129
Sales Rep and Funder); Ex. 180 (same); Ex. 184 (same); Ex. 451 (email noting
prospective merchant had other MCAs).
368. Had the Specified Percentages on MCA contracts represented the
percentage of the merchant’s revenue already sold to other MCA companies, they
would have added up to significant percentages—sometimes more than 100%—of
the merchant’s revenue. But Funders were not concerned with—and would not
have known—whether the merchant had already sold most or all of its revenue. See
Maczuga Tr. at 172:13-174:14; Williams Tr. at 122:22-124:7 (stating that it would be
“irrelevant” if a merchant “had already pledged a hundred percent of their
revenues” to other MCA issuers before Yellowstone issued the merchant an MCA);
S. Davis Tr. at 195:18-197:14 (testifying that “the specified percentage [on the other
MCA agreements] can be 150 percent theoretically”).
369. Furthermore, even though Respondents invariably knew before issuing
an MCA if the transaction was Stacked, they used MCA agreements that required
merchants to warrant that the opposite was true. See Delta Bridge Exemplar at 7
§ 19(o) (“[Merchant] specifically warrants and represents that it is not currently
bound by the terms of any future receivables and/or factoring agreement which may
encumber in any way the Future Receipts”); Yellowstone 2020 Exemplar at 8 § 21(o)
(same text in Yellowstone agreement). As a result, Respondents ensured that many
merchants were in default of their agreements from Day One. See Delta Bridge
Exemplar at 8 § 25(b) (“Events of Default”); Yellowstone 2020 Exemplar at 10
§ 27(b) (same). For example, in December 2022, Delta Bridge entered into an MCA
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agreement with a merchant warranting that the merchant had no Stacked
transactions, even though the Delta Bridge funding team was then aware of the
merchant’s ten Stacked transactions. See Ex. 62 at 7 § 19(o) (agreement); Ex. 125 at
1 (emails among funding team).
3. Yellowstone and Delta Bridge Left It up to Individual
Funders to Determine What Counted as “Revenue”
370. Had the Specified Percentage on Yellowstone and Delta Bridge’s MCA
contracts been the percentage of merchants’ revenue that Yellowstone and Delta
Bridge were purchasing, the question of which deposits into a merchant’s bank
account were revenue under the terms of the MCA contract would have been highly
consequential to Yellowstone and Delta Bridge (and the merchant) during the
underwriting and negotiation process.
371. Respondents’ MCA agreements defined the receipts that were
purportedly the subject of the transaction as the merchant’s receipts for the “sale of
goods and services.” E.g., Delta Bridge Exemplar at 2 § 1(c); Ex. 111 at 1 § 1(c)
(same); Yellowstone 2018 Exemplar at 2. Although at times, Yellowstone’s
contracts defined receipts expansively as “any and all monies . . . received by [the
merchant] from any source,” altogether abandoning the fiction that the transaction
was a purchase of future revenue, as such “monies” could include anything from tax
refunds or retuned checks to loans or investment income. See infra ¶¶ 446-447.
372. Funders testified that their primary means of determining merchants’
revenue was to review their historical revenue as reflected in their recent bank
statements. See Melnikoff Tr. at 30:7-14; Singfer Tr. at 46:3-14, 58:8-23; McNeil Tr.
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at 114:8-15; Kern Tr. at 98:10-12, 100:11-102:19 (discussing Ex. 425), 200:6-17
(testifying that he would “look at the past few [statements] and see the consistency
of the deposits, and I would make that assumption that it would be the same or
similar for the next few months”); see also Ex. 407 at 3 (Yellowstone’s policy
concerning documents required when submitting a deal for underwriting); Reece Tr.
at 152:4-154:10 (testifying about the policy); Williams Tr. at 230:14-231:10; Worch
Tr. at 228:12-19, 245:11-21, 249:9-13.
373. But Yellowstone and Delta Bridge had no policies or guidance setting
out what types of deposits qualified as revenue, even though the merchant’s
revenue was purportedly the stream of money of which Yellowstone and Delta
Bridge were purchasing a percentage.
374. Instead, during the underwriting and negotiation process, Yellowstone
and Delta Bridge deferred to individual Funders to determine which deposits into a
merchant’s bank account qualified as revenue. See Singfer Tr. at 59:8-60:8.
375. In calculating revenue, Funders typically counted as revenue deposits
from credit card processors such as Bankcard. See Worch Tr. at 246:5-20; Williams
Tr. at 231:22-24. Funders typically excluded credits due to refunds or returned
checks. See McNeil Tr. at 124:12-17, 127:5-7; Kern Tr. at 197:16-18.
376. If a prospective merchant received a loan or funding from another
MCA company, Funders typically did not count that deposit as revenue, see Singfer
Tr. at 59:17-60:12; Kern Tr. at 98:23-99:2, 203:10-15; Williams Tr. at 233:5-9,
although Maczuga, Delta Bridge’s CEO, testified that Funders were allowed to
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139 of 289
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exercise their own discretion in determining whether to count MCA funding as
revenue, see Maczuga Tr. at 239:6-18. As noted above, the practice of treating MCA
funding as nonrevenue was inconsistent with Respondents’ regular practice of
counting MCA funding as revenue in the context of a Reconciliation. Supra ¶¶ 269-
275.
377. From the information contained in a merchant’s bank statement,
Funders were not always able to discern whether certain credits or deposits were
attributable to revenue or some other source. See McNeil Tr. at 124:18-125:6,
127:11-12, 127:20-128:2; Worch Tr. at 249:19-251:6. Examples sometimes included
wire transfers, transfers from other bank accounts, and cash deposits. See id.
378. Determinations of what counted as revenue during underwriting or
Reconciliation were not disclosed to merchants by Yellowstone, Delta Bridge, or
individual Funders.
4. The Specified Percentage Was Only Relevant to
Reconciliation—Where it Has Served Chiefly as an
Impediment
379. According to Maczuga, “Reconciliation is the driving . . . factor of the
specified percentage.” Maczuga Tr. at 216:11-13. Funder Respondents testified
likewise that the Specified Percentage was relevant in the context of Reconciliation.
See A. Davis Tr. at 120:7-17; Singfer Tr. at 95:25-96:14, 109:5-9, 142:9-21; McNeil
Tr. at 91:18-92:21; Saffer Tr. at 143:6-12 (Specified Percentage is only relevant “in
the case of reconciliation”).
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140 of 289
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380. Yellowstone eventually developed a process where, upon request from
a merchant, Yellowstone reviewed a merchant’s bank statements and/or self-
reported revenue to determine whether Yellowstone’s total collections from the
merchant exceeded the Specified Percentage of the merchant’s revenue. Delta
Bridge continued that process.
381. As described in detail above, supra ¶¶ 203-248, the Specified
Percentage was relevant to the Reconciliation process because it was manipulated
to prevent merchants from ever qualifying for a refund as a result of that process.
E. Respondents Claim Rights to Repayment in the Event of
Bankruptcy or Lack of Revenue
382. Respondents also reserve for themselves extensive recourse against
merchants—and their owners personally—ensuring their authority to collect the
full Payback Amount (or more) in the event of default. The recourse that
Respondents reserve for themselves extends far beyond the percentage of business
revenue they are purportedly purchasing, and it even extends to circumstances
where a merchant files for bankruptcy or its intake of revenue dwindles to zero.
383. Respondents’ claim to such recourse is facilitated by their requirement
that each transaction is personally guaranteed in the event of default—usually by
the business’s owner. E.g., Delta Bridge Exemplar at 12-15; Yellowstone 2020
Exemplar at 10 § 27(i), 14-16; Yellowstone 2018 Exemplar at 6-7; see also Rubin Aff.
¶ 18. Respondents’ Agreements provide explicitly that they can be enforced against
the guarantor in the event of default. E.g., Delta Bridge Exemplar at 9 § 26(c) (“If
any Event of Default occurs . . . [Delta Bridge] may enforce the provisions of any
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141 of 289
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Guaranty against each Guarantor.”); Yellowstone 2020 Exemplar at 10 § 30(b)
(“Upon [merchant’s] default, [Yellowstone] may immediately . . . [e]nforce[e] the
provisions of the Personal Guarantee of Performance against the Guarantor(s)
without first seeking recourse from [merchant].”); Delta Bridge Exemplar at 12-13
§ 2 (“[I]f default or breach shall at any time be made by [merchant] in the
Guaranteed Obligations, Guarantor shall well and truly perform (or cause to be
performed) the Guaranteed Obligations and pay all damages and other amounts
stipulated in the Agreement with respect to the non-performance of the Guaranteed
Obligations, or any of them.”); Yellowstone 2020 Exemplar at 14 § 2 (same).
384. Respondents’ Agreements also require full, immediate payment of the
entire Payback Amount in the event of default—discarding altogether the notion of
payments tied to the merchants’ revenue. Delta Bridge’s acceleration clause, for
example, states that in an “Event of Default,” “The Specified Percentage shall equal
100%. The full undelivered Purchased Amount plus all fees and charges (including
legal fees) assessed under this Agreement will become due and payable in full
immediately.” Delta Bridge Exemplar at 9 § 26(a); accord Yellowstone 2020
Exemplar at 10 § 29.
385. Respondents reserve such recourse for themselves—plus the additional
recourse described below—even while misrepresenting their transactions as “non-
recourse” purchases of merchants’ revenue. E.g., Delta Bridge Exemplar at 3 § 3;
accord, e.g., Yellowstone 2020 Exemplar at 3 § 3 (providing that the transaction is
“without recourse” against the merchant). These “non-recourse” provisions are a
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sham because, as demonstrated herein, their exceptions swallow the rule. E.g.,
Delta Bridge Exemplar at 3 § 3 (transaction is “without express or implied warranty
to [Respondents] of collectability of the Purchased Future Receipts by [Respondents]
and without recourse against [the merchant] and/or Guarantor(s), except as
specifically set forth in this Agreement”); Yellowstone 2020 Exemplar at 3 § 3
(same).
1. Respondents Claim Extensive Recourse in the Event
of Merchant Bankruptcy
386. Although Respondents purport to be buying a percentage of each
merchant’s revenue, Respondents reserve rights to repayment even if the
merchant’s business fails altogether and files for bankruptcy. This is a key factor
showing usury. See Fleetwood, 2023 WL 3882697, at *2 (“whether there is any
recourse should the merchant declare bankruptcy”); Davis, 194 A.D.3d at 517
(usury shown by “provisions authorizing [MCA lender] to collect on the personal
guaranty in the event of plaintiff business’s . . . bankruptcy”).
387. Respondents obtain security interests pursuant to Article 9 of the
Uniform Commercial Code (“UCC”) in a vast array of merchants’ assets. Delta
Bridge Exemplar at 8 § 21(ii); Yellowstone 2020 Exemplar at 9 § 22; Yellowstone
2018 Exemplar at 6 § I. These secured interests give Respondents priority status in
the event of a merchant’s bankruptcy, ensuring that they can still recover in full
against the merchant’s assets—even if the merchant has collected zero dollars in
revenue, and even while unsecured and lower-priority claims against the merchant
remain uncollectable. See, e.g., 1 Collier on Bankruptcy P. 1.03 § 4 (explaining that
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secured creditors “receive their collateral or its value” prior to unsecured creditors,
who “receive a dividend from what assets remain”).
388. Moreover, Respondents obtain security interests in assets well beyond
the merchant’s revenue that are the subject of the MCA transaction, even including
their “equipment, general intangibles, instruments, and inventory.” Respondents
state in their Agreements that they hold:
[A] continuing, perfected and first priority lien upon and security
interest in, to and under all of [merchant’s] right, title and interest in
and to the following (collectively, the “Collateral”) . . . :
i. all accounts, including without limitation, all deposit accounts,
accounts-receivable, and other receivables, chattel paper, documents,
equipment, general intangibles, instruments, and inventory, as those
terms are defined by Article 9 of the Uniform Commercial Code (the
“UCC”) . . . and
ii. all [merchant’s] proceeds, as such term is defined by Article 9
of the UCC.
E.g., Delta Bridge Exemplar at 8 § 21; Yellowstone 2020 Exemplar at 9 § 22; see
also, e.g., Yellowstone 2018 Exemplar at 6 § I; see, e.g., Karcher Aff. ¶ 33 (describing
Delta Bridge’s UCC lien against Airbnb income generated by the merchant’s
guarantor and principal, which had no relationship to the business that was party
to the MCA agreement, Hygge Supply); Resp. to Mot. to Enforce Auto. Stay, In Re
Hygge Supply, Inc., No. 23-00468-jwb (Bankr. W.D. Mich. Apr. 19, 2023), ECF No.
21 (filing by Delta Bridge in Hygge Supply’s subsequent bankruptcy proceeding,
asserting UCC claims against the guarantor’s unrelated Airbnb income).
389. Respondents’ recent agreements, which limit merchants’ liability in
the event of a bankruptcy that results in the merchant “ceas[ing] its operations,”
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e.g., Delta Bridge Exemplar at 5 § 14(b)(iii); Yellowstone 2020 Exemplar at 6
§ 16(b)(iii), provide no such protection to guarantors at all—or to merchants in the
event of a reorganization bankruptcy, such as one pursuant to Chapter 11 of the
Bankruptcy Code. As a result, Respondents ensure that in the event of some
default (which would typically precede a bankruptcy), they are able to pursue their
secured interests to the full, accelerated Payback Amounts against guarantors, and
against merchants in a reorganization bankruptcy.
390. Until at least October 2018, Yellowstone used agreements that
included further provisions claiming recourse in bankruptcy. Those agreements
included a “Security Agreement and Guaranty” which reserved for Yellowstone
rights to seek repayment from the guarantor—typically the business’s owner—
should the business enter bankruptcy. The agreements provided:
In the event that [Yellowstone] must return any amount paid by
Merchant or any other guarantor . . . because that person has become
subject to a proceeding under the United States Bankruptcy Code or any
similar law, Guarantor’s obligations under this Agreement shall include
that amount.
E.g., Ex. 104 at 7 (Oct. 2018 agreement between Green Capital and RMI Holdings).
391. Until at least March 2018, Yellowstone used agreements that also
provided:
Guarantor’s obligations are due . . . at the time Merchant admits its
inability to pay its debts, or makes a general assignment for the benefit
of creditors, or any proceeding shall be instituted by or against Merchant
seeking to adjudicate it bankrupt or insolvent, or seeking
reorganization, arrangement, adjustment, or composition of it or its
debts.
E.g., Yellowstone 2018 Exemplar at 6 § II.
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392. Yellowstone’s Agreements during this period also provided that a
merchant would default on its Agreement if “Merchant interrupts the operation of
his business . . . without . . . the express written permission of [Yellowstone].” Id. at
3 § 1.10(d). Although the clause included exceptions for “adverse weather, natural
disasters, or acts of God,” there was no exception for business interruptions
resulting from bankruptcy, even though the typical bankruptcy involves at least
some length of business interruption, if not termination. Id.
393. And until at least February 2016, Yellowstone’s Agreements provided
that the mere filing of a bankruptcy proceeding was an event of default. E.g., Ex.
105 at 2 § 3.1(c) (defining “Event of Default” to include when “any proceeding [is]
instituted by or against Merchant seeking to adjudicate it a bankrupt or insolvent”).
The Agreements specifically provided that in the case of bankruptcy, Yellowstone
could recover from the guarantor and also file the Merchant’s confession of
judgment in court. See id. § 2.8.
2. When Merchants Are Unable to Make Just a Few
Payments, Respondents Take Court Action to Obtain
Full Repayment of Pending Balances from
Merchants and Their Guarantors
394. Respondents’ agreements also use merchants’ inability to pay as
grounds for default, entitling Respondents to immediate repayment, from the
merchant and the guarantor, of the full uncollected Payback Amount plus various
significant fees. This is a key factor showing usury. See Davis, 194 A.D.3d at 517
(“provisions making rejection of an automated debit on two or three occasions
without prior notice an event of default entitling [Respondents] to immediate
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repayment of the full uncollected purchased amount,” and “provisions authorizing
defendants to collect on the personal guaranty in the event of plaintiff business’s
inability to pay”).
395. Respondents’ Agreements define “Event of Default” to include
instances where merchants have insufficient funds in their bank accounts to cover
Respondents’ debits of the Daily Amounts. E.g., Delta Bridge Exemplar at § 25(g)
(“[merchant] causes four (4) or more ACH transactions attempted by [Delta Bridge]
during any thirty-day period during the term of this Agreement to be rejected by
[merchant’s] bank”); id. at 8-9 § 25(a) (“[merchant] interferes with [Delta Bridge’s]
right to collect the Remittance Amount”); Yellowstone 2020 Exemplar at 10 § 27(a)
(“[Merchant] shall violate any term, condition or covenant in this Agreement
governing [merchant’s] obligations of timely delivery and in full of Initial Daily
Installments . . . .”); id. § 27(g) (“[Merchant] interferes with [Yellowstone’s]
collection of Initial Daily Installments”); id. § 27(h) (“Four (4) or more ACH
transactions attempted by [Yellowstone] are rejected by [merchant’s] bank”);
Yellowstone 2018 Exemplar at 8 § D (stating that merchants are allowed “up to four
occurrences [of insufficient funds] before a default is declared”); id. at 2 (requiring
the merchant to “ensur[e] that the specified percentage to be debited,” redefined as
the Daily Amount, “remained in the [merchant’s bank] Account”).
396. Respondents’ Agreements contain no exception for insufficient funds in
a merchant’s bank account caused by insufficient revenue, see generally, e.g., Delta
Bridge Exemplar; Yellowstone 2020 Exemplar; Yellowstone 2018 Exemplar, even
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though bounced debits can result from diminished revenue, see, e.g., Alabudi Aff.
¶¶ 38, 42; Israel Aff. ¶¶ 22-23.
397. For example, Yellowstone in 2019 issued an MCA to the merchant
Astorga Enterprises, Inc. (“Astorga”), through the Yellowstone Subsidiary High
Speed Capital. See Ex. 64 at 1. The MCA used the standard Yellowstone MCA
agreement, which included a provision stating that an “Event of Default” would
occur if “[f]our or more ACH transactions attempted by [Respondents] are rejected
by [merchant’s] bank.” Id. at 15 § 27(h).
398. On April 8, 2019, the Funder notified the merchant, “Last 5 payments
have bounced,” and wrote that in such an instance “the account goes into a charge
off status,” indicating that Yellowstone would send the matter to collections. Ex.
177 at 2. The merchant responded that the business had closed. See id.
399. The following day, April 9, Respondent Serebro filed for judgment on
High Speed’s behalf in Broome County Supreme Court against Astorga and its
guarantor to recover the total remaining balance of $33,932, plus attorneys’ fees
and costs, for a total of $42,714.37. See Ex. 379 at 1. Serebro filed in court the
merchant’s confession of judgment, along with an affidavit stating that it defaulted
when it “stopped remitting the specified percentage” to High Speed and that the
merchant “continued to be in default” by “failing to remit the Specified Percentage
to [High Speed].” Id. at 7 ¶¶ 11-12. That same day, the court issued judgment
against the merchant and its guarantor in the full, accelerated amount Respondents
requested. Id. at 12.
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400. For another example, on June 21, 2022, Respondents issued the
merchant Pharmalab Enterpises Inc. (“Pharmalab”) an MCA through their
Cloudfund name in the funding amount of $500,000, with Respondents Sanders and
Melnikoff as Funder. See Ex. 100 at 1; Ex. 131. Delta Bridge’s agreement with
Pharmalab stated that the merchant would default if it “cause[d] two (2) or more
ACH transactions attempted by [Respondents] during any thirty-day period during
the term of this Agreement to be rejected by [merchant’s] bank.” Ex. 100 at 9
§ 25(g).
401. About a month later, on July 28, 2022, Delta Bridge notified
Pharmalab that two weekly payments had “bounced,” which was a “condition of
default,” and that if the merchant did not respond within the hour, its “file” would
be “released to legal.” Ex. 131; see also Ex. 396 at row 95 (Delta Bridge chart
stating that Pharmalab defaulted through “[e]xcessive returns for insufficient
funds”). Three business days after Delta Bridge sent that notice, on August 2, 2022,
Respondent Serebro filed a complaint on Delta Bridge’s behalf against Pharmalab
and its owner, Alberto Perez, alleging that Pharmalab “breached the Agreement by
. . . depriving [Delta Bridge] of its Specified Percentage of the [merchant’s] daily
receipts.” Ex. 386 at 4 ¶ 22.
3. Respondents Exercise Their Secured, Guaranteed
Rights to Repayment Despite Merchants’ Lack of
Revenue or Closing of Their Businesses
402. The secured, guaranteed interests that Respondents write into their
agreements provide them with tremendous leverage over merchants’ assets.
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Respondents have repeatedly abused that leverage by collecting money from
merchants who have no actual revenue left to provide.
403. Former Yellowstone Funder and Sales Rep Scott Ehrlich described
Respondents’ grasp for assets in such situations as follows:
[M]ostly, the funders wanted to get everything they could. So it wasn’t
just about the percentage of [the merchants’] future receivables for the
next three months, when they’re in a business lull.
It was: Well, what do they have? Do they have a car? Do they have a
house? Do they have anything? What can we get that will help us pay
this off?
Ehrlich Tr. at 128:15-25.
404. Respondent Melnikoff testified that if a merchant was having trouble
making the Daily Amounts and the deal was at risk of PNL Default (defined at
¶ 289, supra)—and therefore at risk of diminishing his compensation as a Funder—
he would sometimes “suggest to them maybe you can borrow some money from a
friend to help you with your business to make a minimum payment,” or that he
might ask the merchant to pay from their personal funds “to help get a minimum
payment in.” Melnikoff Tr. at 145:15-147:21. Melnikoff testified that he asked
some merchants to pay even when their businesses were forced to close during the
COVID lockdowns in hopes of keeping the deal out of PNL Default, explaining that
“that’s the nature of my business and the way that I was always taught.” Melnikoff
Tr. at 160:6-25, 162:15-22.
405. For example, in June 2018 Respondents Melnikoff and Sanders
learned that the merchant Alpha Fusion Inc. was unable to make its payments
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because “[t]he restaurant is shut down because their lease agreement wasn’t
renewed,” and that the merchant’s owner was instead “driving for uber eats and
grub hub” to make a living. Ex. 257 at 2. Instead of writing off the file, Melnikoff
and Sanders—who had already rushed to obtain judgment against the merchant in
New York County Supreme Court a week earlier—directed Serebro’s collections
firm to freeze the owner’s earnings from Uber Eats and GrubHub. See id. at 1; see
also Melnikoff Tr. at 153:23-159:14 (testifying about this exchange). The merchant
even offered to pay Yellowstone the “princip[al]” on the deal, but Melnikoff and
Sanders refused, instead directing the collections firm to “get us all of our money
please.” Id. at 2.
406. Similarly, in April 2019, a Yellowstone Funder contacted the merchant
Astorga about missed payments and was told that its business had closed. See Ex.
177 at 2. The Funder understood that the absence of revenue meant “all payments
would bounce” if Yellowstone continued to collect. Id. at 1. But instead of closing
the account, the Funder demanded, “How do you plan on paying this off?” id., and
referred the matter to Serebro, who obtained judgment against the merchant on
Yellowstone’s behalf, for failing to make its daily payments. See supra ¶ 399.
407. Similarly, Respondent Steve Davis wrote in an October 2017 email
that a merchant was “out of business.” Ex. 303 at 1. Instead of writing off the file,
Yellowstone obtained judgment in Erie County Supreme Court. See Ex. 387. Davis
continued to pursue payment from sources other than the merchant’s revenue,
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writing that the merchant “will pay us off when he sells his real-estate.” Ex. 303 at
1.
408. In another instance, in March 2018 Respondents Melnikoff and
Sanders demanded payment from the merchant Eloope Management, LLC, and in
response the merchant’s principal responded that she had just come back from
giving birth and that her business had no “money flowing in” because a large
customer of the merchant had filed for bankruptcy and was not paying a large
invoice due to the merchant. Ex. 282 at 3. Melnikoff responded that if the
merchant did not begin making payments, “Things will get REAL messy.” Id. at 2.
Melnikoff then told the merchant to pay Yellowstone from sources besides revenue,
stating, “If I were you I would figure out a way for you to get this deposit. I’m sure
you got gifts for the birth of your daughter. Please borrow funds from
someone . . . .” Id.; see also Melnikoff Tr. at 150:2-151:8 (testifying about this
exchange).
409. Similarly, after a merchant notified Respondents Melnikoff and
Sanders in March 2018 that “[t]he business has not been operating,” and that he
had “accepted a part time job elsewhere,” Melnikoff and Sanders demanded that he
continue making $200 weekly payments. Ex. 274 at 3-4. The payments ensured
that the deal remained in Active status on the Funders’ PNL. Id. at 1 (“3% is
$149.01”); see also, e.g., Ex. 322 (email from Respondent Steve Davis to merchant
who was not taking in revenue due to dockworker strike: “We need to get payments
in the meantime or we will be forced to sue the business and against [you]
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personally as this was personally guaranteed. If we are not getting paid we have
nothing to lose. . . . Guide yourself accordingly.”); Ex. 283 (email to Melnikoff and
Sanders from collections agent stating, “We just confirmed that this place is out of
business. We’re going to . . . see if we have any money frozen out there which we can
pull and apply to the balance.”); cf. Ex. 249 at 1 (email from Melnikoff to a colleague
proclaiming, “Don’t worry we are getting paid from an SBA loan !!!!!!!!!!!!!!”); Ex. 239
(Melnikoff notified of merchant’s family member complaining that Yellowstone had
placed a lien on his business because of a purported default when he was not even
party to the MCA agreement at issue); Alabudi Aff. ¶¶ 51-55 (describing the
judgment and lien that Yellowstone obtained by claiming falsely that the merchant
had missed payments); Israel Aff. ¶¶ 22-23 (describing threatening letter sent by
Respondent Serebro on behalf of Delta Bridge in May 2022, after merchant sent
Delta Bridge a notification and supporting bank statements reflecting that it had
“no receivables coming in”).
410. Some merchants were made to understand that there was simply no
escaping their debt to Yellowstone. Jerry Bush, a plumber based in Virginia, laid
off his employees and closed his family business—which was started by his father—
after the business was unable to keep up with the ballooning daily payments
collected by Yellowstone. See Bush Aff. ¶¶ 56. After doing so, Bush received a
series of calls from Respondent Steve Davis, who was the Funder on Bush’s deals
with Yellowstone. See id. ¶¶ 58-59. Davis insisted that Bush resume daily
payments despite the business’s closure and lack of revenue. See id. ¶ 59. Davis
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told Bush there was no escaping the debt unless Bush “won the lottery or . . . was
dead, because [Davis] could not collect money from a dead body.” Id.
411. Bush concluded from his call with Davis that as long as Bush was alive
there would be no way to protect himself or his family from his business’s debt to
Yellowstone. See id. ¶ 60. Shortly after the call with Davis, Bush walked into the
woods, recorded a suicide message, and overdosed on oxycodone pills in an attempt
to take his life. See id. ¶ 61. Fortunately, the attempt was unsuccessful. See id.
¶ 62; see also Davis Tr. at 239:14-16 (stating that he arranged ten MCAs with
Bush’s company and observing, “I made a lot of money on the guy”).
412. Even today, Yellowstone’s Funders—now Delta Bridge’s Funders—
maintain that merchants have an obligation to continue remitting payments even
after the merchant’s business closed and is no longer generating any revenue. See
Melnikoff Tr. at 151:10-24 (“[I]f the business is no longer active, then we’re most
likely not collecting. There might be a handful of situations where a merchant
wanted to do the right thing because they signed a contract and know that it’s the
right thing to . . . repay what was given to them, but in most situations, I would say
that if the business is down and gone, then we’re probably not collecting anymore.”);
A. Davis Tr. at 143:17-21 (“If those revenues end up ceasing to exist, I’m still
entitled to my portion, but if the business’s doors are closed I wouldn’t hold my
breath because there are no revenues.”); Singfer Tr. at 127:25-128:15 (“Well, if I
knew they were out of business, I would[] . . . ask them if they’re still interested in
paying. . . . If they volunteered to send in money or settle, we wouldn’t object to it.”);
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see also S. Davis Tr. at 235:25-236:19 (testifying about circumstances where
merchants continued to pay after closing their business: “[I]t’s because they’re
stand-up people and they know that I took a risk in funding them and . . . they had
a responsibility as a normal human being that they’re going to repay . . . what they
got from me . . . .”).
F. Other Indicia that Respondents’ MCAs Are Loans
1. Everyone Knew They Were Loans
413. Funders and Sales Reps repeatedly referred to Yellowstone MCAs as
“loans” and to Yellowstone Funders as “lenders”—including in communications with
merchants. See, e.g., Ex. 250 (email from Singfer to merchant stating, “I am David
your lender.”); Singfer Tr. at 161:6-9 (testifying about Ex. 250); Ex. 241 (Melnikoff
asking an MCA recipient, “Wh[y] would you default on the loan?”); Melnikoff Tr. at
228:13-231:17 (testifying about Ex. 241); Ex. 268 (email from Maczuga to merchant
with the subject: “RE: Add on loan”); Ex. 272 (email from Funder to merchant
stating, “Yes, we will try and increase the loan amount”); McNeil Tr. at 214:12-19
(testifying about Ex. 272); Aryeh Tr. at 199:6-9 (testifying about Ex. 320); id. at
200:24-201:2 (testifying about Ex. 293); Miller Aff. ¶ 68 (former Funder affirming
that Yellowstone personnel described MCAs as “loans” and “short-term loans”);
Williams Tr. at 149:9-21; see also Ex. 185 at 2 (March 2019 email from Melnikoff to
merchant: “Damien you plan on paying us the money you borrowed?”); Melnikoff Tr.
at 232:6-24 (testifying about Ex. 185); S. Davis Tr. at 232:14-15 (“I’m trying to be
paid back on my principal and my money out . . . .”).
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414. Until at least March 2019, Respondents appended an addendum to
some of their Yellowstone MCA agreements which described the Funding Amount
as “The Loan Amount.” See, e.g. Ex. 55 at 21; Ex. 186 at 1 (email transmitting Ex.
55); Ex. 76 at 13; Ex. 74 at 19; Ex. 59 at 4; Ex. 68 at 11; Ex. 70 at 12; Ex. 308 at 1
(email transmitting Ex. 70); Ex. 430 at 7; Rubin Aff. ¶ 30; see also Shahinian Aff.
¶ 16 (addendum describing the amount collected from the merchant beyond the
Funding Amount as the “Total Interest”).
415. Similarly, until at least November 2018, one Yellowstone Funder sent
letters to merchants on official Yellowstone letterhead in which he signed off as
“Jim McNeil, Lender.” McNeil Tr. at 223:14-20 (testifying about Ex. 430 at 1); see
also Ex. 430 (collecting such letters); Rubin Aff. ¶ 38.
416. Similarly, until at least April 2019, another Yellowstone Funder sent
letters to merchants on official Yellowstone letterhead that described the
merchant’s outstanding balance as a “current debt” to Yellowstone. Ex. 431 at 1;
Saffer Tr. at 244:11-245:16; see also Ex. 431 (collecting such letters); Shahinian Aff.
Ex. D at 4.
417. During their testimony in this investigation, some Funders referred to
Yellowstone and Delta Bridge MCA transactions as “loans” and themselves as
“lenders.” See Melnikoff Tr. at 31:6-10 (testifying that Funders that “worked in-
house worked for Yellowstone and the ones that would not be considered an in-
house funder was an outside lender/funder, however you want to put it”); Williams
Tr. at 35:20-22 (“I mean, you need to see how much someone qualifies for to lend
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them money.”); id. at 109:18-20, 110:5-6, 179:23-180:11; see also Worch Tr. at
181:17-20 (“[E]very merchant wants to borrow”). Similarly, Maczuga referred to the
“amount netted by the merchant” in an MCA transaction as the “principal”—a term
associated with a loan, not purchase of revenue. Maczuga Tr. at 219:10-25; see also
S. Davis Tr. at 232:14-15 (same). Dahan referred to merchants’ balances as “debt”
to Yellowstone. See Dahan Tr. at 43:19.
418. As Melnikoff explained candidly when testifying about an email he
wrote that used the word “loan” instead of “advance”: “Sometimes you confuse the
two.” Melnikoff Tr. at 229:11-12.
419. Most of the support staff who assisted Funders and Sales Reps in their
day-to-day work understood that they were working in the loan business—and
would refer to the transactions as such. See Vasquez Tr. at 117:8-120:18.
420. Brokers that sold Yellowstone MCAs—known as Independent Sales
Organizations, or “ISOs”—often referred to Yellowstone MCAs as “loans” when
acting as the broker for Yellowstone MCA transactions. Aryeh Tr. at 202:4-7; Rubin
Aff. ¶ 27 (broker described attached Yellowstone contract as a “lender contract”);
Bush Aff. ¶¶ 4, 8 (broker described Yellowstone as “lender” and merchant as
“borrow[ing]”); id. ¶ 12; Alabudi Aff. ¶ 26 (broker offered merchant “another loan”);
id. ¶¶ 6, 20, 22; Shahinian Aff. ¶ 3 (broker offered “Unsecured Loan[s]”); Karcher
Aff. ¶¶ 7, 10, 12. But Yellowstone Sales Reps, who managed Yellowstone’s
relationships with ISOs, were not aware of any policies or guidelines that ISOs were
required to follow, see Dahan Tr. at 75:25-76:18, and Funders felt that Yellowstone
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had insufficient safeguards to correct for the misimpressions that merchants were
left with as a result of their communications with ISOs, see McNeil Tr. at 24:12-
25:4; see also Ex. 404 at 19 (response to FTC CID, stating: “Yellowstone
understands that ISOs engage in a variety of marketing to attract interested
merchants, much of which is unknown to Yellowstone . . . .”).
421. Furthermore, dozens of the ISOs that Yellowstone partnered with to
broker its MCAs to merchants had names like “Business Loan Masters,” “Loan
Supply Company,” “True Business Lender,” “Reliable Lending Group,” “Quick
Capital Commercial Lending,” and “American Lending Inc.” Ex. 424. These
typically confirmed merchants’ understanding that the MCA transactions were
loans.
422. Yellowstone and Delta Bridge did not have any measures or policies in
place to ensure that merchants understood that the MCA transactions were not
loans, apart from boilerplate language in their form MCA agreements. See Aryeh
Tr. at 203:10-205:4.
423. Merchants commonly understood Yellowstone and Delta Bridge’s
MCAs as loans. See Shahinian Aff. ¶ 7; Alabudi Aff. ¶¶ 6, 20, 22, 26; Bush Aff. ¶¶ 8,
12; Ostrowski Aff. ¶¶ 11, 21, 27; Turner Aff. ¶¶ 10, 15, 22; Israel Aff. ¶ 7; Karcher
Aff. ¶¶ 7, 14. Funders were aware of this. See McNeil Tr. at 216:24-217:18; Ehrlich
Tr. at 43:17-44:4; Williams Tr. at 150:13-18.
424. Merchants often referred to Yellowstone’s MCA transactions as
“loans,” and Funders and Sales Reps typically did not correct them. See Miller Aff.
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¶ 69; Shahinian Aff. ¶¶ 8-9; Alabudi Aff. ¶ 6; McNeil Tr. at 217:3-5, 218:25-219:5;
Worch Tr. at 232:3-9 (testifying about Ex. 213 at 5); Vasquez Tr. at 114:22-25. For
example, a merchant emailed Maczuga repeatedly over an 11-month period in 2018
and inquired about “renewing our loan,” noted that Yellowstone had overcollected
on “the old loan,” asked to “borrow” additional money, and requested “an accounting
of . . . our loan.” Ex. 191 at 2-4. Maczuga responded to each email and did not
dispute that the transaction was a loan. See id. These communications occurred
shortly before Maczuga was elevated to Yellowstone’s co-CEO.
425. Maczuga’s failure to dispute a merchant’s perception that the
transaction was a loan was typical of Respondents’ responses to such
communications. See, e.g., Ex. 135 at 4-5 (merchant asked to “give you a call so I
can discuss the loan” with Delta Bridge, and Respondent Aaron Davis responded,
“[O]f course”); Ex. 312 at 1 (merchant sent Respondent Steve Davis an email
seeking a status update, with subject line, “[L]oan,” and Davis responded with the
same subject line and attaching a draft Yellowstone MCA agreement); Ex. 216
(merchant asked for the “payoff on this loan,” and Respondent Melnikoff responded
with the amount); Ex. 158 (merchant asked if Respondent Singfer was able to
provide the balance on its Delta Bridge “loan,” and Singfer responded, “I am the
right person” and stated a balance amount); Ex. 277 at 3 (merchant asked for the
balance on its “loan,” and former Funder Kern responded with the balance amount;
merchant subsequently asked, “Can we look at doing another loan?” and Kern
responded, “Sure”); Ex. 224 at 1-2 (merchant emailed former Funder McNeil
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repeatedly and expressed concern about a refinancing that meant “8k being added
to the loan,” referred to “taking out a [new] loan to pay off the interest from my first
loan,” and expressed a desire to “finish out this [current] loan before legal gets
involved”; McNeil responded to each email and did not dispute that the transactions
were loans).
2. Yellowstone Also Did Deals That Were Explicitly
Loans, Which Were No Different from Yellowstone
and Delta Bridge’s So-Called MCAs
426. For a time, Yellowstone entered into transactions with merchants in
California through its Yellowstone Capital West (“Yellowstone West”) entity that
were explicitly identified as, and acknowledged to be, “loans.” The loans were
memorialized in “Loan Agreement[s]” that referred to the transactions as “loan[s]”
and referred to merchants as “Borrower[s].” See, e.g., Ex. 86 at 1; Ex. 112 at 1; Ex.
98 at 1.
427. During his testimony, Yellowstone’s co-founder and CEO, Isaac Stern,
could not identify any difference between Yellowstone West loans and Yellowstone
MCAs, apart from different regulatory reporting requirements. See Stern Tr. at
242:22-245:4 (discussing Ex. 98).
428. According to Funders and Sales Reps who worked the deals, the only
differences between a Yellowstone West loan and a Yellowstone or Delta Bridge
MCA were that Yellowstone West loans (a) had a $5,000 minimum funding amount,
(b) disallowed Confessions of Judgment, and (c) were limited to merchants located
in California. See Aryeh Tr. at 249:23-250:25; S. Davis Tr. at 272:7-273:19; Kern Tr.
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at 170:16-171:2; McNeil Tr. at 184:7-185:15; Melnikoff Tr. at 185:11-187:8; Dahan
Tr. at 144:2-15; Saffer Tr. at 206:25-210:3; Miller Aff. ¶¶ 73-74.
429. The Funders and Sales Reps who testified could not identify any
difference between Yellowstone West loans and Yellowstone MCAs—or between
Yellowstone West loans and Delta Bridge MCAs—apart from the differences
identified in paragraph 428, above. See Aryeh Tr. at 249:23-250:25; S. Davis Tr. at
272:7-273:19; Kern Tr. at 170:16-171:2; McNeil Tr. at 184:7-185:15; Melnikoff Tr. at
184:18-187:8; Dahan Tr. at 144:2-15; Saffer Tr. at 206:25-210:3. They testified that
Yellowstone West loans were underwritten, sold, and serviced in the same manner
as Yellowstone and Delta Bridge MCAs. See id. Only one Funder identified a
difference in how he underwrote Yellowstone West loans: he said he underwrote
them “more conservatively,” but his basis for doing so had nothing to do with the
fact that it was a loan—it was that the lack of a confession of judgment made the
transaction riskier. S. Davis Tr. at 272:7-273:19.
430. The differences between Yellowstone’s loans and Yellowstone and
Delta Bridge’s MCAs were so immaterial that several Funders and Sales Reps were
not even aware that they had ever worked on a Yellowstone loan product until they
were confronted during testimony with the Yellowstone West loan contract they
worked on as a Funder or Sales Rep. See Aryeh Tr. at 214:15-215:2, 248:2-25;
Melnikoff Tr. at 183:2-12, 184:18-185:10; Dahan Tr. at 141:25-142:14.
431. The Yellowstone West loans used interest rates that vastly exceeded
New York’s 16% interest rate cap (as well as California’s 10% cap).
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3. Respondents Pushed Merchants Experiencing
Financial Trouble to Take on More Debt to Keep Up
with the Daily Debits
432. When merchants reported to Funders that their business was low on
cash and could not keep up with the daily debits as a result, rather than offer
Reconciliation, Yellowstone and Delta Bridge Funders often steered them to
Refinance their Yellowstone or Delta Bridge MCAs. See Melnikoff Tr. at 144:22-
145:14; S. Davis Tr. at 233:6-12; McNeil Tr. at 148:16-149:4; Dahan Tr. at 127:12-
16; Alabudi Aff. ¶¶ 23, 27, 38-40; Bush Aff. ¶¶ 45-49, 55; Ostrowski Aff. ¶¶ 36-37;
see, e.g., Ex. 162 at 2-4. In a Refinancing, a merchant entered a new Yellowstone or
Delta Bridge MCA transaction, and the Funding Amount from the new MCA was
applied to pay off the balance of the earlier MCA. See supra ¶ 336.
433. Yellowstone’s and Delta Bridge’s compensation structure for Funders
incentivized Refinancing. Yellowstone and Delta Bridge paid Funders their share of
the profits on an MCA transaction only when the transaction was paid off in full, see
supra ¶ 295, and an MCA transaction was deemed fully paid when paid off by
funding from a subsequent MCA in a Refinancing. See S. Davis Tr. at 154:11-24
(testifying that the PNL system incentivized Funders to Refinance deals at the end
of the month).
434. Because Reconciliation was not a realistic path to relief, and because
payment Adjustments were wholly discretionary, struggling merchants often had
little choice but to Refinance when presented with that as an option. See Alabudi
Aff. ¶ 41 (“I felt I had no choice . . . .”); Bush Aff. ¶ 29 (“I had no choice.”), ¶ 48 (“I
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was desperate . . . .”), ¶ 52 (“I felt I had no choice.”); see also supra ¶¶ 242-247
(describing how Cloudfund prevented the merchant Cookies from Reconciling
despite a 50% drop in revenue, and then Refinanced its MCA a month later).
435. Refinancing provided a short-term cash infusion to the merchant’s
struggling business, or an opportunity to reduce the Daily Amount, but it deepened
their indebtedness to Yellowstone or Delta Bridge. See Melnikoff Tr. at 144:22-
145:14; S. Davis Tr. at 233:6-22; McNeil Tr. at 148:16-149:22; Rubin Aff. ¶ 7;
Alabudi Aff. ¶ 2. Like all of Yellowstone’s and Delta Bridge’s MCAs, the new MCA
transaction also carried a pile of new fees. When cash from the new MCA was also
depleted, merchants were offered the “opportunity” to Refinance again, starting the
debt cycle anew.
436. For example, in September 2018, a merchant asked her Yellowstone
Funder to reduce her Daily Amount because her business was experiencing
“hardship”—she was “down 10 clients,” and her “business [was] suffering financially
. . . [and] it’s just getting worse.” Ex. 224 at 1-2. The Funder proposed that the
merchant reduce her payments through a “zero net refi,” meaning a Refinancing
that did not result in any additional funding to the merchant, but reduced the Daily
Amount and increased the total amount owed to Yellowstone. Id. at 2. The
merchant replied to the Funder: “My only concern is the additional 8k being added
to the loan. . . . I’m asking please can you work with me without adding the interest
on interest.” Id. The Funder replied: “[I]f you cannot make payments your account
will be transferred to our legal department [to obtain a judgment]. Or you can
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renew.” Id. That left the merchant with little choice: “Ok I have no choice but to
rewrite my current loan for the lower payment.” Id. at 1.
437. For another example, in December 2018, a merchant informed two
Funders that his revenue “reflects a significant decrease,” and requested a
reduction in the Daily Amount. Ex. 211. The Funders replied that in order to
reduce the Daily Amount, they would “need to request a 2nd restructure,” referring
to a Refinancing. Id.; see also Ex. 253.
438. For another example, in November 2017, Respondent Melnikoff wrote
to a merchant who was having trouble sustaining the daily debits: “Please call
regarding a renewal offer. I understand you might be having a small issue,
however if we can discuss what’s going on I’m sure we can figure it out and get you
more money.” Ex. 300 at 2.
439. For another example, in April 2017, Respondent Steve Davis
Refinanced a merchant’s Yellowstone MCA. The new MCA obligated the merchant
to pay Yellowstone $56,962—including more than $5,000 in fees—but netted the
merchant only $72. See Ex. 313. Unsurprisingly, the merchant soon defaulted and
Yellowstone obtained a judgment for the full balance plus an additional $7,304 in
“Attorneys Fees.” Ex. 391.
440. Testifying about such Refinancings, one former Yellowstone and Delta
Bridge Funder admitted that “[i]t doesn’t make sense for the merchant to refi the
balance, net so little, and then have to pay back so much. You’re just pushing off the
deal and it will—eventually, in my opinion, it would go bad.” McNeil Tr. at 148:16-
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149:22. The Funder conceded: “It was just digging the merchant into a deeper
hole.” McNeil Tr. at 148:16-149:22.
441. One merchant likened this cycle of debt to “quicksand.” Rubin Aff.
¶ 48. As he put it: “[T]he only way we could afford to make the [daily payments]
was to take on even more debt—often from Yellowstone itself.” Rubin Aff. ¶ 7; see
also Bush Aff. ¶ 30 (discussing renewals arranged by Respondent Steve Davis and
concluding, “[W]e needed to take out each new [renewal] MCA from [Yellowstone] in
part to pay off the last one.”).
442. Another merchant explained that repeated Refinancings were the only
option provided when his business’s “revenue was not enough to keep up with
ballooning daily bills due” to Yellowstone, and that these perpetuated the “cycle of
MCA transactions.” Bush Aff. ¶¶ 54-56; see also supra ¶¶ 410-411 (describing how
this merchant came to see suicide as the only way out of the MCA cycle).
443. One Funder, Respondent Steve Davis, used a brutal analogy to
describe the coercive predicament confronted by desperate merchants presented
with an option to Refinance: “Once a junkie always a junkie.” Ex. 318; S. Davis Tr.
at 286:17-287:22.
444. Upon information and belief, merchants who had been expressly
promised an early-payoff discount did not receive any discount when their MCA was
paid off as the result of a Refinancing; rather, Yellowstone deducted the full balance
on the prior MCA transaction from the Funding Amount of the new transaction.
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4. Yellowstone Used Contracts that Purported to
Purchase a Share of All Monies the Merchant
Received from Any Source
445. From at least December 2019 through May 2021, Yellowstone used
MCA contracts that altogether abandoned the fiction that the transactions were
intended to purchase a share of the future revenue generated by merchants’
businesses.
446. During this period, Yellowstone used MCA contracts that expansively
defined the “receipts” that formed the basis of the transaction as “any and all
monies . . . received by [the merchant] from any source.” E.g., Yellowstone 2020
Exemplar at 2 § 1(c); Ex. 118 at 3 § 1(c) (2019 Green Capital Funding contract); Ex.
123 at 2 § 1(c) (2021 Green Capital Funding contract). These contracts did not even
purport to link the share of purchased receipts to the merchants’ receipts for the
“sale of goods and services.” Compare e.g., Delta Bridge Exemplar at 2 § 1(c); Ex.
111 at 1 § 1(c); Yellowstone 2018 Exemplar at 1.
447. As a result, Respondents’ so-called MCA transactions ostensibly
purchased a Specified Percentage of “monies . . . received” by merchants for any
reason—whether through investments into the business, loans, returned checks, tax
refunds, interest on deposits, or “from any [other] source.” Yellowstone 2020
Exemplar at 2 § 1(c); see supra ¶¶ 375-377.
448. Respondents’ transactions that purported to purchase a share of
merchants’ receipts from any source, beyond receipts generated from the sale of
goods and services, were usurious on their face.
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5. Yellowstone Marketed Its MCAs to Merchants as
Loans
449. Yellowstone marketed its MCAs to merchants as loans.
450. For example, until at least November 2018, Yellowstone advertised its
MCA products using a website called “Bad Credit Business Loans,” where
Yellowstone informed prospective merchants: “If you are looking for a small
business loan with bad credit, we can supply cash advances in less than 24 hours,”
and “[S]imply apply for a merchant cash advance online . . . we will deliver a
lending decision in a matter of hours . . . .” Ex. 434 at 3-4; see Ex. 404 at 5
(discussing this exhibit in response to FTC CID).
451. In 2016, Yellowstone advertised itself to brokers as the year’s “Top
Direct Lender.” Ex. 227 at 2; see also Ex. 226 at 2 (2018 ad describing Thryve
Capital, a Yellowstone Subsidiary, as a “leading direct lender”).
452. Yellowstone also advertised its MCAs to merchants through a website
it controlled called Small Business Funders, where Yellowstone informed
prospective merchants: “We at Small Business Funders are more than delighted to
offer you a ‘no collateral’ loan. To be more accurate, we are willing to extend you a
cash advance based on your previous and expected sales. . . . If you do meet all of
the requirements listed above then you immediately pre-qualify for a no collateral
loan from our company.” Ex. 434 at 23-24; see Ex. 404 at 6-7 (discussing this exhibit
in response to FTC CID); see also Ex. 434 at 14 (additional Small Business Funders
website). Yellowstone began collecting applications through Small Business
Funders by July 2015. See Ex. 325 at 7.
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453. Yellowstone promoted itself in video advertisements featuring
spokespeople making the following claims:
• “For the past four years, Yellowstone Capital has successfully helped
small businesses navigate cash flow issues. With verifiable monthly
revenue . . . , a simple loan is at your disposal . . . .” Ex. 432 at 2 (lines
10-16).
• “I learned about this small business loan company, Yellowstone
Capital. . . . It’s the most amazing thing I’ve ever seen.” Id. at 7 (lines
10-11, 20-21).
• “I went online, and I found Yellowstone Capital. I applied for a loan on
Monday based on my monthly sales, and on Wednesday, they gave me
my money.” Id. at 11 (lines 13-16).
454. Until at least 2018, Yellowstone also advertised its MCAs as “loans” on
what it called a “Mobile Website,” see Ex. 404 at 6-7 (response to FTC CID), where
Yellowstone informed prospective merchants:
• “If your business is in need of quick working capital loan [sic], then
give us a call . . . and find out how easy it can be to get a merchant
cash advance. Your loan application will be processed quickly . . . .”
Ex. 435 at 1.
• “[C]ash advances are becoming an increasingly popular way for
business owners to borrow money. . . . A cash advance is basically just
an unsecured small business loan . . . .” Id. at 3.
• “At Yellowstone Capital we offer business cash advance loans . . . .” Id.
at 6.
• “[W]e offer specialist business cash advances, which are becoming an
increasingly popular way to borrow.” Id. at 9.
• “A cash advance is an alternative method of borrowing . . . .” Id. at 12.
• “Here at Yellowstone Capital we offer an alternative lending scheme in
the form of a business cash advance.” Id. at 14.
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455. Yellowstone and the brokers it worked with also marketed
Yellowstone’s MCAs as “loans” when communicating with merchants by telephone
or email. See supra ¶¶ 413-416, 420-422.
456. Glass, Stern, and Maczuga were personally involved in Yellowstone’s
marketing efforts. See Ex. 314 (March 2017 correspondence about a marketing
proposal for Yellowstone’s MCAs); Ex. 325 at 3 (April 2015 invitation from Stern to
a “Sales and marketing meeting”).
6. Yellowstone Specifically Pursued Merchants Who
Were High Credit Risks and Desperate for Funding
457. Respondents target their MCAs at merchants that lack access to
traditional credit from banks or other sources. See, e.g., Bush Aff. ¶ 2 (merchant
resorted to taking out MCAs when its “business needed financing but was unable to
obtain a loan from bank”); Rubin Aff. ¶ 4 (same); Ostrowski Aff. ¶ 5 (same).
458. A presentation created by Yellowstone when it was seeking financing
in 2015 stated that Yellowstone “specializes in financing short-term advances for
merchants with low credit.” Ex. 419 at 8; id. at 4 (“[T]he firm focuses on shorter (3-
4 month) deals with merchants whose poor credit prevents them from qualifying for
traditional banking products.”).
459. As noted above, Yellowstone marketed its MCAs using a website called
“Bad Credit Business Loans,” until at least November 2018. Supra ¶ 450; see Ex.
434 at 3 (“If you are looking for a small business loan with bad credit, we can supply
cash advances in less than 24 hours.”); see also Ex. 434 at 32 (Yellowstone website
titled “Bad Credit Salon Financing,” stating: “Countless business owners with bad
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credit come to Yellowstone Capital since obtaining a loan from a bank can be a lot of
work . . . .”); Ex. 433 (promotional mailer to merchant stating, “Bad Credit / No
Problem,” and “WE PROVIDE IMMEDIATE FUNDING WHEN OTHERS
DECLINE!!!”).
460. Furthermore, Yellowstone and its Funders commenced the MCA
transactions with merchants, knowing that the merchants’ revenue was likely to
drop. See Ex. 374 at 2 (Maczuga writing to Glass and Stern: “I think a lot of these
people expect th[e] drop in sales that’s why they’re taking our money to begin
with.”).
461. One former merchant was surprised to hear from a Yellowstone broker
during the peak of the COVID-19 pandemic. Yellowstone already had an
outstanding judgment against the merchant, and the merchant informed the broker
that his business—a restaurant—was shut due to the pandemic. Even though the
business was closed and no longer generating revenue, the broker offered him a new
MCA, writing, “I know about the past but i wanna give u another shot.” Alabudi
Aff. ¶ 76.
G. Respondents’ Loans Used Interest Rates that Vastly
Exceeded the Legal Limit
462. The formula to calculate the interest rate of a loan with a term of less
than a year is (A/P)/(T/M), where A is the interest amount, P is the principal
amount, T is the number of days in the term, and M is the number of business days
in a year. See Rubey Aff. ¶ 47; accord People v. Richmond Capital Group LLC, No.
451368/2020, 2023 WL 6053768, at *12-13 (Sup. Ct. N.Y. Cnty. Sept. 15, 2023).
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463. The principal amount of each of Respondents’ MCAs is the Funding
Amount stated on the contract. The interest amount of Respondents’ MCAs is the
difference between the Funding Amount and the Payback Amount stated on the
contract. The term, as noted supra ¶¶ 142-143, was the Payback Amount divided
by the Daily Amount stated on the contract. The average number of business days
in a year is 251. See Rubey Aff. ¶ 47; see also, e.g., Ex. 154 at 2 (cell C11).
464. Where fraudulent fees deducted from the Funding Amount are treated
as interest—such as the so-called ACH Program Fee and Bank Fee, see infra
¶¶ 539-541—when calculating the interest rate the amount of such fees is added to
the interest amount. See Rubey Aff. ¶ 53.
465. Applying the above formula, Blake Rubey, Data Analyst for the Office
of the Attorney General, demonstrated that MCAs issued by Yellowstone and Delta
Bridge grossly exceeded New York’s 16% civil usury threshold and 25% criminal
usury threshold. See Rubey Aff. ¶¶ 50-53 & Ex. 4. Mr. Rubey analyzed the MCA
agreements submitted herewith and found that they include Yellowstone
agreements with annual interest rates as high as 678.46%, and Delta Bridge
agreements with annual interest rates as high as 819.93%. Id. at ¶ 52. These rates
are even higher when fees are included as interest. Id. at ¶ 53.
II. RESPONDENTS MISREPRESENT THEIR USURIOUS
TRANSACTIONS TO THE NEW YORK COURTS
466. Respondents have directed their fraudulent, usurious scheme not only
at merchants but also at the New York judiciary. Respondents have done this by
filing complaints and affidavits in New York State Supreme Court in which they
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misrepresent to the courts that they collected payments from merchants based on
Specified Percentages stated in their Agreements, when in reality they do so based
on arbitrary amounts, as set forth above. Supra ¶¶ 131-178.
467. Furthermore, Respondents have specifically made New York’s courts
an unwitting part of their illegal scheme. Respondents made sure that they would
be able to hail merchants to court in New York to enforce the agreements, no matter
where those merchants were located. Respondents accomplished this through
sweeping forum-selection provisions in their agreements that made New York the
exclusive forum for disputes arising under the agreements. See Delta Bridge
Exemplar at 10 § 38; Yellowstone 2020 Exemplar at 11-12 § 43; Yellowstone 2018
Exemplar at 5 § 4.6; see also, e.g., Ex. 427 at 4 (letter from Respondent Serebro to
North Carolina Department of Justice concerning North Carolina merchant stating
that “the proper forum in which to contest, challenge or otherwise dispute the
[agreement with Yellowstone] . . . is in N.Y. State Supreme Court”).
468. Moreover, since at least November 2018, Respondents’ agreements
have identified New York explicitly as the locus of the entire illegal transaction:
[Merchant] and each Guarantor acknowledge and agree that the
Purchase Price is being paid and received by [merchant] in New York,
that the Specified Percentage of the Future Receipts are being delivered
to [Delta Bridge] in New York, and that the transaction contemplated in
this Agreement was negotiated, and is being carried out, in New York.
[Merchant] and each Guarantor acknowledge and agree that New York
has a reasonable relationship to this transaction.
Delta Bridge Exemplar at 10 § 38; Yellowstone 2020 Exemplar at 11-12 § 43; Ex. 87
at 11 § 43 (Nov. 2018 Green Capital contract).
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469. The misrepresentations in Respondents complaints and affidavits,
directed at the New York courts pursuant to the sweeping provisions in the
foregoing two paragraphs, are an essential part of Respondents’ fraudulent usury
scheme. Respondents have used them to create the illusion before the New York
courts that their transactions are actual purchases of future receipts of revenue and
not illegal, usurious loans.
470. In reliance on Respondents’ false papers, New York courts have
repeatedly issued judgments against merchant borrowers and in Respondents’
favor, which Respondents have used as a basis to seize the assets of merchants and
their guarantors, usually by serving the judgments upon merchants’ banks.
471. Respondents’ fraudulent misrepresentations to New York courts were
made in court actions supervised by Respondent Serebro, or in papers filed by him
personally. See Serebro Tr. at 27:18-28:6, 39:1-17, 43:5-10, 51:2-7.
472. Respondents have obtained thousands of judgments from the New
York courts based on their false affidavits and complaints, on information and
belief, during the fifteen years that Respondents have operated their fraudulent,
illegal usury scheme.
473. Had Respondents disclosed in their court filings the true nature of
their transactions—that they are loans, set to fixed Daily Amounts and finite terms,
with no chance at a fair Reconciliation, and with sky-high annual interest rates—
their attempts to obtain judicial enforcement for their illegal transactions would
have been easily rebuffed.
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A. Respondents Have Misrepresented Their Transactions in
False Affidavits
474. Since at least 2014, Yellowstone has filed false affidavits in New York
State Supreme Court—typically calling them “Affidavit[s] of Non-Payment”—as
well as a copy of the relevant merchant agreement. E.g., Ex. 384 at 1. The false
affidavits and agreements accompanied merchants’ confessions of judgment, and
Yellowstone filed all of these through Respondent Serebro and its other lawyers.
475. Yellowstone obtained the signed confessions of judgment from
merchants at the time they executed their agreements with Yellowstone, before any
default occurred. See, e.g., Yellowstone 2018 Exemplar at 2 § 1.10 (Protection 3);
Alabudi Aff. ¶¶ 15, 69. Yellowstone then filed the merchants’ confession of
judgment upon purported default, typically without sending them any notice. See,
e.g., Alabudi Aff. ¶ 50. In reliance on such papers, the clerks’ offices of the New
York courts regularly issued judgments against the merchants and in Yellowstone’s
favor, typically within a day or two, with no adversarial proceeding and no judicial
review. See, e.g., Ex. 384 at 7.
476. The affidavits accompanying the confessions of judgment were false,
because they represented that Yellowstone “was to conduct its ACH debits of the
Specified Percentage” of merchants’ revenue and that the merchant had defaulted
when it “stopped remitting the Specified Percentage” to Yellowstone. Id. at 2-3
¶¶ 6, 11-12. In fact, Yellowstone had no practice of collecting payments based on
Specified Percentages, as set forth above. Yellowstone did not determine Daily
Amounts based on such percentages during underwriting, supra ¶¶ 131-178, and it
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virtually never (and not until at least 2020) performed Reconciliations to ensure
that merchants’ payments equaled such percentages, supra ¶¶ 185-192. The
agreements that Respondents filed along with the affidavits contained similar false
representations.
477. For example, in the case of the merchant Maslow Media, Serebro filed
an affidavit in Richmond County Supreme Court signed by the Yellowstone Funder
Jim McNeil in which McNeil represented that the merchant agreed to allow
Respondent Business Advance Team (a Yellowstone Subsidiary) “to conduct its
ACH debits of the Specified Percentage” of merchants’ revenue and that the
merchant defaulted when it “stopped remitting the Specified Percentage” to
Business Advance Team. Ex. 384 at 2-3 ¶¶ 6, 11-12. With the affidavit, Serebro
filed a copy of Business Advance Team’s MCA agreement with Maslow Media,
which stated that the Daily Amount was a “good-faith approximation of the
Specified Percentage.” Ex. 96 at 8.
478. But as McNeil has testified, he had no practice of “comparing [Daily
Amounts] against any specified percentage,” or discussing Specified Percentages
when “formulating an initial offer” for an MCA. McNeil Tr. at 119:2-19, 123:6-20.
479. Accordingly, both McNeil’s affidavit and the representation in
Respondents’ agreement with Maslow Media—both of which were filed in court by
Serebro—were false.
480. Moreover, on the same day that Serebro initiated proceedings against
Maslow Media on behalf of the Yellowstone Subsidiary Business Advance Team, he
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also initiated two separate proceedings against the same merchant on behalf of the
Yellowstone Subsidiaries Advance Merchant Services and Capital Advance
Services, seeking to enforce their separate agreements with the same merchant.
11
The latter two proceedings were supported by affidavits of two other Yellowstone
personnel; those affidavits were near-duplicates of the McNeil affidavit filed in
support of the Business Advance Team proceeding, including the same false
representations. Ex. 383 at 2-3 ¶¶ 6, 11-12; Ex. 385 at 2-3 ¶¶ 6, 11-12.
481. But it was patent from the face of the agreements that for least two of
them (if not all three), the Daily Amounts bore no relationship at all to the Specified
Percentages stated in the agreements. Supra ¶¶ 145-147. As discussed above, the
Yellowstone Subsidiaries’ three agreements with Maslow Media were a so-called
Side-by-Side deal: they were each entered into on the same date, they all set wildly
different Daily Amounts—$7,450, $4,470, and $1,490—and each agreement stated
that its Daily Amount reflected a “good-faith approximation of the Specified
Percentage” of 25% of the merchant’s prior revenue. Id.
482. Despite the plain falsity of at least two of the affidavits—which stated
that the Yellowstone Subsidiary was to conduct debits of 25% of Maslow Media’s
revenue and that Maslow Media had defaulted when it “stopped remitting the
11
See Bus. Advance Team LLC d/b/a Everyday Capital. v. Maslow Media Group,
Inc., Index No. 152382/2018 (Sup. Ct. Richmond Cnty. Sept 12, 2018); Advance
Merchant Servs. v. Maslow Media Group, Inc., Index No. 152383/2018 (Sup. Ct.
Richmond Cnty. Sept 12, 2018); Capital Advance Servs. LLC v. Maslow Media
Group, Inc., Index No. 152384/2018 (Sup. Ct. Richmond Cnty. Sept 12, 2018).
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Specified Percentage”—Serebro filed all of them in Richmond County Supreme
Court in the separate proceedings to enforce the agreements.
483. Within one day after Serebro filed the false affidavits, the Richmond
County court issued judgments in the Yellowstone Subsidiaries’ favor in each of the
three proceedings. Exs. 383 at 7, 384 at 7, 385 at 7.
484. Serebro filed similarly false affidavits in two proceedings by
Yellowstone Subsidiaries against the merchant VA Electrical Contractors LLC (“VA
Electrical”). VA Electrical was another Side-by-Side deal, in which Yellowstone
Subsidiaries issued a pair of MCAs dated six days apart. The two agreements set
radically different Daily Amounts ($1,124 and $4,497) and each stated that its Daily
Amount represented a “good-faith approximation of the Specified Percentage” of
25%. Ex. 116 at 2, 9; Ex. 115 at 2, 9. The near-identical affidavits stated that the
Yellowstone Subsidiaries were to conduct debits of 25% of VA Electrical’s revenue
and that VA Electrical had defaulted when it “stopped remitting the Specified
Percentage.” Ex. 390 ¶¶ 6, 11-12; Ex. 389 ¶¶ 6, 11-12.
485. Despite the falsity apparent on the face of the agreements and
affidavits, Serebro on January 31, 2019 filed them in separate proceedings against
VA Electrical on behalf of each Yellowstone Subsidiary. See id.
486. Some of the deals for which Serebro filed false affidavits were deals in
which Serebro had invested personally, as a “participant” in the deal through his
entity VS Ventures. See supra ¶ 96 (discussing Serebro’s participation through VS
Ventures).
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487. For example, Serebro made a personal investment of $750 in
Yellowstone’s September 26, 2018 MCA with the merchant Kite Restaurant Group
LLC (“Kite Restaurant”), through VS Ventures. See Serebro Tr. at 126:2-13; Ex.
234 at 1; Ex. 90.
488. A few months later, Serebro acted as the attorney representing
Yellowstone in a lawsuit that he filed against Kite Restaurant in Ontario County
Supreme Court, based on the merchant’s purported default. In support of his
request for a judgment against the merchant, Serebro filed an affidavit signed by
Salvatore Laspisa, who was then a member of Maczuga’s funding team and is now a
Funder at Delta Bridge. Ex. 382 at 1; see Maczuga Tr. at 99:3-100:8 (Maczuga
employed Laspisa); Ex. 51 at 2. The affidavit that Serebro filed (and the MCA
agreement itself) contained the standard false representations stating that
Yellowstone collected payments based on Specified Percentages of merchants’
revenue. Ex. 382 at 2-3 ¶¶ 6, 11-12; see supra ¶ 476. But the Funder, Maczuga,
had no practice of setting the Daily Amount based on the Specified Percentage,
supra ¶¶ 138, 143, 147, Yellowstone took no measures to ensure that he did so,
supra ¶ 136, and Serebro himself made no such efforts even when he personally
invested in an MCA deal, Serebro Tr. at 130:24-133:18.
489. As a result of the false representations Serebro filed with the court, the
Ontario County Clerk granted judgment against Kite Restaurant within two days,
including more than $5,000 in “Attorney’s Fees.” Ex. 382 at 9. A portion of the
amount collected subsequently was retained by Serebro through the contingency fee
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arrangement between his affiliated collections company and Yellowstone. Infra
¶¶ 815-816.
490. Yellowstone and its representatives, including the Funder
Respondents, filed affidavits in New York State Supreme Court repeatedly and as a
matter of practice, in which they falsely represented that the Daily Amounts they
collected were based on Specified Percentages of merchants’ revenue, when in
reality Yellowstone and its Funders had no such practice. See, e.g., Ex. 392 at 1
(affidavit by Respondent Steve Davis); Ex. 97 (MCA agreement filed with the
affidavit); Ex. 392 at 7 (affidavit in connection with deal by Respondent Aaron
Davis); Ex. 65 (MCA agreement filed with the affidavit); Ex. 392 at 13 (affidavit in
connection with deal by Respondents Melnikoff and Sanders); Ex. 75 (MCA
agreement filed); Ex. 392 at 19 (affidavit in connection with deal by former Funder
Schwartz); Ex. 66 (MCA agreement filed); Ex. 392 at 25 (affidavit by former Funder
Dahan); Ex. 92 (MCA agreement filed); Ex. 392 at 31 (affidavit by former Funder
Kern); Ex. 78 (MCA agreement filed); Ex. 392 at 37 (affidavit by former Funder
Singfer); Ex. 122 (MCA agreement filed); Ex 392 at 44 (affidavit by former Funder
Saffer); Ex. 464 (MCA agreement filed).
B. Respondents Misrepresent Their Transactions in
Verified Complaints
491. In spring 2019, the New York legislature enacted a law providing that
confessions of judgment could be filed only as to confessors located in New York, not
those located in other states. See CPLR § 3218 (effective Aug. 30, 2019).
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492. Because of the new law, Respondents were no longer able to obtain
judgments against merchants located outside New York State by filing their
confessions of judgment. Instead, in the event of purported default by out-of-state
merchants, Respondents conducted their court proceedings against merchants by
filing complaints against them, followed in most cases by motions for default
judgment.
12
493. In these complaints, Respondents—as Yellowstone/Fundry and as
Delta Bridge/Cloudfund—continued to make the same false representations to New
York courts, stating that the merchants had agreed to pay the Specified Percentage
of their revenue, and had then deprived Respondents of that percentage of revenue.
494. For example, on November 28, 2022, Serebro filed a verified complaint
in Queens County Supreme Court on Cloudfund’s behalf against the merchant BKM
Hospitality Mgt. Inc. (“BKM”) for purportedly defaulting on an MCA. Ex. 380 at 1.
495. The complaint was verified by Nick Pugliese, swearing under penalty
of perjury that the contents of the complaint were “true to the best of [his]
knowledge.” Ex. 380 at 11. Pugliese was an employee of Respondents Melnikoff
and Sanders, indicating that they were the Funders on the deal. See Melnikoff Tr.
at 113:2-7.
12
As to merchants located in New York, Yellowstone continued to file confessions of
judgment and affidavits until at least June 2021. See, e.g., Ex. 381 ¶¶ 4-6, 10
(affidavit filed by Serebro June 22, 2021 and stating that High Speed Capital
debited “Specified Percentage” payments from merchant located in West Babylon,
New York); see also Ex. 77 (MCA agreement with merchant).
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496. In the complaint verified by Pugliese, Cloudfund alleged the following:
Pursuant to the Agreement, [BKM] authorized [Cloudfund] to debit from
its bank account . . . Forty nine percent (49%) of [BKM’s] accounts-
receivable (the “Specified Percentage”), by means of an online ACH
debit, an initial fixed, agreed-upon amount from its bank account as a
good faith approximation of the Specified Percentage . . . .
. . .
Initially [BKM] . . . deposited their receivables into the Account from
which [Cloudfund] could debit the Specified Percentage.
On or about 10/24/2022, [BKM] breached the Agreement by . . . depriving
[Cloudfund] of its Specified Percentage of [BKM’s] daily receipts.
. . .
[BKM] refuse[s] to remit the Specified Percentage of its daily receivables
to [Cloudfund] . . . .
Ex. 380 at 5-7 ¶¶ 14-26.
497. Along with the complaint, Serebro filed as an exhibit Cloudfund’s MCA
agreement with BKM, dated June 8, 2022, which stated that the Daily Amount
fixed in the agreement was “a good faith approximation of the Specified Percentage
of [the merchant’s] Future Receipts.” Ex. 67 at 3 (definition of “Remittance
Amount”).
498. In fact, Cloudfund, like Yellowstone, had no practice of determining
Daily Amounts based on Specified Percentages at the time of the BKM agreement,
as set forth above. Supra ¶¶ 131-178.
499. Indeed, in the words of Melnikoff, who was the Funder on the BKM
deal, the Specified Percentage “doesn’t really matter” and “wasn’t really calculated”
during the process of underwriting and negotiating an MCA, and his practice, both
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at Yellowstone and Delta Bridge, was to determine the Daily Amount for an MCA
based on “fixed daily amounts” and the desired “amount of days,” “not a specified
percentage.” Melnikoff Tr. at 92:24-93:3, 97:8-15, 100:2-24.
500. As a result, Cloudfund’s representations to the Court were false.
Cloudfund did not determine BKM’s Daily Amount by making a “good faith
approximation of the Specified Percentage,” Cloudfund did not “debit the Specified
Percentage” from the merchant’s bank account, and the merchant neither
“depriv[ed] [Cloudfund] of the Specified Percentage” nor “refuse[d] to remit the
Specified Percentage” to Cloudfund, as stated in Cloudfund’s complaint. Supra
¶¶ 496-497. Nevertheless, in reliance on its false allegations, Cloudfund obtained
judgment against the merchant on October 5, 2023. Ex. 380 at 14.
501. Both Cloudfund and Yellowstone filed complaints in New York State
Supreme Court repeatedly and as a matter of practice, in which they falsely
represented that they debited payments set to Specified Percentages of merchants’
revenue. But as set forth above, and as shown by Respondents’ internal
communication and testimony from their top Funders, Respondents have for years
followed a general practice of setting Daily Amounts unrelated to any Specified
Percentage of revenue. Supra ¶¶ 131-178. Each time they represented otherwise to
a court and thereby obtained judgment against a merchant, they did so
fraudulently. E.g., Ex. 393 at 58, 66 (complaint verified by Respondent Melnikoff);
Ex. 79 (MCA agreement filed with the complaint); Ex. 393 at 73, 81 (complaint filed
in connection with deal by Respondent Singfer); Ex. 121 (MCA agreement filed with
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the complaint); Ex. 393 at 88, 96 (complaint filed in connection with deal by
Respondents Melnikoff and Sanders); Ex. 84 (MCA agreement filed); Ex. 393 at 16
(complaint in connection with deal by Respondent Aaron Davis); Ex. 85 (MCA
agreement filed); Ex. 393 at 2, 10 (complaint verified by former Funder Kern); Ex.
61 (MCA agreement filed); Ex. 393 at 31, 39 (complaint verified by former Funder
Dahan); Ex. 124 (MCA agreement filed); Ex. 393 at 45, 53 (complaint verified by
former Funder McNeil); Ex. 88 (MCA agreement filed); Ex. 393 at 103, 109
(complaint verified by former Funder Saffer); Ex. 465 (MCA agreement filed); Ex.
393 at 116, 124 (complaint filed in connection with deal by former Funder
Schwartz); Ex. 466 (MCA agreement filed); supra ¶ 247 (discussing complaint filed
by Cloudfund against the merchant Cookies Restaurant Group).
C. Respondents Misrepresent the Facts of Merchants’
Payment Histories in Claiming that the Merchants Have
Defaulted on Their MCAs
502. Respondents have also repeatedly filed court papers containing false
statements about the facts that purportedly led to a claimed merchant default.
503. For example, the Yellowstone Subsidiary Capital Advance Services in
May 2018 filed a false affidavit by Respondent Steve Davis in Kings County
Supreme Court in a proceeding against the merchant Zomongo. See Ostrowski Aff.
¶ 49. In it, Davis falsely testified that Zomongo had “caused [its] receivables to be
deposited in a separate account or blocked the ACH payments to [Capital Advance],
. . . so that [Capital Advance] could not collect the receivables they purchased.” Id.
¶ 50. In fact, Yellowstone was not collecting any agreed-upon share of “receivables”
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but instead attempting to debit Zomongo’s bank account by amounts far exceeding
even the Daily Amount stated in Yellowstone’s agreement, causing Yellowstone’s
excess debit attempts to bounce due to insufficient funds. See id. ¶¶ 47-48, 51.
504. In his affidavit, Steve Davis also misrepresented Zomongo’s balance,
understating its payments to date and overstating its balance due by $70,486, as set
forth in an affidavit by the merchant. See id. ¶ 52.
505. Yellowstone obtained a court judgment against Zomongo in reliance on
Steve Davis’s false affidavit. Yellowstone enforced the judgement by engaging a
New York City Marshal to seize hundreds of thousands of dollars from Zomongo’s
bank account. See id. ¶ 54.
506. The same Yellowstone Subsidiary filed a false affidavit in Erie County
Supreme Court against the merchant Austin’s Habibi. The affidavit was signed by
Avraham Weinstein, an employee of Respondent Steve Davis, see S. Davis Tr. at
61:20-62:23, indicating that Davis was the Funder on the deal. In his affidavit,
Weinstein falsely testified that the merchant defaulted when it “stopped remitting
payments to [Capital Advance] on or about November 27, 2017.” Alabudi Aff. ¶¶ 51-
52. In fact, Yellowstone had “successfully debited the daily payment [from Austin’s
Habibi’s bank account] at least once every business day in November.” Alabudi Aff.
¶¶ 48, 52 & Ex. Q. Yellowstone then obtained a court judgment for $26,508.75
against Austin’s Habibi—including $5,265.75 in supposed “‘Attorney’s Fees’”—in
reliance on Weinstein’s false affidavit. See id. ¶¶ 53, 60.
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507. Yellowstone also filed a false affidavit in Erie County Supreme Court
against the merchant Air Charter Division, Inc., in December 2018. The affidavit—
which was filed by Serebro and signed by former Funder Jim McNeil—stated that
the merchant “continue[s] to be in default of the Agreement, and continue[s] to
refuse to honor [its] obligations owed to [Yellowstone].” Ex. 378 at ¶ 12. However,
when judgment was entered a few days later, the merchant contacted McNeil, who
“[c]onfirmed the merchant is not in default and the payments are clearing.” Ex. 209
(emphasis added). Nevertheless, Yellowstone proceeded to clear $30,000 from the
merchant’s bank account, leaving him pleading for help on Christmas Eve so that
he could continue operations and pay his employees. See Ex. 203. The judgment
remains outstanding today against the business and the merchant personally.
508. Yellowstone also filed a false affidavit in Erie County Supreme Court
against the merchant SMJ Performing Arts, LLC, in April 2018, and the court
entered judgment the following day. The affidavit was filed even though the
merchant “hadn’t bounced or blocked” any payments, Ex. 201, but had simply
“called to ‘re-negotiate’” her contract, and told the Funder, Respondent Melnikoff,
that he “would be hearing from her attorney,” Ex. 273. Based on the fact that the
merchant was “very aggressive” on the phone and threatened to involve counsel, Ex.
201, Melnikoff ordered the merchant’s confession of judgment to be filed, writing
“Let’s go FREEZE IT UP!!,” referring to the merchant’s bank accounts. Ex. 273.
The next day Yellowstone filed an affidavit falsely stating that the merchant
“continue[d] to be in default” of the agreement and “continue[d] to refuse to honor
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[her] obligations to [Yellowstone].” Ex. 388 ¶ 12. The affidavit was filed by Renata
Bukhman, who is now Chief Compliance Officer at Delta Bridge, id. at 5; Ex. 51,
and signed by Melnikoff’s administrative assistant at Melnikoff’s direction, Ex. 273.
In January 2019, Reece learned that Yellowstone had obtained judgment against
the merchant despite the lack of any default. See Ex. 201. Nevertheless, the
judgment remains outstanding against the merchant and its owner personally.
509. On information and belief, the examples of Zomongo, Austin’s Habibi,
Air Charter Division, and SMJ Performing Arts are a fraction of the instances in
which Respondents have fraudulently obtained judgments against merchants by
declaring them in default on false pretenses.
III. RESPONDENTS ENGAGE IN REPEATED AND PERSISTENT
FRAUD IN THEIR DEALINGS WITH MERCHANTS
510. Respondents have also directed their fraudulent practices at
merchants, in their marketing and promoting of MCA products, charging merchants
exorbitant undisclosed fees, and collecting excess payments from them.
A. Respondents Misrepresent that Their Transactions Are
Not Loans and that They Will Provide Flexible Payment
Structures and Terms
511. Respondents have for years misrepresented to merchants that their
transactions are not loans, even while the facts of their transactions (and other
language in their agreements themselves) indicate otherwise. See generally Part I,
supra.
512. For example, in their Delta Bridge agreements, Respondents include
language such as the following:
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Guarantor acknowledges and agrees that the Purchase Price paid by
[Delta Bridge] to [merchant] . . . is not intended to be treated as a loan
or financial accommodation from [Delta Bridge] to [merchant].
E.g., Delta Bridge Exemplar at 13 § 6; see also, e.g., Yellowstone 2020 Exemplar at 6
§ 16(d) (“Not a Loan. [Merchant] and [Yellowstone] agree that the [transaction]
. . . is not intended to be, nor shall it be construed as, a loan from [Yellowstone] to
[merchant] . . . .”).
513. Such disclaimers are false. Respondents’ transactions are in their
substance fixed-payment, term-limited loans and are not purchases of merchants’
future revenue, as set forth above. Supra ¶¶ 131-381.
514. Similarly, as set forth above, Respondents also misrepresent that
merchants’ Daily Amounts are determined based on Specified Percentages of the
merchants’ revenue, that merchants can obtain Reconciliations and Adjustments
based on such percentages in the event that their revenues decline, and that the
transactions are subject to open-ended repayment terms. Supra ¶¶ 134, 194, 204,
307-309.
515. These representations are also false. In practice, Respondents require
merchants to repay their transactions over finite terms through fixed Daily
Amounts that are not based on merchants’ revenue, and Respondents take
numerous measures to make it virtually impossible for merchants to obtain a
Reconciliation or an Adjustment based on a Specified Percentage. Supra ¶¶ 131-
316.
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516. Respondents have made similar misrepresentations in their
advertising. For example, in November 2018, Yellowstone falsely advertised on its
website,
The biggest advantage that merchant cash advances (also known as a
MCA) can offer are flexibility in repayment. Instead of a hard and fast
amount due every month, a merchant cash advance is repaid by taking
a fixed percentage of your daily sales at the end of every business
day. . . . [A] small predetermined percentage of these sales are [sic]
taken out at regular intervals, no matter how the sale was completed.
Ex. 455; see also, e.g., Ex. 434 at 11 (“[O]ur business cash advances are based on
your daily sales. You continue to deposit your sales into a bank account and at
regular intervals, a small determined percentage of those deposits is taken as
repayment.”); Ex. 434 at 34 (“A small percentage of your total sales is taken as
repayment. It doesn’t matter if it takes you 5 weeks, 5 months or 1 year to pay us
back because you still pay back the same amount.”); Ex. 432 at 16 (lines 5-9)
(advertisement stating: “You continue to deposit your sales into a bank account, and
at regular intervals, a small, predetermined percentage of those deposits are taken
out as a repayment.”); id. at 20 (lines 6-11) (advertisement stating: “Rather than
have a set payment amount for you to meet each month, we have a percentage
payment plan that works with your monthly sales. Having a slow month? Then
you’re required to payback less that month.”).
517. Such representations are false. Respondents require merchants to
repay their MCAs by fixed Daily Amounts and for finite Terms, as set forth above.
Supra ¶¶ 131-316.
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518. Yellowstone also promoted “flexible payment structure[s]” during their
phone solicitations with merchants. Miller Aff. ¶¶ 47-48.
519. Such representations were also false, id., as former Funder Desmond
Miller explained in an affidavit:
I frequently overheard colleagues, particularly the funders Steve Davis,
Aaron Davis, Bart Maczuga, and Avi Dahan, speaking on the phone and
apparently responding to requests from merchants for adjustment of
their payment amounts. They typically refused such requests, stating
that the merchants had signed agreements for daily payments at certain
amounts and that Yellowstone would not make exceptions.
Id. ¶ 48.
520. For example, merchant Jerry Bush explained in an affidavit that when
he began interacting with the Yellowstone Subsidiary Capital Advance Services,
“[T]he broker told me that if I ever had any issues while repaying the CAS
transactions, I should let them know, and they would ‘work with’ me, which I
understood to mean that they would adjust JB Plumbing’s payment amounts if
needed.” Bush Aff. ¶ 44. Several months later, while facing a revenue shortfall,
Bush contacted Yellowstone and asked Respondent Steve Davis to adjust the
payment amounts. See id. ¶ 46. But Davis “refused to provide an adjustment. He
offered only another renewal transaction, similar to those that we had entered
previously.” Id. ¶ 47.
521. Similarly, merchant Ali Alabudi explained in an affidavit that broker
Ezra Moss, also working on Capital Advance Services’ behalf, told him that Capital
Advance Services and Moss’s own company “would be flexible if [Alabudi] ran into
trouble making payments.” Alabudi Aff. ¶ 8. Alabudi subsequently experienced a
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business slowdown and asked Jonathan Braun, his point of contact on the Capital
Advance transaction, for a five-day break in payments. See id. ¶ 37. Braun
provided no such accommodation but instead pushed Alabudi to take out yet
another MCA from Capital Advance Services. See id. ¶¶ 40-41; see also Turner Aff.
¶¶ 7, 26-27 (Funder promised that Delta Bridge “would be willing to work with” the
merchant in the event of difficulty with payments, only to be later threatened with
litigation when it was unable to make payments).
B. Respondents Falsely Promise No Collateral and No
Personal Guarantees
522. Respondents have also misrepresented to merchants that their
Yellowstone MCAs do not require collateral or personal guarantees.
523. For years, Yellowstone made such claims, advertising “cash advances”
with no requirement of “[c]ollateral” or “[p]ersonal guarantees.” Ex. 434 at 29.
Yellowstone advertised, “We do not require you to secure [your cash advance] with a
personal guarantee.” Id. at 26; see also, e.g., id. at 23 (advertising a “‘no collateral’
loan” in the form of “cash advance”); id. at 20 (advertising “business cash advances”
with “No collateral”); id. at 8-9 (website advertising “Unsecured Business Funding”
and “No collateral required” as of Nov. 9, 2018); id. at 17 (advertising “business cash
advance[s]” that were “not . . . dependent on any kind of collateral”); Ex. 432 at 14
(advertising “a completely unsecured business cash advance”).
524. Respondents have made similar representations in their telephone
solicitations, as former Yellowstone Funder and Sales Rep Desmond Miller
explained in an affidavit: “In our phone conversations with merchants,
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Yellowstone’s funders and representatives frequently described the MCAs as
requiring no collateral or personal guarantees.” Miller Aff. ¶ 64.
525. Such representations are false. As set forth above, whether operating
as Yellowstone or Delta Bridge, Respondents have for years required each MCA to
be backed by a personal guarantee and collateralized against a vast array of
merchants’ property, far beyond the mere percentage of revenue that Respondents
are purportedly investing in. Supra ¶¶ 383, 386-388.
C. Respondents Falsely Promise Merchants that They Will
Provide More Desirable Financing Terms or Nonexistent
Forms of Financing
526. Respondents, through their Sales Reps and brokers, repeatedly sell
their MCAs to merchants with false promises of future financing in a more
desirable form, such as a line of credit, or with more desirable terms for their MCAs.
In fact, Yellowstone had no such “line of credit” programs. See S. Davis Tr. at
276:14-20; see also McNeil Tr. at 193:9-11 (Delta Bridge provides no products or
services besides MCAs).
527. As one former Yellowstone Funder and Sales Rep explained:
While selling its MCAs, Yellowstone’s sales representatives and
funders, including me, made it a practice to tell merchants that a
Yellowstone MCA—with daily payments at fixed amounts, a short
repayment term, and a high interest rate—was merely an introductory
transaction for new customers. We told merchants that once they
established a history of making payments to Yellowstone, we would
provide them with additional funding with more desirable features, such
as monthly payments, longer repayment terms, and lower interest rates.
Such promises were in my experience false, as Yellowstone had no
practice of providing merchants with subsequent funding with such
features. Instead, when merchants wanted additional funding after an
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initial MCA, we would provide them with a second MCA similar to the
first—with daily payments at fixed amounts, high interest rates, and
short, finite terms.
Miller Aff. ¶¶ 83-85; see also S. Davis Tr. at 135:22-136:11.
528. Numerous merchants experienced such fraud by Respondents’ Sales
Reps and brokers. In November 2018, for example, a merchant emailed
Yellowstone complaining that a broker had sold him a “loan” with Green Capital on
the promise that the merchant would be subsequently provided a “line of credit,”
which Respondents did not provide. Ex. 218; see also, e.g., Bush Aff. ¶ 12 (testimony
from a merchant that a broker working with Yellowstone offered the merchant a
transaction with “lower interest”); Ex. 302 (merchant asking whether tight cash
flow situation would adversely affect “the possibility of a line of credit”).
529. One former Yellowstone and Delta Bridge Funder testified that it was
a common occurrence that brokers “just misinformed them and misled [merchants],”
telling them, “‘[Y]es, just take this, don’t worry about it, and in 30 days I’m going to
get you a consolidation and pay everything off at 3 percent,’ and the merchant will
believe that.” McNeil Tr. at 23:6-13, 24:22-25:2. The Funder admitted that
“Yellowstone had insufficient safeguards to correct for [such] misimpressions about
MCA deals” and observed that “there was no oversight” of brokers’ and in-house
Sales Reps’ sales pitches to merchants. Id. at 24:12-18; accord Aryeh Tr. at 211:18-
213:16.
530. But such misrepresentations were also made by Respondents’ Funders
directly. For example, in September 2017, Respondent Steve Davis sent a merchant
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a letter falsely stating that Yellowstone had “approved [the merchant] with an
extended open line of credit in the amount of $475,000 which can be used as an
additional cash resource for the company.” Ex. 456; see also Ex. 267 at 4
(Yellowstone Funder offering a merchant a new MCA deal and telling merchant
that it “will keep you on a LINE OF CREDIT program”).
531. But as Davis admitted, Yellowstone had no such “line of credit”
programs. S. Davis Tr. at 276:14-20. To the contrary, after a merchant takes out
an initial MCA, the only additional financing Respondents provide is additional
MCAs, typically Refinancing the balance of their existing MCA, thereby charging
usurious interest on top of prior usurious interest and driving merchants into a
downward spiral of debt. See supra ¶¶ 432-444.
532. Respondents have continued this practice of benefitting from the
misrepresentations of its agents since they refashioned themselves as Delta Bridge
in May 2021.
533. David Israel, a merchant who took out an MCA with Delta Bridge, was
offered the MCA by a broker in early 2022 who told him that if he made “three to
four months of on-time payments, . . . then the transaction would convert into an
open line of credit at a lower . . . interest rate.” Israel Aff. ¶ 4 & Ex. D (email from
merchant stating, “We were told to believe that if we signed a contract for an
advance that it would create credibility with your company, and the balance of the
advances would then turn into a line of credit within a couple of weeks.”).
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534. This representation was false. Delta Bridge does not “convert” its
MCAs into lines of credit, as it, like Yellowstone, provides no product or service
aside from its MCAs. See McNeil Tr. at 193:9-11; Dahan Tr. at 148:2-5; A. Davis Tr.
at 56:2-6.
D. Yellowstone Concealed the Fees It Charged to Merchants
535. Respondents concealed from merchants the amounts of their fees and
misrepresented the basis for them while working in the Yellowstone organization.
536. Yellowstone charged merchants an “ACH Program Fee” and a “Bank
Fee” or a “Due Diligence Fee,” but it did not disclose the amounts of those fees to
merchants in their agreements. Instead, Yellowstone’s agreements stated that
these fees would be set at either a fixed amount “or up to 10% of the funded
amount,” or similar language. E.g., Yellowstone 2018 Exemplar at 8 §§ B, C; Ex.
111 at 15 § 3(a) (May 2019 Funderslink agreement); compare, e.g., Ex. 82 at 7
(Capital Advance agreement disclosing “ACH Program Fee” of “$395 or up to 10% of
the funded amount”), with Ex. 319 (funding email for the transaction indicating the
deduction of $7,750 as a “Bank Fee”).
537. Yellowstone typically disclosed the actual amount of those fees to
merchants only orally, during “Funding Calls” (defined supra ¶ 338), after the
merchants had already signed Yellowstone’s agreements. See Bush Aff. ¶ 38;
S. Davis Tr. at 176:5-177:6; Williams Tr. at 175:6-13; Worch Tr. at 148:10-150:3;
Bush Aff. ¶¶ 37-38; see also McNeil Tr. at 96:12-17. As a result, merchants had no
way of determining their fees from Yellowstone’s written agreements and would not
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know such fees until the merchants had already signed them—if at all. See S.
Davis Tr. at 176:22-177:6.
538. In many cases, merchants did not learn of the money that Yellowstone
fraudulently deducted from its advances as “fees” until the merchants received their
advances—and saw that they were not provided in the amounts stated in
Yellowstone’s agreements. E.g., Shahinian Aff. ¶¶ 19-20 (merchant “shocked” when
Yellowstone Capital West provided $186,000 in funding, “not the $200,000 in the
contract”); id. ¶ 18 (Yellowstone Capital West charged merchant “6,000 ‘professional
service’ fee” that was not disclosed in agreement “for reasons that were never
explained”); Alabudi Aff. ¶ 25 (Capital Merchant Services provided funding with “an
unexplained shortfall of $313”); Ostrowski Aff. ¶ 17 (HFH Merchant Funding
Services provided “$26,038 less” in funding than the “$200,000 ‘Purchase Price’”);
id. ¶ 32 (Capital Advance Services provided $276,000 in funding instead of the
stated $300,000); id. ¶ 45 (Capital Advance Services provided $30,442 less in
funding than the stated $575,000 funding amount—in addition to $369,558 in a
misstated prior balance).
539. Yellowstone also misrepresented the basis for its fees, which lacked
any apparent “relationship to any work or service associated with [Yellowstone’s]
lending of money” and which often “seemed to increase with each renewal
transaction.” See Bush Aff. ¶ 40.
540. Yellowstone falsely stated that it charged its “ACH Program Fee”
because “the ACH program is labor intensive and is not an automated process,
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requiring us to charge this fee to cover related costs.” E.g., Yellowstone 2018
Exemplar at 8 § B. In fact, debiting ACH payments at fixed amounts, as
Yellowstone did, is highly automated and required little to no work. See Schwartz
Tr. at 74:13-16; Kern Tr. at 37:6-8; Ehrlich Tr. at 129:24-130:3; Williams Tr. at
167:12-14. Yellowstone did not use the proceeds from ACH Program Fees to
arrange for ACH payments but instead distributed them as additional profit for the
Funders. See Ehrlich Tr. at 142:14-24; Williams Tr. at 168:2-23; see also Ehrlich Tr.
at 138:20-141:22 (discussing “professional service fee” paid to Sales Reps).
541. Similarly, Yellowstone collected money from merchants for so-called
“Bank Fee[s],” Yellowstone 2018 Exemplar at 8 § C, but it did not use such fees in
connection with any banking services. Instead, it divided those amounts between
itself and its Funders as additional profit. See S. Davis Tr. at 156:14-17; McNeil Tr.
at 72:22-73:11. Yellowstone’s Sales Reps typically told merchants, “Don’t worry
about this,” without “explaining that [the bank fee] was just a commission fee.”
Ehrlich Tr. at 141:5-10.
542. Similarly, both Yellowstone and Delta Bridge collected money from
merchants for so-called “Due Diligence Fee[s].” Yellowstone 2020 Exemplar at 17;
Delta Bridge Exemplar at 1. But due diligence was part of the standard
underwriting process for all of Respondents’ transactions with merchants, see
Melnikoff Tr. at 28:16-29:20; Saffer Tr. at 43:6-14; see also supra ¶ 177 (same
underwriting process at Yellowstone and Delta Bridge), and upon information and
belief, the amount of the fee did not vary based on the complexity of underwriting
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the transaction. To the contrary, the amount of the Due Diligence Fee was based
simply “on what was negotiated” between the merchant and the Funder. Kern Tr.
at 41:2-11.
E. Respondents Fraudulently Continued to Debit
Merchants’ Bank Accounts After the Transactions Were
Complete
543. After merchants had fully repaid the Payback Amounts stated in the
Yellowstone agreements, Respondents, while working in the Yellowstone
organization, had a standard practice of fraudulently continuing to debit the Daily
Amounts from merchants’ bank accounts for at least three to five days, and often
much longer. See, e.g., McNeil Tr. at 185:16-186:18; Kern Tr. at 222:8-13. As a
result of the overcollections, Respondents also regularly misrepresented to
merchants the total amounts collected and the remaining balance.
544. Yellowstone management expressly authorized overcollection as a
matter of company policy. For example, in September 2017, Respondent Serebro
emailed an announcement to a group of Funders informing them of a new policy
which permitted them to continue debiting merchants’ bank accounts for up to 51
days after an MCA was fully paid off. Ex. 307 at 2 (informing Funders that
Yellowstone would begin “refund[ing] any overcollection” “by the 20
th
day of the
month following the month in which the deal pays off”). Respondent Stern
forwarded Serebro’s announcement to all Yellowstone Funders the next day. Id. at
1.
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545. Yellowstone had the ability to stop overcollections by automatically
halting the debits as soon as a merchant’s balance reached zero, and management
debated whether to do so as early as 2019, but Respondents Stern and Glass
“overruled” Respondent Reece, who recommended such a policy. Reece Tr. at
166:19-169:20. It was not until July 2020 that Respondents finally ceased its
overcollection practice by automatically “shutting [debits] off at zero.” Stern Tr. at
205:7-206:21; see id. at 192:2-17; Ex. 169 (July 2020 email from Maczuga
announcing new policy).
546. Respondents often justified their overcollections by claiming that they
needed to take an extra three to five days’ worth of payments because it took that
long for the ACH debits “to clear” after being debited from merchants’ bank
accounts. E.g., McNeil Tr. at 185:16-186:18; Kern Tr. at 222:8-13; Ex. 242 at 3; Ex.
179; Bush Aff. ¶ 32 (administrator explained to merchant that MCA was “always 4-
5 payments behind” in tracking payments).
547. Even if Respondents’ “ACH lag time” explanation had been true, it
would not have provided Yellowstone with a basis for overcollection, as Yellowstone
did not disclose its overcollection practice to merchants in its agreements or
otherwise. See generally, e.g., Yellowstone 2020 Exemplar; Yellowstone 2018
Exemplar.
548. Moreover, the risk that one of the final payments would not clear at
the end of the three-to-five-day period provided no logical basis for Respondents to
keep debiting more money: If the risk materialized and a payment failed to clear,
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then presumably the subsequent, excess payments also would not clear. Thus, the
overcollections were not really about mitigating risk—instead, they were about
debiting as many dollars from merchants as Respondents could get away with.
549. But in any event, Respondents’ explanation about its ACH payments
“clear[ing]” was false. In fact, Yellowstone was able to determine from its payment
processors within about two days of payment whether a merchant’s payment had
cleared and had not bounced or been blocked. See Kern Tr. at 221:5-20; Ex. 294.
550. Furthermore, Yellowstone repeatedly overcollected for periods far
longer than even its purported three-to-five-day delay, in some cases running
overcollections into multiple weeks. See Stern Tr. at 203:21-204:3 (acknowledging
that a 15-day overcollection, as shown by Yellowstone’s internal communications,
was “far past any ACH lag time” (discussing Ex. 369 at 5-9)); Melnikoff Tr. at
196:11-22 (discussing MCA where Yellowstone “continued to debit payments for ten
days”).
551. For example, Yellowstone in September 2017 issued an MCA to the
merchant Clifton Ventures through ABC Merchant Solutions, a Yellowstone
Subsidiary, for a “[f]unded” amount of “$70,000 and a “[p]ayback” of $104,300. Ex.
217 at 2. The MCA to Clifton Ventures was funded by “TeamBAD,” id., which was
Respondent Maczuga’s funding group at Yellowstone, see Ex. 54 at 1 (line 26). In
October 2018, an administrator at Yellowstone emailed Maczuga’s funding group
stating that the MCA was “[p]aid off today,” but that Yellowstone was “[l]eaving on”
its debits from the merchants’ bank account “until $23,767.50 overcollected,”
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meaning that Yellowstone would overcollect almost $24,000 on top of its $104,300
Payback Amount. Ex. 217 at 2; see also, e.g., Ex. 369 at 6-7 (Respondents Stern,
Maczuga, and Reece discussing an amount “overcollect[ed] for 15 days,” which
Maczuga explained was the sort of event that “happens daily”); Ex. 175 (showing
overcollected amounts of up to 40% of total collectable amounts); Ex. 401 (showing
overcollected amounts ranging up to 137% of total collectible amounts); Ex. 420 at 6,
12 (showing aggregate amounts “[d]ue to merchants” as a result of “excess
collections on merchant cash advances” of $569,164 in 2018 and $695,559 in 2019);
Exs. 278, 275 (email from merchant pleading with Respondent Maczuga to stop
debiting after the transaction was already paid off).
552. Respondents applied a similar approach to collections on Yellowstone
MCAs whose balances were purportedly transferred to new Yellowstone MCAs
under Refinancing arrangements. See Bush Aff. ¶¶ 31-36; see also supra ¶ 336
(defining Refinancing). Respondents did so by not accounting for merchants’ recent
payments—thereby overstating the unpaid balances that were being transferred to
new “renewal” MCAs, and consequently (1) reducing the net amounts of new
funding that Respondents provided, and (2) charging interest on the artificially
inflated refinancing amount. See id.
553. For example, in issuing a renewal MCA to the merchant JB Plumbing,
through Capital Advance Services, Respondents failed to account for five days of
past payments of $1,699 per day, thereby overstating the merchant’s unpaid
balance by $8,495. See id. ¶¶ 32-33; see also Ostrowski Aff. ¶ 24 (Capital Advance
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Services failed to account for $7,996 in payments when refinancing an HFH
Merchant Services MCA); Ex. 291 (email from Respondent Melnikoff to merchant
stating, “All over collection will be applied to the new deal”); Ex. 223 at 1-2 (email
from merchant to Funder complaining that when issuing a renewal MCA
Yellowstone failed “to return the overdebit amount” from its prior MCA); cf. Ex. 281
at 1 (after Funder retained merchant’s overcollected amount, Sales Rep wrote “This
will force her to get back on the phone with me :) [to sell a new MCA],” to which the
Funder replied, “300k here if she wants it.”).
554. Instead of refunding the overcollected amounts, Yellowstone used them
as a slush fund to charge merchants fees for purported defaults. See Reece Tr. at
166:11-168:9, 169:15-20; Kern Tr. at 222:8-223:4; McNeil Tr. at 187:3-188:13. For
example, Respondents in December 2018 determined that an MCA funded by
Respondent Steve Davis had been overcollected by $4,000. See Ex. 207 at 1.
Respondents Reece and Stern discussed the overcollection with Glass, and Glass
instructed them to “subject Steve’s over collection to usual refund procedure.” Id.
Stern instructed Reece to handle accordingly, telling Reece to “note the amount not
refunded that can be held for bounce fees.” Ex. 206 at 1; see also, e.g., Ex. 452 at 1
(“[A]pply full overcollection toward NSF fee (14x).”); Ex. 259 (July 2018 emails from
Reece to Yellowstone Funders, copying Glass and Stern, setting forth Yellowstone
policy allowing deduction of fees from overcollected amounts).
555. Respondents often fabricated their purported fees in order to claim the
overcollected amounts as extra profit. For example, Respondent Steve Davis
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instructed Yellowstone’s accounting department to deduct $22,680 in fees from an
overcollected amount, then reduced his demand to $14,995 when he was told that
fee requests over $15,000 needed to be substantiated. See Ex. 315. Davis was
asked to confirm that he was “refunding the rest of the balance,” and Davis
responded, “No ill keep it for a while until I decide what to do with it, I don’t refund
defaulting merchants, rather burn it.” Id.; see also Ex. 269 at 1 (Yellowstone staffer
announcing, “WE NOT REFUNDING [sic]” overcollected amount); Ex. 237 at 1
(Yellowstone staffer discussing charging “legal fees” in order to “clean up the
overcollection”).
556. Respondents also kept overcollected amounts to pay off pending
balances and fees from other Yellowstone MCAs with the merchant that were still
outstanding. For example, upon learning that Steve Davis had accumulated “a ton
of overpaid deals,” Glass instructed that Yellowstone retain such overpaid balances
in instances where Yellowstone had “another contract outstanding.” Ex. 377 at 2;
see also, e.g., Ex. 375 at 2 (Maczuga instructing colleague to issue “[n]o refund” of
overcollected amount because of pending balance); Ex. 284 at 1 (Funder taking fees
from overcollected amount based on merchant’s purported default in a prior deal).
557. Yellowstone regularly misrepresented to merchants that they would
refund any overcollected amounts. E.g., Ex. 429 (instructing merchant not to
initiate stop-payment order at its bank during overcollection and representing that
any overcollected amounts would be refunded). Such representations were false, as
Yellowstone regularly retained such amounts unless and until merchants
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repeatedly demanded that they be refunded, and it was “up to the funder’s
discretion whether to refund the merchant.” Ehrlich Tr. at 157:18-23; accord
Williams Tr. at 197:4-10 (“[S]ome [merchants] got over-collected for weeks, some
people got over-collected for months. So it all depends when you’ve [been] found
out, either you’re going to get a call from the merchant or you realized in your books
that you over-collected the money.”).
558. For example, a merchant notified his Yellowstone Funder on
November 20, 2017, that his MCA should be paid off within a few days, and the
Funder informed him that there were instead “8 more payments,” stating, “We
overcollect till the ‘cleared’ balance is zero and the[n] we refund any overcollection.”
Ex. 297 at 2-3. Two weeks later, on December 6, 2017, the merchant contacted the
Funder and asked how long the refund would take, and the Funder replied that it
should come by the end of that week. See id. at 1-2. After yet another week, the
merchant emailed again, complaining, “Mark, it’s been another week. I have to
have these funds back.” Id. at 1. The Funder finally responded to the merchant’s
persistence on December 13, 2017, arranging a refund about three weeks after the
deal was paid off. See id.
559. The Funder’s failure to provide an overcollection absent the merchant’s
persistent requests—if at all—was typical of Respondents’ practices. See, e.g., Ex.
230 (notification to Respondents Aaron Davis, Stern, and Reece from Yellowstone
customer service email that merchant complained she had repeatedly contacted
Yellowstone because “she was overcollected and was told she could get refunded,
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but has yet to see the refund”); Ex. 271 (when Respondent Melnikoff was informed
that “We over collected over 1K on a 12K deal, She’s only asking for $334 (2
payments),” he authorized a $334 refund despite knowing the merchant was
entitled to triple that amount); Ex. 245 (merchant complaining to Respondents
Sanders and Melnikoff, “I . . . wonder if I was not doing my own math and diligently
tracking things myself how much I may have been overcharged past what I agreed
with the loan had I not called attention to the matter."); Ex. 270 at 2 (merchant
complaint to Respondent Sanders that its $1,045 overcharge had not been refunded
despite several requests); Ex. 172 (merchant complaint to Respondent Singfer that
its account was still being debited after being paid off, followed by email one month
later stating that she “was told I would get the rest of my return yesterday and so
far nothing”); Ex. 276 (Funder notified on Apr. 17, 2018 that “merchant has been
waiting for a refund since 4/6/2018 and has contacted lawyers”); Ex. 173 at 2
(merchant complaint to Funder, “Why did I have to ask for it to cause the debits to
stop?”); Ex. 280 (merchant complaint to Funder, “STOP taking my money you have
your money!”); Ex. 178 at 4-5 (merchant complaint to Funders that Yellowstone had
overcollected $19,670 on its “loan”); Ex. 196 at 1 (Funder emailed, “I swear
merchant did not and will not ask about overcollections”).
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IV. DELTA BRIDGE IS THE SAME BUSINESS AS YELLOWSTONE,
CONTINUED BY RESPONDENTS UNDER A DIFFERENT
NAME
560. On Friday, May 21, 2021, Yellowstone stopped entering into new MCA
transactions, transferred virtually all of its assets to Delta Bridge, and focused its
business on winding down its existing MCA relationships.
561. The next business day, Monday, May 24, 2021, Delta Bridge continued
Yellowstone’s MCA business essentially uninterrupted.
562. From its first day in business, Delta Bridge had the benefit of virtually
all of Yellowstone’s personnel, as described below. Infra ¶¶ 572-590.
563. From its first day in business, Delta Bridge also had the benefit of
virtually all of Yellowstone’s assets, as described below. Infra ¶¶ 598-614.
564. Yellowstone transferred some of its assets to Delta Bridge through
Maczuga LLC, a single-member entity managed by Respondent Maczuga. The asset
transfer was effected through two agreements:
• The Asset Purchase Agreement dated May 21, 2021, between
Yellowstone’s parent company Pinnex Capital Holdings, LLC
(“Pinnex”) and Maczuga LLC, Ex. 44 (hereinafter, “APA”); and
• The Software License Agreement dated May 24, 2021, between
Maczuga LLC and Delta Bridge Funding LLC, Ex. 45 (hereinafter,
“SLA”).
565. The APA and the SLA described the subject assets as “software.” APA
Art. I; SLA at 1. This was fraudulent and misleading, as discussed herein, as the
agreements covered assets other than software, APA Ex. 1; SLA Ex. 1, and because
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Yellowstone conveyed virtually all of its assets to Delta Bridge—not just software,
infra ¶¶ 603-615.
566. The APA expressly purported to exclude Pinnex’s liabilities from the
assets transferred. APA § 1.5.
567. The APA stated a purchase price of $120 million, to be paid in daily
installments for 20 years, with a buyout clause providing that the purchase price
could be fully satisfied at any time upon a $25 million lump-sum payment by
Maczuga LLC. APA § 1.4. The SLA contained parallel provisions that made Delta
Bridge the ultimate source of the funds. SLA §§ 3, 5, 6. Together, these provisions
provided that Delta Bridge would become sole owner of the subject assets when the
buyout clause was exercised.
568. Delta Bridge exercised the buyout clause in January 2022. It
ultimately paid approximately $28 million for the Yellowstone assets described in
the agreements. See Maczuga Tr. at 349:18-350:7; Stern Tr. at 173:20-23, 175:4-17;
Glass Tr. at 229:25-230:6.
569. Since the asset transfer, as described below, Delta Bridge has carried
on Yellowstone’s MCA business. Indeed, Delta Bridge is not only carrying on
Yellowstone’s business under its own name, it is also continuing to handle
Yellowstone’s remaining business operations during Yellowstone’s so-called “wind
down” phase—and it is doing so free of charge.
570. As described herein, Yellowstone and its principals engineered the
asset transfer as a strategy to shield them from liability in investigations by the
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NYAG, the Federal Trade Commission (“FTC”), and the New Jersey Attorney
General (together, the “Government Investigations”). Accordingly, and for the
additional reasons that follow, Delta Bridge is Yellowstone’s legal and factual
successor and is liable for Yellowstone’s obligations.
A. The Same People Are Doing the Same Jobs In the Same
Offices
571. At every level of the organization, Delta Bridge’s MCA business is
handled by former Yellowstone individuals.
1. The Same People Are In Charge
572. Delta Bridge’s executive team has been comprised—since inception—
entirely of longtime Yellowstone executives, most of whom hold the same position at
Delta Bridge that they did at Yellowstone. Furthermore, there is material overlap
in ownership of the two entities.
573. Respondent Bart Maczuga is the Chief Executive Officer of Delta
Bridge. See Ex. 51. He held the same role at Yellowstone (together with Isaac
Stern), beginning in February 2019. See Ex. 50. Previously he had been a Funder
at Yellowstone, since 2012. See Ex. 48. Maczuga had a 10% indirect ownership
stake in Yellowstone through his entity Zuga Corp, and has a 55% indirect
ownership stake in Delta Bridge through his entity Maczuga LLC. See Ex. 402; Ex.
52.
574. Respondent Vadim Serebro is the general counsel of Delta Bridge. See
Ex. 51. He has held the same role at Yellowstone since 2018. See Ex. 50; Serebro
Tr. at 20:1-3. Previously he had been an attorney at Yellowstone since 2013. See
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Ex. 50; Serebro Tr. at 19:16-21. Serebro has a 10% indirect ownership stake in
Delta Bridge through his entity VS Ventures LLC. See Ex. 52.
575. Robin Spence is the Chief Financial Officer of Delta Bridge. See Ex.
51. He was the Chief Operating Officer at Yellowstone, beginning in March 2015
when he was recruited to join the company by Reece, Yellowstone’s president. See
Ex. 50; Reece Tr. at 27:17-22. Spence had a 0.8% interest in Yellowstone through
his entity RM Capital, Inc., and has a 5% interest in Delta Bridge through his
entity Dablam LLC. See Ex. 402; Ex. 52.
576. Delta Bridge’s middle management is also comprised—since
inception—entirely of longtime Yellowstone managers and employees. Chris
Clarke, a manager at Delta Bridge, held the same role at Yellowstone since 2010.
See Ex. 51; Ex. 50. Gennadiy Matusevich, also a manager at Delta Bridge, held the
same role at Yellowstone since 2018. See Ex. 51; Ex. 50. Melanie Cook, who started
at Yellowstone in 2019, was promoted from Operations Specialist at Yellowstone to
Operations Manager at Delta Bridge. See Ex. 51; Ex. 50. Renata Kerman, who
started at Yellowstone in 2015, was Corporate Counsel at Yellowstone and was
given the additional title of Chief Compliance Officer at Delta Bridge—a position
that did not exist at Yellowstone since early 2019. See Ex. 51; Ex. 181; Ex. 50;
Serebro Tr. at 44:13-46:12.
577. At inception, even Delta Bridge’s junior employees were exclusively
Yellowstone alumni. Compare Ex. 50 with Ex 51; see also Maczuga Tr. at 297:7-19
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(Flores). Delta Bridge later added three junior “operations specialists,” who are the
only non-Yellowstone individuals at the company. Compare Ex. 50 with Ex. 51.
578. Maczuga, Serebro, and Spence continue to perform services for
Yellowstone, concurrent with their respective roles as CEO, general counsel, and
CFO of Delta Bridge. Infra ¶¶ 642-648. Serebro continues to serve as Yellowstone’s
general counsel, concurrent with his role as general counsel of Delta Bridge. Infra
¶ 647. Most of Delta Bridge’s mid-level and junior employees also continue to
perform services for Yellowstone. Infra ¶ 649.
579. Ultimately, Delta Bridge shed only a few Yellowstone employees. The
only Yellowstone employees who did not transition to Delta Bridge were (1) very
junior staff members, and (2) Stern and Reece, who were expressly excluded as part
of the scheme to avoid liability in the Government Investigations, as discussed
below. Compare Ex. 50 with Ex. 51; see infra ¶ 672. (Three employees of
Yellowstone’s affiliated collections companies simply transitioned to a different
payroll system. See Ex. 50.)
2. The Same People Sell, Underwrite, Service, and
Collect on Delta Bridge MCAs
580. Yellowstone’s Funders—the people who underwrote, negotiated, and
continue to service Yellowstone’s MCA transactions—are now doing the same as
Funders for Delta Bridge.
581. Every single active Yellowstone Funder—except for one—moved over
to Delta Bridge and started funding Delta Bridge MCA deals on the day Delta
Bridge opened for business. Compare Ex. 51 at 2-3 (filter “ifo” = “TRUE”) with Ex.
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48; see also Maczuga Tr. at 341:25-342:5. The lone Funder who did not make the
transition (Josh Weiss) was not a top funder; he too would have been welcome at
Delta Bridge but did not want to pay Delta Bridge’s mandatory fee. See Maczuga
Tr. at 301:12-302:5.
582. Delta Bridge later added a few new Funders, but most of them were
people who had formerly been affiliated with Yellowstone—for example, as Sales
Reps or as underwriters for other Funders. Compare Ex. 51 at 2-3 (filter “ifo” =
“TRUE”) with Ex. 48 (Funders) and Ex. 49 (Sales Reps); see also Ex. 332 at 6
(Papajan); Maczuga Tr. at 246:10-18 (Papajan); Ex. 197 (Ganesh); Ex. 168 (Jara);
Ex. 306 (Rosenzweig). Only two of Delta Bridge’s 44 Funders (Avery Cramer and
David Martin) are individuals who were not previously associated with Yellowstone,
and both of them are minor Funders for Delta Bridge. See Maczuga Tr. at 178:21-
182:7.
583. Delta Bridge and Yellowstone even acted in concert in terminating
their relationships with Funders. Both entities terminated one Funder on the exact
same day in March 2022 (Avi Dahan), and terminated another Funder within two
months of one another in January and March of 2022 (Yehudah Finkelstein). See
Ex. 51 at 2-3; Ex. 48.
584. Every single active Yellowstone Sales Rep—except for one—also moved
over to Delta Bridge and started selling Delta Bridge MCAs on the day Delta Bridge
opened for business. Compare Ex. 51 at 2-3, with Ex. 49; see also Maczuga Tr. at
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340:24-341:15. The lone Sales Rep who did not make the transition was the same
Josh Weiss. See supra ¶ 581.
585. Delta Bridge later added a few Sales Reps, but once again, most of
them were people who had formerly been affiliated with Yellowstone. Compare Ex.
51 at 2-3, with Ex. 49; see also supra ¶ 582 (Papajan, Ganesh, Jara, and
Rosenzweig). Only two of Delta Bridge’s 66 Sales Reps (the same Avery Cramer
and David Martin, see supra ¶ 582) are individuals who were not previously
associated with Yellowstone.
586. Delta Bridge also signed up many of Yellowstone’s former brokers
(known as ISOs) to sell Delta Bridge MCAs. See Maczuga Tr. at 358:23-359:14;
McNeil Tr. at 190:21-191:8; Melnikoff Tr. at 208:20-209:5.
587. When a Delta Bridge MCA defaults, Delta Bridge also uses the same
two collection companies that Yellowstone used, run by Yellowstone (now Delta
Bridge) insiders. Those two collection companies, Max Recovery Group, LLC, and
Regain Group, LLC, “are the only approved collection vendors,” according to Delta
Bridge policies. Ex. 405 at 8; accord Maczuga Tr. at 360:4-361:21.
588. Max Recovery Group is owned and run by Delta Bridge’s General
Counsel, Respondent Vadim Serebro—just it was at Yellowstone. See Maczuga Tr.
at 360:12-21; Serebro Tr. at 68:20-69:17.
589. Regain Group was formerly known as MCA Recovery, LLC, and both
are run by Zachary Chasin. See Maczuga Tr. at 361:4-21. MCA Recovery was at
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one time wholly owned by Yellowstone, and more recently is owned jointly by
Chasin and Arch Capital, one of Glass’s entities. See Ex. 422; Ex. 416.
590. Max Recovery Group, owned and operated by Respondent Serebro, is
continuing to handle collections for Yellowstone MCAs, while concurrently handling
collections for Delta Bridge MCAs. See Serebro Tr. at 68:20-69:8; Ex. 405 at 8; Ex.
143 (handling Yellowstone collections as of January 2022). Likewise, Chasin is
continuing to handle collections for Yellowstone MCAs through MCA Recovery, and
for Delta Bridge MCAs through Regain Group. See Maczuga Tr. at 361:4-21; Ex.
405 at 10; Ex. 140 (handling Yellowstone collections as of April 2022).
3. Respondents and their Personnel Continued to Work
From the Same Locations
591. One of Delta Bridge’s three locations is a Florida office that was
opened by Yellowstone in 2019 or 2020. See Ex. 53 (showing Delta Bridge’s “Tardis”
office location in Fort Lauderdale); Ex. 167 (email to Yellowstone accounting staff
attaching invoice for the “new FL office start-up costs” in August 2020); Ex. 413 (the
attached invoice); Ex. 412 (tax form showing rent payments from Yellowstone to
Tardis in 2019). Tardis Capital Investments, the owner of the property, is owned by
entities controlled by Stern, Glass, and Glass’s girlfriend. See Stern Tr. at 153:6-
154:9, 158:5-25.
592. Delta Bridge’s general counsel, Vadim Serebro, continued to work out
of Yellowstone’s headquarters in Jersey City, which he used for both his Delta
Bridge and Yellowstone work. See Serebro Tr. at 86:10-87:1; Saffer Tr. at 15:11-
16:7. His collections firm, Max Recovery Group, also continued to operate out of the
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same office. See Stern Tr. at 148:15-149:13; Saffer Tr. at 15:11-16:19. Yellowstone
did not charge any rent to Delta Bridge, Serebro, or his collections firm, for use of
the office. See Serebro Tr. at 86:10-87:1; Stern Tr. at 148:15-149:13, 152:20-24. The
other collection company, Regain Group (also known as MCA Recovery), also
continued to work out of the Yellowstone office. See Saffer Tr. at 15:21-17:2; Ex. 150
at 3.
593. Chris Clarke, a manager at Delta Bridge who supervised the
accounting team, also continued to work out of the Yellowstone headquarters in
Jersey City. See Ex. 150 at 3.
594. Many of Delta Bridge’s Funders and Sales Reps also continued to work
out of the Yellowstone headquarters, according to testimony, documents, and
records of the “desk fees” paid to Yellowstone by the Funders. See Saffer Tr. at
13:24-15:10; Ex. 400 (desk fees); Ex. 150 at 3-4; see also Ex. 137 at 5, 7 (May 2022
email from Delta Bridge Funder to merchant that “we are cloudfund,” and
indicating “1 Evertrust Plaza” as his address, i.e., the former Yellowstone office);
Schwartz Tr. at 15:3-16 (Delta Bridge Funder identifying Delta Bridge’s address as
“One Evertrust Plaza, Jersey City”).
595. The desk fee records show that at least eight Funders continued to
work out of the Yellowstone headquarters after switching over to Delta Bridge in
May 2021: Respondents Aaron Davis and Singfer, as well as Alex Chasin, Elliot
Klein, Jim McNeil, Steven Saffer, Michael Schwartz, and Lanny Vaysman. See Ex.
400 (rows 2, 5, 6, 7, 12, 51, 148, 154). At least three more Funders kept their
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Yellowstone desks, but the desk fee records do not indicate they were ever charged
for the space. See Ex. 164 (Avi Dahan); Ex. 165 (Mitchell Cohen); Ex. 166 (Leor
Friedman and Sales Rep Rowland Ezekiel). At least five Funders continued to work
out of the Yellowstone headquarters all the way until December 2022, when
Yellowstone gave up its lease: Respondent Singfer, as well as Alex Chasin, Elliot
Klein, Jim McNeil, and Steven Saffer. See Ex. 400 (rows 2, 5, 6, 7, 12); see also
Stern Tr. at 136:13-18, 149:4-8 (lease termination).
596. Yellowstone Funders who worked from other locations, or from home,
continue to work from those locations as Funders for Delta Bridge. E.g., Melnikoff
Tr. at 17:3-6, 41:14-22.
B. Delta Bridge Succeeded to Virtually All of Yellowstone’s
Assets In the So-Called “Purchase of Software”
597. From inception, Delta Bridge had the benefit of virtually all of
Yellowstone’s assets—even though the transaction between the two entities was
purportedly limited to “software.”
1. The Transition to Delta Bridge Was Fraudulently
Disguised as a Sale of Software
598. The transition from Yellowstone to Delta Bridge was effected through
the APA between Pinnex and Maczuga LLC, and the SLA between Maczuga LLC
and Delta Bridge. Supra ¶ 564.
599. The APA itself described the transaction as a “Purchase of Software”
by Maczuga LLC from Pinnex, the Yellowstone holding company. APA Art. I. The
software that was included in the purchase was Yellowstone’s two proprietary
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customer relationship management (CRM) systems, Panther and Jasper. APA Ex.
1.
600. However, as Respondent Glass admitted in testimony, “If you just look
at [the transaction] as software, you’re not understanding the relationship.” Tr. of
Test. of David Glass (“Glass Strike Tr.”) at 987:1-3, Strike PCH, LLC v. Stern, July
21-22, 2021, Ex. 10.
13
601. Indeed, an exhibit buried at the end of the APA made clear that the
transaction was not limited to “software,” but included all “electronically stored
information used by Pinnex to support all revenue-generating aspects of its
business.” APA Ex. 1. The electronically stored information included, among other
things, valuable information about Yellowstone merchants including their contact
information, payment histories, defaults, and prior submissions. See Maczuga Tr.
at 333:12-17, 334:11-14, 344:16-24.
602. The transaction also included an agreement from Respondent Isaac
Stern not to compete with Delta Bridge (the “Stern Noncompete”). Ex. 46; APA
§ 1.3 (identifying the Stern Noncompete as a “Closing Deliverable[]”). But Glass
admitted that Stern was for all practical purposes barred from the MCA industry
13
The Glass Strike Transcript consists of testimony by Respondent Glass, under
oath, before an arbitral tribunal in an arbitration against Respondent Stern by
Strike PCH, an indirect minority owner of Yellowstone’s holding company, Pinnex.
Strike Tr. at 561:8-12 (Glass sworn in), 897:5-10. In that proceeding, Glass was
Stern’s designated representative to testify in his stead and on his behalf. Id. at
754:19-755:16, 842:11-25. Stern was present in the room for Glass’s testimony. Id.
at 559:5, 677:22-24, 689:20-21, 892:5, 990:13-19. The testimony took place on July
21 and 22, 2021.
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anyway, as long as the Government Investigations of Yellowstone (and Stern) were
ongoing, and so the Stern Noncompete was “worth absolutely zero.” Glass Tr. at
235:16-236:7.
2. Delta Bridge in Fact Succeeded to Virtually All of
Yellowstone’s Assets
603. In reality, Delta Bridge succeeded to far more Yellowstone assets than
those described in the APA (the software, the Stern Noncompete, and the
electronically stored information).
604. Furthermore, Delta Bridge succeeded to Yellowstone’s other assets for
free, and without formalizing the transfer in any agreement. See Maczuga Tr. at
345:21-347:16 (confirming that Delta Bridge and Maczuga LLC did not “pay for any
assets or opportunities that weren’t included in the APA” and that “[t]he only
payments were made for the software”).
605. Delta Bridge succeeded to virtually all of Yellowstone’s relationships
with the people who sell, underwrite, negotiate, service, and collect on their MCA
agreements with merchants: the Funders, Sales Reps, ISOs, and collection
companies. See supra ¶¶ 580-590. According to Glass, these relationships
embodied the “true value” of Yellowstone, and they were transferred to Delta
Bridge. Glass Strike Tr. at 739:14-17; accord Glass Strike Tr. at 872:4-9 (“The
value here is the [Funders]. Okay? 50 [Funders] that, combined, have 300 years of
experience engaging in merchant cash advance; they know what they’re doing.
That’s the value.”).
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606. Respondent Maczuga testified that the transfer of these relationships
was “not really . . . on paper, but it was assumed that . . . that was part of the sale.”
Maczuga Tr. at 333:18-22, 340:24-342:9; accord Glass Strike Tr. at 987:4-7 (“What
we essentially did was we said, ‘We’re going to allow you to poach our 50 [Funders].
We’re going to lean them your way.’”).
607. By succeeding to Yellowstone’s merchant data, supra ¶ 601; infra
¶ 625, and its relationships with the people who interacted with the merchants—
that is, Funders, Sales Reps, and ISOs, supra ¶ 605—Delta Bridge also succeeded to
virtually all of Yellowstone’s merchant relationships (including valuable
opportunities to renew or Refinance), as well as the sales channels that connected
Yellowstone to new prospective merchants. See Maczuga Tr. at 344:16-345:20;
Dahan Tr. at 146:22-147:25; A. Davis Tr. at 53:21-25; McNeil Tr. at 190:21-191:8,
192:7-15; Melnikoff Tr. at 208:20-209:5. One former Yellowstone and Delta Bridge
Funder explained that it was “the same reps who handled the same ISO shops so
the deals still kept coming in to Delta Bridge just as they did previously with
[Yellowstone].” McNeil Tr. at 190:21-191:8.
608. Indeed, when Delta Bridge started, most of the merchants it sold
MCAs to were businesses that had a prior relationship with Yellowstone or came
through sales channels established at Yellowstone. See Maczuga Tr. at 352:18-23;
McNeil Tr. at 191:20-192:15, 192:7-15.
609. Delta Bridge also succeeded to Yellowstone’s intellectual property,
including, among other things: the form MCA contracts that Yellowstone used with
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its merchants, which it created and updated continually over time; the rules and
policies that governed Yellowstone’s internal and external business practices; and
various forms and instruction manuals. See Maczuga Tr. at 343:15-344:15; see also
McNeil Tr. at 26:11-20.
610. Delta Bridge also succeeded to the various internet domain names and
email accounts that Yellowstone created for Funders and Sales Reps to use for their
communications, including communications with merchants and brokers. See
Maczuga Tr. at 342:10-14; A. Davis Tr. at 35:21-37:16; Melnikoff Tr. at 55:3-10,
66:23-24; Singfer Tr. at 42:12-16. The unique domain names and email addresses
used by the Funders and Sales Reps were created and previously owned and
managed by Yellowstone and are now owned and managed by Delta Bridge. See
Maczuga Tr. at 342:10-14; A. Davis Tr. at 35:21-37:16, 40:13, 41:6; Kern Tr. at 26:9-
15; Melnikoff Tr. at 56:5-8; Saffer Tr. at 68:3-14; Singfer Tr. at 42:12-16. The
domains and email addresses are valuable because they are an important means of
communication among everyone in the sales channel, including Funders, Sales
Reps, brokers, and merchants. See A. Davis Tr. at 40:8-24 (“If I had to continue
doing what I was doing and change my e-mail and people that knew my new
address couldn’t contact me at my previous e-mail address it would matter, yes.”).
611. Although Delta Bridge succeeded to virtually all of Yellowstone’s
assets, the only assets it actually paid for were the software and the electronically
stored information. There is no agreement memorializing the transfer of the other
assets, which Delta Bridge did not pay for. See Maczuga Tr. at 345:21-347:16. Even
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the Stern Noncompete (which was worthless in any case) was not part of the
purchase price under the terms of the APA, and it was not mentioned in the SLA at
all. See APA § 1.4 (“Purchase Price Consideration”); see generally SLA.
612. In testimony, members of Yellowstone management were able to
identify only one significant asset that Yellowstone retained following the APA: the
right to receive payments from merchants with existing Yellowstone MCAs that
were still pending at the time of the sale. See Reece Tr. at 97:11-14, 102:14-18;
accord Maczuga Tr. at 336:16-25 (also identifying office equipment as excluded from
the sale); Glass Tr. at 233:19-24 (same).
613. Even that lone asset purportedly retained by Yellowstone has largely
been acquired by Delta Bridge over time, as Delta Bridge and its Funders have
Refinanced old Yellowstone deals at Delta Bridge. See Ex. 160 (email notification
generated by Delta Bridge instructing Funder: “[Merchant] has an active balance
with Fundry. . . . All Fundry balances must be paid off by Delta Bridge when
renewing.”); Ex. 330 (Aug. 2022 text from Spence to Yellowstone management
reporting a “$260k refi from Delta”); Dahan Tr. at 146:22-147:25; A. Davis Tr. at
55:3-11; McNeil Tr. at 191:17-19; Melnikoff Tr. at 209:5-10; see supra ¶ 336
(defining Refinancing). In testimony, Maczuga described this as “paying off the
Fundry platform, and moving [a deal] onto the Delta platform.” Maczuga Tr. at
283:12-14.
614. In each Refinancing, Yellowstone merchants signed a new MCA
agreement with Delta Bridge, and Delta Bridge deducted the merchant’s remaining
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Yellowstone balance from the Funding Amount on the new Delta Bridge deal. See
Maczuga Tr. at 353:15-355:5; see, e.g., Ex. 60 at 1, 16 (Cloudfund contract and
addendum deducting $85,973.25 to pay off the balance to Green Capital Funding,
the Yellowstone Subsidiary); see supra ¶ 336 (defining Refinancing). At the same
time, Delta Bridge made a direct payment to Yellowstone, amounting to the
remaining balance on the merchant’s Yellowstone MCA. See Maczuga Tr. at
353:15-356:4. As a result of the Refinancing, Yellowstone was paid in full and
relieved of the risk of nonpayment by the merchant; that risk was transferred from
Yellowstone to Delta Bridge. See Maczuga Tr. at 356:5-12; see, e.g. Ex. 344 at 4-5
(Maczuga texting Stern, Glass, and Reece about $750,000 loss incurred by Delta
Bridge due to a merchant’s default shortly after Refinancing at Delta Bridge and
paying the merchant’s $403,000 balance with Yellowstone).
615. During his testimony, Respondent Maczuga was unable to provide any
non-privileged reason that Delta Bridge purchased only certain assets from
Yellowstone, rather than purchase the company outright. See Maczuga Tr. at
337:2-338:4; accord Reece Tr. at 103:15-21 (“I don’t know why it wasn’t sold as a full
business as opposed to assets.”). When pressed, Maczuga claimed that he was just
not interested in acquiring the right to receive payments from merchants with
existing Yellowstone MCAs that were still pending, because “[t]he price would be
significantly different.” Maczuga Tr. at 338:5-18. But Maczuga never even explored
what the additional cost would have been, or whether it would have been offset by
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the immediate stream of revenue to Delta Bridge that would have come with the
right to receive the payments. See Maczuga Tr. at 338:5-340:21.
C. Delta Bridge Is Yellowstone—Minus the “Baggage” of the
Investigations
616. Having succeeded to virtually all of Yellowstone’s assets, Delta Bridge
is now continuing the same business that Respondents ran under the Yellowstone
name for more than a decade. Indeed, not only is Delta Bridge continuing
Yellowstone’s business under the Delta Bridge name, it is also handling the
remaining business operations for Yellowstone itself, and doing so free of charge.
617. As Respondent Glass testified, referring to Delta Bridge: “[T]he
company goes on without us.” Glass Strike Tr. at 738:11-12; accord Glass Strike Tr.
at 740:13-17 (Q: “And so in effect, if I understand it, the business goes on as it was
before, minus the three of you?” Glass: “That’s correct.”); id. at 739:25-740:3 (“[W]e
sold the software and Isaac’s agreement to not compete to Delta Bridge, and they
continued without us.”). Glass described Delta Bridge as “a new company without
the baggage”—meaning the individual targets of the Government Investigations.
Glass Strike Tr. at 737:1-21.
618. One Funder described it in testimony as “a seamless transition” to
Delta Bridge. A. Davis Tr. at 50:3-4. Another was unable to identify any
differences from Yellowstone, when he started at Delta Bridge. See Singfer Tr. at
41:9-18. At least one Funder described the transition as a “rebrand[]” when
questioned by a confused merchant. Ex. 147 at 5-6.
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619. Pitching a prospective investor, Stern wrote: “The company is
technically a start up[.] But between us would instantly be profitable,” noting that
it would have “[m]y entire team” plus all of Yellowstone’s assets apart from the
existing MCA deals. Ex. 351 at 1, 5.
620. Delta Bridge continues to gratuitously protect Yellowstone’s interests,
including by not allowing Funders to enter into deals with any merchant who has a
pending balance with Yellowstone unless the new deal pays off the Yellowstone
balance. See Ex. 333 (Delta Bridge employee assuring Glass in May 2022 that
“there are rules in place, you have to either settle or refi the balance at fundry to
fund at delta”). Delta Bridge also has an arrangement with Yellowstone that
protects Yellowstone from the financial impact of negative balances in Funders’
Yellowstone portfolios. See Maczuga Tr. at 291:6-23 (“I made an agreement with
Fundry that if [a Funder’s book] ends negative at Fundry, we will send the
difference from Delta.”) (testifying about Ex. 341).
621. Delta Bridge has even asserted Yellowstone’s attorney-client privilege
as a basis for withholding documents in the NYAG’s investigation. See Ex. 459 at
11 (privilege log - emails) (rows 316-331); id. at 15 (privilege log - mobile) (rows 10,
13-14, 17-22). And Yellowstone has produced to the NYAG numerous internal Delta
Bridge documents, e.g., Ex. 142 (“borrowing base report” email sent Mar. 2022 from
dbfreporting@gmail.com to Spence, Maczuga, and Delta Bridge’s main investor); Ex.
155 (“RE: CloudFund LLC Monthly Reconciliation”), and vice versa, e.g., Ex. 163
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(June 2021 email from Reece to Stern, vendors@fundrycap.com, and
funders@fundrycap.com).
1. Delta Bridge’s Business Is the Same as Yellowstone’s
622. The next business day after Yellowstone stopped entering into new
MCA transactions, Delta Bridge began entering into MCA transactions, picking up
right where Yellowstone left off. See, e.g., Ex. 107 (Cloudfund agreement dated
Monday, May 24, 2021, Delta Bridge’s first day in business); Ex. 114 (Yellowstone
Subsidiary agreement dated Friday, May 21, 2021, the day Yellowstone stopped
entering into new MCA transactions).
623. Virtually all of the individuals selling, negotiating, servicing, and
staffing Delta Bridge MCA deals were the same as the individuals who were
performing those functions at Yellowstone. See supra ¶¶ 572-590.
624. In their work on Delta Bridge MCAs, all of those individuals were
using the same CRM software as they had been using in their work on Yellowstone
MCAs: Jasper, which was renamed for a different gemstone, Citrine; and Panther,
which was renamed Bobcat, another large feline. See Maczuga Tr. at 363:21-364:12;
McNeil Tr. at 26:23-27:17 (“They’re very similar, yes.”); see also A. Davis Tr. at
52:22-53:4 (“They’re the same.”); Singfer Tr. at 51:4-12.
625. Those individuals also retained access to the original Yellowstone
systems (Panther and Jasper) where they had access to valuable data about prior
deals, such as payoff histories, defaults, and submissions. See supra ¶ 601; Aryeh
Tr. at 126:16-25; McNeil Tr. at 53:20-25; Singfer Tr. at 44:3-7; see, e.g., Ex. 160
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(email notification generated by Bobcat submitting prospective deal to Delta Bridge
Funder, including the merchant’s Yellowstone deal history); Worch Tr. at 65:19-66:6
(testifying about Ex. 160). More broadly, Delta Bridge had the benefit of all of the
“electronically stored information used by Pinnex to support all revenue-generating
aspects of its business.” APA Ex. 1.
626. Funders at Delta Bridge have the same responsibilities as they had at
Yellowstone, and the process they use in funding deals is the same. See Maczuga
Tr. at 79:19-25; A. Davis Tr. at 31:25-32:13; Saffer Tr. at 39:4-41:11; Ex. 350 at 6
(Glass texting, the night before Delta Bridge opened for business, “Is it harder to
fund than before?” and Maczuga assuring him, “No, it’s the same process.”).
627. According to testimony from Funder Respondents and Delta Bridge’s
CEO, Funders use the same methods to underwrite and price Delta Bridge MCA
deals that they used to underwrite and price Yellowstone MCA deals. See Maczuga
Tr. at 362:12-24; A. Davis Tr. at 51:22-52:12, 53:6-13, 78:4-8; Kern Tr. at 178:21-
179:3; Melnikoff Tr. at 210:4-18; Dahan Tr. at 145:25-146:2; McNeil Tr. at 190:11-
15; Singfer Tr. at 44:11-46:21.
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628. Accordingly, there was no change whatsoever in how Specified
Percentages were set on MCA contracts before and after the May 24, 2021,
transition from Yellowstone to Delta Bridge, as reflected in this bar graph.
Rubey Figures Aff. Ex. 1. This bar graph shows the proportion of Respondents’
MCA agreements stating a given Specified Percentage, for each month since
January 2019. The vertical dashed line in May 2021 indicates the transition from
Yellowstone to Delta Bridge. The bar graph reflects that the transition from
Yellowstone to Delta Bridge did not result in any material change in the proportion
of MCA agreements stating a given Specified Percentage. Id.
629. Delta Bridge did not provide any additional training or instruction
when Funders transitioned from Yellowstone to Delta Bridge. See Maczuga Tr. at
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157:11-22 (no additional training for Funders), 362:25-363:5 (same, concerning
underwriting specifically); A. Davis Tr. at 50:5-8; see also Maczuga Tr. at 155:17-
156:5 (no training on how to set the Specified Percentage or the Daily Amount
because the Funders already “had experience in the industry”—meaning at
Yellowstone).
630. Funders at Delta Bridge are compensated in the same way they were
compensated at Yellowstone: through the PNL system, described above. See
Maczuga Tr. at 221:3-222:18; Ex. 349 at 1 (Maczuga texting Respondent Singfer:
“Funding limit, commission structure, all that stuff will be unchanged.”); Ex. 348
(same text to another Funder); Singfer Tr. at 40:14-41:18 (testifying about Ex. 349
at 1); supra ¶¶ 289-292, 295 (describing PNL system).
631. The sales process is also the same at Delta Bridge as it was at
Yellowstone. See Maczuga Tr. at 81:2-17; Aryeh Tr. at 128:23-129:15. Delta Bridge
also leverages the sales channels established during the Yellowstone period,
wherein merchants were signed up for MCAs through relationships among brokers,
Sales Reps, and Funders. Supra ¶ 607; see also supra ¶ 608 (explaining that when
Delta Bridge started, a substantial portion of its business was with merchants that
had a prior relationship with Yellowstone).
632. Delta Bridge did not alert merchants about the switch from
Yellowstone to Delta Bridge, even when merchants with an existing Yellowstone
MCA Refinanced the Yellowstone MCA at Delta Bridge. See Maczuga Tr. at 357:7-
358:21. The Funder or Sales Rep would simply treat it as a normal Refinancing; the
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only differences were that the merchant received a Cloudfund-branded MCA
contract, instead of a Yellowstone one, and the contract included an addendum
authorizing payoff of the balance to Yellowstone. Id.
633. For example, the merchant Anchor Smokehouse expressed surprise to
receive an email “from cloudfund” when she was negotiating a Refinancing of her
Yellowstone MCA in January 2022. Ex. 147 at 6 . In reply, the Funder explained
that “we rebranded since your last funding.” Id. at 5.
634. Delta Bridge also did not alert the ISOs that brokered its MCA
transactions about the switch from Yellowstone to Delta Bridge, except insofar as it
was necessary to onboard them to the Delta Bridge system. See Maczuga Tr. at
358:23-359:14. ISOs working with Yellowstone and Delta Bridge understood them
to be one and the same. See Ex. 157 at 5 (email from ISO to Respondent Serebro
stating, “Everyone on your end is in cohoots [sic] and NO ONE can get a straight or
honest answer from YS [Yellowstone], Delta [Bridge], Cloud[fund], Green [Capital]
or whatever the heck you call yourselves.”).
635. The parties to both the APA and the SLA—Delta Bridge, Pinnex, and
Maczuga LLC—all agreed not to make any public announcement concerning the
transition at all, absent the consent of the others. See APA § 4.3; SLA § 12. In fact,
no public announcement concerning Delta Bridge’s launch was ever made. See
Maczuga Tr. at 359:16-20.
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2. Delta Bridge Employees and Funders Are Also
Handling the So-Called “Wind-Down” of
Yellowstone’s Business
636. Shorn of its assets, Yellowstone is now essentially a shell.
Yellowstone’s president testified that the only purpose of Yellowstone’s continued
existence—and the only thing standing in the way of dissolution—is resolution of
the outstanding litigations. See Reece Tr. at 40:15-24 (“[N]ow that the business has
been shut down for a number of years and once litigation is done, then we’ll make a
final distribution, should there be one, and then we will permanently close the
business.”).
637. Without any assets or personnel of its own, Yellowstone’s few
remaining business operations have all been handled by Delta Bridge employees
(i.e., the former Yellowstone employees). See Maczuga Tr. at 300:21-301:9; Stern
Tr. at 147:10-148:14. Many of these Delta Bridge employees still use Yellowstone
email addresses for that purpose. See Maczuga Tr. at 303:4-8.
638. All of Delta Bridge’s top executives and middle management have
continued to perform services for Yellowstone since the transition to Delta Bridge.
See Maczuga Tr. at 294:4-297:2 (testifying about Ex. 51). In total, at least 14 of
Delta Bridge’s 25 employees continued to perform services for Yellowstone. See id.
639. Delta Bridge and its employees have provided these services for
Yellowstone without pay. See Maczuga Tr. at 279:19-22, 280:13-21, 283:17-284:5,
298:22-299:6. Rather, Delta Bridge and its employees have provided services to
Yellowstone “gratuitously,” on a “volunteer[]” basis. Maczuga Tr. at 352:2-12; see
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also Stern Tr. at 135:8-16 (testifying that Serebro is serving as Yellowstone’s
general counsel without pay); Serebro Tr. at 85:22-86:1 (same); Glass Strike Tr. at
741:21-742:5 (Glass testifying about Spence: “I could call him. I can ask him
questions. He’s not contractually obligated to answer them, but he will.”).
640. The APA between Pinnex and Maczuga LLC expressly provided that
Maczuga would “cause [Delta Bridge’s holding company] to provide to [Pinnex]
reasonably requested services employing the Software for the purpose of winding-
down [Pinnex’s] affairs.” APA § 4.1 (“Further Assurances”). The SLA, to which
Delta Bridge was itself a party, did not include any obligation to provide wind-down
services to Pinnex. See generally SLA; see also id. § 11(a).
641. Delta Bridge employees have continued to provide services to
Yellowstone long after Delta Bridge terminated the continuing obligations between
the two companies by exercising the buyout clause in the APA and SLA. See
Maczuga Tr. at 351:7-352:7 (“It wasn’t written anywhere. It was just something
that I promised them and made a vow to Isaac that I would help him wind down
[Yellowstone]. . . . I volunteered myself and others.”); see also Stern Tr. at 186:6-16
(testifying that the parties’ obligations to one another were completed as of the
buyout).
642. As Yellowstone wound down its existing MCA relationships,
Respondent Maczuga, the Delta Bridge CEO, was actively monitoring Yellowstone
activity within the Yellowstone system, looking for irregularities to address or to
bring to the attention of other members of Yellowstone management. See Maczuga
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Tr. at 36:13-17, 287:5-15, 289:2-290:4. In doing so, Maczuga continued his duties as
Yellowstone co-CEO prior to the transition. See id.
643. For example, in April 2022, Maczuga learned (from a Delta Bridge
employee doing Yellowstone work) that certain Funders were seeking to withdraw
funds from their residual Yellowstone portfolios before certain debits had been
deducted. See Maczuga Tr. at 284:15-287:15 (testifying about Ex. 336). Concerned
that Funders might end up withdrawing more funds from Yellowstone than they
were entitled to, Maczuga directed the employee not to process any withdrawals
until the debits were processed. See id. These discussions occurred in a group chat
that included Yellowstone management—Respondents Stern, Glass and Reece—but
it was Maczuga who gave the direction to hold the payments. Id.
644. Stern, Yellowstone’s CEO, testified that when he needs information
about a Funder’s residual Yellowstone portfolio, he gets it from the Delta Bridge
CEO: “If I needed something on a specific funder, I’d say, ‘Hey, Bart, can you—can
you get me so-and-so report[?]’ [H]e would know how to access it. I actually have
no idea how to.” Stern Tr. at 131:6-22; see also Stern Tr. at 129:16-25.
645. Spence, the Delta Bridge CFO, is responsible for sending monthly
financials to Yellowstone stakeholders including Glass. See Glass Strike Tr. at
743:12-13. Spence also continues to generate and send the monthly PNLs to
Funders for their remaining Yellowstone deals, as well as for their Delta Bridge
deals. See Maczuga Tr. at 273:13-275:22; Yagecic II Tr. at 85:7-13; see, e.g., Ex. 453
(Jan. 2023 email from Spence to Funder); see also Worch Tr. at 87:12-14 (this was
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Spence’s job at Yellowstone too). Spence and another Delta Bridge employee
continue to handle Yellowstone’s remaining accounting needs. See Stern Tr. at
60:13-61:6, 129:19-23.
646. When Yellowstone’s management—including Stern, Glass, and
Reece—require financial information about Yellowstone, Spence is still the one they
go to. See Reece Tr. at 131:3-17; Glass Strike Tr. at 741:21-742:5; Stern Tr. at
131:9-14. Glass testified that Spence “is at my disposal.” Glass Strike Tr. at
741:21-742:5.
647. Likewise, Serebro, the Delta Bridge general counsel, handles legal
matters for Yellowstone in his concurrent role as its general counsel. See Maczuga
Tr. at 280:13-16, 280:25-281:9; Stern Tr. at 17:8-16, 129:19-23, 135:8-11. Stern
testified that he spoke with Serebro “half a dozen times” when preparing for his
testimony in the NYAG’s investigation. Stern Tr. at 18:8-10.
648. Since transitioning to Delta Bridge, Spence and Serebro have spent as
much as 25% of their time working on residual Yellowstone matters, see Maczuga
Tr. at 281:10-21, and Maczuga has spent as much of 20% of his time on Yellowstone
matters, see id. at 293:3-16, although their work for Yellowstone has diminished
over time.
649. In addition to the executives, Delta Bridge’s mid-level and junior
employees have also performed services for Yellowstone. See Maczuga Tr. at 294:4-
297:2 (testifying about Ex. 51); Stern Tr. at 132:16-133:16, 194:18-195:4; see, e.g.,
Ex. 136 (May 2022 email from Delta Bridge employee, sending Yellowstone daily
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cash report to Yellowstone management, including Stern, Reece, and Maczuga); Ex.
138 (same); Ex. 330 (Delta Bridge employees sending Yellowstone financials to
Yellowstone management in an Aug. 2022 groupchat); Ex. 336 (same, in Apr. 2022);
Ex. 132 (identical, simultaneous emails to Funder sent by manager in her
Yellowstone and Delta Bridge capacities). One junior Delta Bridge employee has
continued to perform services as a personal assistant to Respondent Stern, the
Yellowstone CEO, as she had done prior to the transition. See Maczuga Tr. at
297:20-298:21.
650. None of the Delta Bridge employees, including Maczuga, Spence, and
Serebro, have been compensated by Yellowstone—or by Delta Bridge—for the
services they have provided to Yellowstone. See Maczuga Tr. at 279:19-22, 280:13-
21, 298:22-299:6; Stern Tr. at 133:25-134:6. Likewise, Delta Bridge itself has not
been compensated by Yellowstone for the services that its CEO, CFO, General
Counsel, and other employees, have provided to Yellowstone, even though Delta
Bridge pays each of the executives an annual salary ranging from $475,000 to
$950,000. See Maczuga Tr. at 283:17-284:5, 300:11-20.
651. Since the transition, Delta Bridge Funders have continued to service
their remaining Yellowstone MCA deals while concurrently negotiating and
servicing MCA deals at Delta Bridge. See Stern Tr. at 151:8-12; Maczuga Tr. at
341:21-342:5; A. Davis Tr. at 56:7-13; 36:8-37:14; Saffer Tr. at 70:20-71:22. There
are no differences in how Funders service their Yellowstone and Delta Bridge deals.
See A. Davis Tr. at 56:7-13.
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D. Yellowstone Transferred Its Assets to Shield Them from
Potential Liability Resulting from the Government
Investigations
652. Yellowstone transferred its assets to Delta Bridge at a time when it
was facing potentially staggering liabilities in the NYAG and other Government
Investigations. Infra ¶¶ 654-655. In addition, Yellowstone’s primary lender was
threatening to foreclose its loan as a result of the Government Investigations, and
efforts by Yellowstone’s management to find replacement financing were met with
rejection due to concern about liability in the investigations. Infra ¶¶ 658-661.
653. In that context, Yellowstone’s management devised a plan to transfer
virtually all of its assets to an insider, Maczuga, while retaining “the baggage” of
the Government Investigations. Glass Strike Tr. at 737:1-21; infra ¶¶ 663-666.
Yellowstone’s management—and Delta Bridge’s management, which was largely
the same—believed the plan would allow Yellowstone’s MCA business to “grow free
and clear” of the “legacy legal issues” that Yellowstone was facing. Infra ¶¶ 665-
666.
1. Yellowstone Recognized at the Time of the Asset
Transfer that the Investigations Presented Grave
Liabilities
654. At the time that Yellowstone transferred its assets to Delta Bridge,
Yellowstone was under investigation by the NYAG, and faced a threat of colossal
monetary liabilities. Respondent Glass estimated in February 2020 that
Respondents would have to pay back around $2 billion if Yellowstone’s MCAs were
determined to be loans. See Ex. 359 at 2 (Glass text to Respondents Maczuga and
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Stern and a Funder: “If the merchant’s right to reconciliation is a sham then the
product is a loan. And we’d be over the usu[r]y cap and would have to pay back
around 2 billion dollars.”).
655. At the time of the asset transfer, Yellowstone had also recently been
sued by the State of New Jersey, which claimed that Yellowstone’s MCAs were in
fact usurious loans. Complaint ¶ 168(a), Grewal v. Yellowstone Capital LLC et al.,
No. C-000180-20 (N.J. Super. Ct. Ch. Div. Dec. 8, 2020). And it had just resolved
(less than one month prior) a lawsuit by the FTC, incurring a liability of $9,837,000
to the FTC. Stipulated Order for Permanent Injunction and Monetary Judgment,
FTC v. Yellowstone Capital LLC et al., No. 20-cv-06023-LAK (S.D.N.Y. May 4,
2021), ECF No. 44.
656. Yellowstone was also facing myriad civil litigations by former
merchants and business partners, including Respondent Davis. See, e.g., New Y-
Capp v. Arch Cap. Funding, LLC, No. 18-CV-3223 (ALC), 2022 WL 4813962, at *4-5
(S.D.N.Y. Sept. 30, 2022); Complaint, Caporly LLC v. Pinnex Capital Holdings LLC,
Doc. No. 1 (Del. Ch. Apr. 16, 2021) (suit by Respondent Davis).
657. During the time that the asset transfer from Yellowstone to Delta
Bridge was being negotiated, Yellowstone was also confronting financial calamity.
The company was approaching insolvency, according to Glass. See Glass Strike Tr.
at 591:7-20 (Glass testifying two months after the APA was signed: “So . . . today’s
valuation, the company is worth pretty close to zero. All the company has left right
now is the receivables that it’s collecting versus the money that it still owes [to its
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primary lender].”); accord Glass Strike Tr. at 737:22-25; see also id. at 755:13-16,
842:22-25 (“I feel and [Stern] felt that nobody is in a better position to speak to the
current value of the company . . . than I am.”).
658. More urgently, Pinnex’s primary lender—a credit facility called
YESCO—was threatening to foreclose on its loan to Pinnex (Yellowstone’s holding
company) and had given Stern a foreclosure deadline of April 7, 2021. See Glass
Strike Tr. at 750:17-25; Maczuga Tr. at 315:15-316:14. YESCO had earlier
informed Stern that it would not lend Yellowstone any additional funds because
“[t]hey are concerned that they will get stuck holding the bag for [the] FTC.” Ex.
353 at 4.
659. Stern was able to buy some additional time and avoid foreclosure by
signing a personal guarantee for more than $70 million in order “to prevent the
company from collapsing.” Glass Strike Tr. at 750:17-751:11.
2. The Asset Transfer Was Motivated by Yellowstone’s
Liabilities
660. The impending loss of Yellowstone’s credit line left it with limited
options: It could find new lenders or investors, or it could sell the company. See
Maczuga Tr. at 306:6-13, 310:21-311:2; Glass Strike Tr. at 737:22-25, 930:12-22.
Yellowstone’s management expended significant efforts pursuing these options. See
Maczuga Tr. at 306:6-307:2; Glass Strike Tr. at 737:6-15; Glass Tr. at 235:9-236:13;
Reece Tr. at 126:22-127:3; Stern Tr. at 163:19-164:10.
661. But Yellowstone’s management found that Yellowstone’s potential
liability in the ongoing Government Investigations and lawsuits was an
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insurmountable obstacle for the prospective lenders, investors, and buyers they
approached. See Maczuga Tr. at 306:6-307:2; Glass Strike Tr. at 737:6-15; Glass Tr.
at 235:9-236:13; Reece Tr. at 126:22-127:3; Stern Tr. at 163:19-164:10.
662. Furthermore, Yellowstone’s management—including Respondents
Stern, Glass, Maczuga, and Reece—harbored their own concerns about liability in
the investigations if Yellowstone remained in business. See Maczuga Tr. at 309:16-
310:18, 311:17-312:17; Reece Tr. at 127:18-128:23.
663. In testimony, Respondent Reece admitted that this concern over
Yellowstone’s future liability in the Government Investigations motivated the
transfer of Yellowstone’s assets to Delta Bridge. See Reece Tr. at 127:18-129:4 (Q:
“[I]s that concern [about liability in the investigations if Yellowstone remained in its
existing form] part of what motivated the decision to enter into the asset sale
between Pinnex and Maczuga LLC?” A: “It was one, certainly.”).
664. Yellowstone’s management ultimately concluded that they could
resolve these concerns by starting a new company to continue Yellowstone’s
business, without what Glass called “the baggage” of Stern and Reece’s
involvement, as both were named defendants in the FTC lawsuit. Glass Strike Tr.
at 737:1-21; see id. (“The only thing necessary for Delta to continue to operate was
the removal of myself, Isaac Stern who is the defendant in the FTC case, and
Jeffrey Reece who is a personal defendant in the FTC case.”); id. at 806:17-807:5
(“[W]hen reality set in that there wasn’t going to be any funding whatsoever coming
to this company that has its issues, the plan was get a new company opened that we
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are not owners of . . . [and] get an indirect $6 million a year payment from them.”);
Maczuga Tr. at 317:12-318:9; Reece Tr. at 117:24-118:17; Stern Tr. at 163:19-164:10
(“[T]he only choice we had was to sell the software to someone.”); see also Ex. 345
(Glass texting Stern and Reece a few months after the transfer: “I think we are in
the
9th inning of our regulatory issues. . . . Never know what next shoe to drop will
be. . . . But I think the delta transaction sends a great message.”).
665. Yellowstone’s plan hinged on the new company’s ability to convince
investors and lenders that Yellowstone’s liabilities would remain with Yellowstone.
In a text message to Maczuga, Reece, and Serebro, Spence summarized Delta
Bridge’s pitch to potential lenders:
The product (MCA) is great, and our model is great . . . . The problem is
legacy legal issues at the old firm . . . . Even though we believe we’ll be
vindicated in the courts, it’s (i) too expensive, and (ii) too distracting. . . .
Newco [i.e., the “new company”] solves the legacy legal issues (freeing
up millions in legal every year) . . . .
Ex. 352. In testimony, Maczuga confirmed that the text from Spence represented
Delta Bridge’s pitch to prospective lenders and investors. See Maczuga Tr. at
322:20-23.
666. Stern made a similar pitch for YESCO to finance the new company:
So One other angle we are working on is having [Yellowstone] sell the
assets( not including the receivables) of the company to a new company
started by Bart [Maczuga] and Vadim [Serebro] and have yellow wind
down and pay off the yesco debt. The new company would have a clean
slate but With all the experience of old company to grow free and clear.
Ex. 351 (typos in original); see also Stern Tr. at 166:20-167:22 (testifying about Ex.
351).
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3. Yellowstone Engineered the Sale to an Insider and
Maintained Significant Control
667. The structure and financing of Delta Bridge’s acquisition of
Yellowstone’s assets was arranged by Yellowstone management. The transaction
was conceived by Respondent Glass. See Glass Strike Tr. at 567:14-24 (“It was my
idea.”). Glass testified that “nobody knows more” about the transaction than he
does, “including the buyer,” i.e., Maczuga. Glass Strike Tr. at 567:14-24 (“I was very
involved in the asset sale to Delta. . . . It was my idea. I negotiated it. . . . There’s
nobody that would know more about that, including the buyer.”).
668. The transaction was largely “negotiated” in a group chat among
Yellowstone management, including Maczuga, Stern, Glass, and Reece. See
Maczuga Tr. at 331:21-332:9, 333:2-5; see also Glass Tr. at 230:3-231:3 (identifying
those four as the individuals involved in negotiations, plus Fligelman “on the Delta
side”).
669. Both of Delta Bridge’s main sources of financing are traceable to
Respondent Stern, the Yellowstone CEO. It was Stern who identified Delta Bridge’s
main investor, Asaf Fligelman, and connected him with Maczuga. See Reece Tr. at
121:11-122:11. Of the four owners of Delta Bridge (i.e., Fliegelman, Maczuga,
Serebro, and Spence), Fliegelman is the only one who was not formerly involved
with Yellowstone. See Ex. 52 (Fliegelman’s interest in Delta Bridge’s holding
company is 30%, through his entity Lianaco LLC).
670. Fliegelman, in turn, secured the other primary source of Delta Bridge’s
financing—its primary lender (Basepoint Capital). See Maczuga Tr. at 320:7-17.
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671. Stern’s identification of Fligelman was the result of extensive efforts by
Yellowstone’s management, including Respondents Glass and Reece, to identify
financing for Delta Bridge so that Delta Bridge could acquire the assets from
Yellowstone. See Maczuga Tr. at 316:15-317:7; Glass Strike Tr. at 800:15-801:7.
Glass described these efforts as “a mad scramble to try to sell [Yellowstone’s] assets
off.” Glass Strike Tr. at 802:14-25. Glass testified that “we were seeking to get
funding for the new company. Had we not been able to secure funding for the new
company, there wouldn’t have been anybody to purchase our assets . . . .” Glass
Strike Tr. at 800:15-18; accord Glass Strike Tr. at 800:2-3 (“We arranged to sell an
asset to salvage some funds for ourselves . . . .”), 737:22-23 (“We sold them the asset
so that we didn’t walk away with nothing at all, because that’s what we were
heading towards.”).
672. Stern and Reece—Yellowstone’s CEO and President—were expressly
excluded from direct involvement in Delta Bridge because they had been named as
defendants in the FTC investigation. See Glass Strike Tr. at 737:1-5 (“The only
thing necessary for Delta to continue to operate was the removal of myself, Isaac
Stern who is the defendant in the FTC case, and Jeffrey Reece who is a personal
defendant in the FTC case); Ex. 351 at 3 (Stern texting: “It’s better after all the
lawsuits that my [n]ame not be on it.”); Maczuga Tr. at 317:8-318:9 (“So me, myself,
was not named in the FTC, or any of those investigations. So it was best for me to
leave [Stern and Reece] behind, and start my own company.”); Stern Tr. at 178:6-
179:7 (“At the time every conversation that I had . . . was, you know, what’s the
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story with the FTC lawsuit . . . . So whatever company they were going to be, me
being in it in any way would be detrimental to their being able to raise debt based
on my experiences I had just come off of having.”); see also Reece Tr. at 117:24-
118:17 (“[P]ractically speaking, it would likely be difficult to have an institution
invest in a business in which I was a senior leader” as a named defendant in the
FTC case).
673. Glass has denied involvement at Delta Bridge since the transfer but
testified that “I’m allowed to have any backdoor deal I want with Delta” and “I
cannot prove that [such] a deal does not exist.” Glass Strike Tr. at 927:3-22; see also
Glass Strike Tr. at 868:12-15 (“[T]here’s no restriction from me for going in and
buying shares. There’s no restriction for Bart to give me the entire company back.”).
674. In fact, Glass has maintained some involvement in Delta Bridge’s
business. See, e.g., Ex. 346 (June 2021 texts between Glass, Maczuga, and a Delta
Bridge Funder discussing the health of Delta Bridge’s business); Ex. 347 (June 2021
texts between Glass, Maczuga, and a Delta Bridge Funder concerning collections on
Delta Bridge MCAs); Ex. 339 (Maczuga seeking Glass’s advice in Dec. 2021 about a
potential change in Delta Bridge’s business, and Glass talking him out of it); Ex.
340 (Delta Bridge employee updating Glass in Dec. 2021 on a Delta Bridge
“developers call”); Ex. 342 (Maczuga updating Glass and Stern in Oct. 2021 on Delta
Bridge financials); Ex. 338 (Glass urging a Delta Bridge Funder not to exit the MCA
business in Jan. 2022).
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675. Similarly, Stern texted a prospective Delta Bridge lender in January
2021 that he would not be “[o]fficially” involved at Delta Bridge, but “would advise
them [f]or free.” Ex. 351 at 3.
676. Delta Bridge continues to make rent payments to Stern and Glass,
through their entity Tardis Capital Investments, supra ¶ 591, and Glass, Stern, and
Reece continue to receive correspondence at the Tardis office used by Delta Bridge,
see Ex. 411 (Mar. 2022 IRS notice to MBO Capital Holdings LLC, the entity through
which Glass, Stern, and Reece maintain their ownership of Yellowstone); Ex. 410
(correspondence to Glass in Nov. and Dec. 2021).
677. Yellowstone also maintained significant control over the assets it
conveyed until at least January 2022, when Delta Bridge and Maczuga LLC
ultimately exercised the buyout clause. According to the APA, Maczuga LLC was
not allowed to “sell, transfer, lease, dispose of or license the [subject assets] to any
person, except [Delta Bridge].” APA § 3.3 (“Covenants of Seller”); see also SLA
§ 1(a) (making license exclusive to Delta Bridge without right to sublicense).
678. Furthermore, Pinnex (Yellowstone’s holding company) held a security
interest in Delta Bridge’s holding company, Whenco LLC, until at least January
2022 when Delta Bridge and Maczuga LLC ultimately exercised the buyout clause.
The security interest extended to Maczuga LLC’s entire 55% ownership stake in
Whenco, and it was granted through a Pledge and Security Agreement attached to
the APA and signed by Maczuga. APA Ex. 3 § 2 (“As security for [the payments to
Pinnex], [Maczuga LLC] hereby pledges and assigns to [Pinnex], and grants to
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[Pinnex] a security interest in . . . [a]ll of [Maczuga LLC’s] membership interests in
[Whenco LLC] . . . .”); see Ex. 52 (showing Maczuga LLC’s 55% stake in Whenco).
The asset transfer itself was conditioned on Maczuga’s pledge of its interest in
Whenco to Pinnex. APA at 1; APA Ex. 3 at 1.
679. Conditions that could cause Pinnex to realize Maczuga LLC’s majority
interest in Whenco included, among other things, a single missed payment under
the APA. APA Ex. 3 § 6(a) (defining “Event of Default” to include “the occurrence of
an Event of Default under the APA”); APA § 2.1(a) (defining “Event of Default” to
include “fail[ure] to make any payment required hereunder when due and
payable”); accord Glass Strike Tr. at 869:21-24 (Glass explaining that “if they do
miss a payment, Pinnex, the main company, steps back in to take over majority
control of the new company”).
4. Delta Bridge Significantly Underpaid for the Assets
It Acquired from Yellowstone
680. Delta Bridge paid approximately $28 million for the Yellowstone assets
described in the APA and the SLA. Supra ¶ 568.
681. But Respondent Glass testified that the true value of the assets at the
time of the transfer was far more than that. See Glass Tr. at 234:14-235:6
(“probably a couple of hundred million dollars”); see also Glass Strike Tr. at 842:22-
25 (“I feel and [Stern] felt that nobody is in a better position to speak to the current
value of the company [shortly after the asset transfer] . . . than I am.”).
682. Indeed, during 2020 alone, Yellowstone lent approximately
$325,998,508 to merchants in connection with its MCA agreements, and collected
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approximately $477,652,363, yielding a profit of more than $150 million. Ex. 154 at
cells AO7, AO9. During the first five months of 2021, by the time of the asset
transfer to Delta Bridge, Yellowstone had already lent approximately $139,412,589
to merchants in connection with its MCA agreements, and collected approximately
$197,121,588, yielding a profit of more than $57 million. Id. at cells AB7, AC7,
AD7, AE7, AF7, AB9, AC9, AD9, AE9, AF9.
683. Prior to the sale, the company obtained a valuation that was limited to
the software assets described in the APA and the SLA, and did not account for all of
the other assets transferred to Delta Bridge. See Maczuga Tr. at 349:7-15; see also
supra ¶¶ 605-614 (describing other assets transferred). Maczuga was indifferent to
the results of the valuation in any event. See Maczuga Tr. at 348:24-349:6 (“I knew
what I felt this was worth to me. It might not have been worth the same to
whoever’s doing the valuation.”); see also id. at 364:13-365:4 (Maczuga testifying
that he had no idea what it would have cost to recreate the software independently
and that he had never bothered to find out).
684. In fact, as described above, Delta Bridge succeeded to far more of
Yellowstone’s assets than those described in the APA and the SLA—including all of
Yellowstone’s relationships with the people who sell, underwrite, negotiate, service,
and collect on their MCA agreements with merchants, which embodied
Yellowstone’s “true value.” Glass Strike Tr. at 739:14-17, 872:4-9; see supra ¶¶ 605-
614. Delta Bridge succeeded to these additional assets from Yellowstone without
paying for them. See supra ¶¶ 604, 611.
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685. In fact, Respondents have continued to generate substantial proceeds
by carrying on Yellowstone’s MCA business through the Delta Bridge entity—far
more than the $28 million purchase price. As of the end of 2023, Delta Bridge has
collected an estimated $1.2 billion through its MCA transactions, including at least
$361 million in interest.
14
V. SCALE AND EFFECTS OF RESPONDENTS’ FRAUD AND
ILLEGALITY
686. Respondents have operated their illegal, fraudulent scheme at a
massive scale since at least 2013, which is the start of the period at issue. Supra
¶¶ 117-120.
687. During the entirety of the period at issue, Respondents have issued
115,468 MCA transactions, through which they have collected an estimated $4.5
billion from merchants, of which $1.38 billion constitutes interest.
15
688. Through their fraudulent and illegal practices, Respondents have
inflicted immense harm upon small businesses, their principals, their employees,
and the communities in which they operate.
689. For example, Yellowstone, through its MCAs and its collections on
them, pushed City Bakery, a beloved New York institution that employed 30 to 50
14
Blake Rubey, Data Analyst for the Office of the Attorney General, calculated
these figures using data produced by Delta Bridge in Exhibit 468.
15
Blake Rubey, Data Analyst for the Office of the Attorney General, calculated
these figures using data produced by Yellowstone and Delta Bridge in Exhibits 397,
399, and 468.
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workers, to close its doors in 2019 after nearly three decades of business. See Rubin
Aff. ¶¶ 1, 50. Between 2017 and 2019, the Yellowstone Subsidiaries Capital
Advance Services and High Speed Capital issued to City Bakery a series of MCAs.
See id. ¶¶ 6-9. The transactions had finite Terms and fixed Daily Amounts that had
no connection to the Specified Percentages stated in the agreements. See id. ¶¶ 25-
36.
690. By 2018, City Bakery found itself stuck in a spiral of debt, such that
the only way it could afford to pay Yellowstone was by taking out new MCAs,
including from Yellowstone itself. See id. ¶¶ 36, 39, 49. Yellowstone issued a final
series of MCAs to City Bakery in 2019, which together purported to claim a right to
three-quarters of City Bakery’s daily revenue. See id. ¶ 45. The transactions’
escalated Daily Amounts were more than the business could bear, and City Bakery
closed its doors in October 2019. See id. ¶¶ 32, 47, 49.
691. Yellowstone—operating through its Subsidiaries HFH Merchant
Services and Capital Advance Services, and with Respondent Steve Davis as
Funder—worked disastrous effects on the Calgary, Canada-based business
Zomongo and on the personal finances of its owner, Jeremy Ostrowski. See
Ostrowski Aff. ¶¶ 1, 49, 55. Yellowstone shorted Zomongo on its funding amounts,
overcollected daily payments from it, and fraudulently obtained judgment against it
by filing a false affidavit executed by Steve Davis. See generally id. Yellowstone’s
conduct, in conjunction with that of other funding companies introduced to Zomongo
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by Yellowstone’s brokers, “ruined Zomongo’s business, pushing it to dramatically
reduce its operations and lay off about 300 employees.” Id. ¶¶ 55-56.
692. Yellowstone’s MCAs had a “ruinous impact” on the business and
personal finances of merchant Ali Alabudi, owner of the Austin, Texas-based
business Austin’s Habibi. See Alabudi Aff. ¶ 77. Alabudi, formerly a restaurant
owner, took out a series MCAs from 2016 through 2018 from Yellowstone, operating
variously as Capital Advance Services, Merchant Funding Services, and High Speed
Capital. See id. ¶¶ 1-2. Respondents’ purported MCAs were fraudulent loans, set
to fixed Daily Amounts and finite terms, and Yellowstone (as Capital Advance
Services) fraudulently filed a confession of judgment previously executed by Alabudi
and obtained judgment against him and his business, Austin’s Habibi. See
generally id.
693. In 2019, Alabudi was forced to close his restaurant, partly due to
financial pressure from paying interest and fees on Yellowstone’s MCAs. See id.
¶ 77. After closing the restaurant, Alabudi reopened Austin’s Habibi as a food
truck, but the business continues to suffer as the result of the fraudulently obtained
judgment. Alabudi is today unable to sell food through online food applications
such as Door Dash and Uber Eats, since Yellowstone uses its judgment against him
and Austin’s Habibi to seize revenues that are processed by those companies. See
id. ¶ 78.
694. As discussed above, the experience that merchant Jerry Bush, former
owner of Richmond, Virginia-based J.B. Plumbing, had with Yellowstone came close
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to ending Bush’s life. See supra ¶¶ 410-411. Bush was told by Respondent Steve
Davis that even after closing his business, he could escape its debts to Yellowstone
only by winning the lottery or if he were dead, since Davis could not collect money
from a dead body. See Bush Aff. ¶¶ 59-61. Prompted by Davis’s comments, and
desperate to save himself and his family from Yellowstone’s collection efforts, Bush
attempted suicide about two days later. See id. ¶ 61.
695. Respondents continue to work ruinous effects on merchants’ businesses
through their Delta Bridge organization. Hygge Supply, a home kit company based
in Michigan, took out a pair of MCAs from Delta Bridge/Cloudfund, doing business
as Samson Group, in July and August 2022. See Karcher Aff. ¶¶ 1, 9. Hygge
Supply found in August 2022 that it was generating insufficient revenue to sustain
Delta Bridge’s daily debits, and in October 2022, the debits started bouncing
because the merchant had insufficient funds in its bank account. See id. ¶¶ 25, 30.
Delta Bridge sued the merchant in New York state court and, through a collection
agent, obtained a UCC lien against an unrelated group of properties that the
merchant’s guarantor used to generate rental income, and notified one of the
merchant’s prospective clients that all funds owed to the merchant should be put in
a trust for payment to Delta Bridge. See id. ¶¶ 33-34. In March 2023, Hygge
Supply filed for bankruptcy. See id. ¶ 36. Nevertheless, despite the bankruptcy,
Delta Bridge continued to assert its UCC claims against the guarantor’s unrelated
assets, including through filings in the bankruptcy proceeding itself. See Resp. to
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Mot. to Enforce Auto. Stay, In Re Hygge Supply, Inc., No. 23-00468-jwb (Bankr.
W.D. Mich. Apr. 19, 2023), ECF No. 21.
696. Respondents, meanwhile, have benefited greatly from their fraudulent,
illegal exploitation of merchants.
697. For example, Stern, who delivered bakery products before getting into
the MCA business, see Stern Tr. at 25:7-10, and who was adjudged bankrupt in
2010, see Ex. 421 (Order of Discharge dated June 11, 2010), has made enough
money issuing fraudulent and illegal loans that he will “never [have to] work again
for his entire life,” Glass Strike Tr. at 808:18-21; see also Stern Tr. at 24:18-21
(testifying that he has no work or employment aside from his position with
Yellowstone); Glass Tr. at 25:16-26:2 (testimony by Respondent Glass that he has
not had any job since he stepped down as Yellowstone’s Chief Financial Officer in
2014).
698. Yellowstone and Delta Bridge’s Funders have also become fabulously
wealthy through their work issuing fraudulent and illegal loans. See Ex. 339 at 7
(Maczuga texting Glass in Dec. 2021 about Yellowstone/Delta Bridge: “This place
made like 30+ millionaires”); accord Ex. 328 at 11 (Maczuga defending Glass in Dec.
2022, stating that he “single handedly created 30+ millionaires”); see also Ex. 338 at
3-4 (Jan. 2022 text from a Delta Bridge and former Yellowstone Funder to Glass: “I
just don’t know how much more money I really need to live at this point. . . . I’ve
already accomplished for what I need for life after 55”).
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VI. LIABILITY OF INDIVIDUAL RESPONDENTS
A. Officer Respondents
699. Each Officer Respondent—Glass, Stern, Reece, Maczuga, and
Serebro—has supervised the acts of Respondents’ personnel in effecting
Respondents’ fraudulent and illegal MCA transactions and has been personally
involved in developing and/or implementing policies and practices at Yellowstone
and/or Delta Bridge for effecting such transactions, as set forth herein.
700. Through such conduct, each Officer Respondent has been involved in
and aware of repeated and persistent fraud and illegality in violation of Executive
Law § 63(12).
701. As a result, each Officer Respondent is individually liable for all
repeated and persistent fraud and illegality of Respondents in connection with
transactions of Yellowstone and/or Delta Bridge occurring during the duration of his
role as officer of such entity.
1. David Glass
a. Glass Actively Managed, Directed, and Participated in
Yellowstone’s Operations Throughout Its Entire Existence
702. Glass has been continually involved in and aware of Respondents’
fraud and illegality, as shown by the facts set forth above and the evidence filed
herewith, such as the following.
703. Glass regularly discussed and formulated Respondents’ policies and
practices for its MCA business during frequent discussions—by text message, email,
and in person—with the other Officer Respondents, including Stern, Reece,
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Maczuga, and Serebro. See Stern Tr. at 91:7-94:12; see, e.g., supra ¶¶ 162, 175, 192,
207, 218-223, 228-232, 282, 294, 340, 352, 545, 554, 556.
704. Glass trained Funders to plan their MCAs based on finite repayment
terms, which he trained them should be kept “short.” Supra ¶ 162.
705. Glass trained Funders in how to set Daily Amounts for MCAs by
dividing their total Payback Amounts by the number of days in their finite
repayment terms. Id.
706. Glass, along with Reece and Serebro, arranged for Yellowstone’s
contract-generating software to fix the Specified Percentages at 25%, regardless of
how that percentage related to the Daily Amount and to a merchants’ revenue.
Supra ¶¶ 219-220, 222.
707. Glass—overruling Stern—directed that Yellowstone’s contract-
generating software include a message instructing Funders that Specified
Percentages “must be 25%,” regardless of how that percentage related to the Daily
Amount and to a merchants’ revenue. Supra ¶ 223.
708. Glass was personally involved in planning and carrying out
Yellowstone’s responses to Reconciliation requests submitted by merchants. Supra
¶ 229.
709. Glass was aware that Yellowstone fraudulently processed merchants’
Reconciliation requests so as to avoid refunds by treating funds received by
merchants from other MCA companies as revenue. Glass Tr. at 189:9-190:25.
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710. Glass was aware that merchants did not understand Specified
Percentages and commonly mistook them for interest rates. Supra ¶ 326.
711. Glass was aware that Respondents’ Reconciliation clauses provided
merchants with no relief for sudden, recent revenue drops but only on an averaged
basis over the entire transaction. Supra ¶ 282.
712. Glass was aware that Yellowstone discouraged Funders from issuing
refunds to merchants by decreasing their compensation in the event of such
refunds. Supra ¶¶ 291, 294.
713. Glass, together with Stern, maintained Yellowstone’s policy of
overcollecting payments beyond the total repayment amounts stated in
Respondents’ agreements and using such amounts as slush funds for charging fees
to the merchants. Supra ¶¶ 544-545, 554.
714. Glass was aware that Yellowstone exercised no oversight on
representations made by its Funders to merchants during Funding Calls. Supra
¶ 340.
715. Glass was consulted by other members of Yellowstone’s management,
including Yellowstone’s president, concerning revisions to Yellowstone’s template
contract for its agreements with merchants. See Ex. 261.
716. Glass typically had to sign off on Yellowstone’s policies applicable to its
Funders and its template contracts with merchants, and often drafted Yellowstone’s
policies, and internal announcements implementing those policies. See Reece Tr. at
160:19-161:20; Maczuga Tr. at 378:5-24.
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717. Glass participated in Yellowstone’s MCA transactions both directly, as
a Funder, and through his companies Arch Capital and Nevada Factoring, which
served as sales representatives for and investors in Yellowstone’s MCAs. Infra
¶ 726.
b. Glass Is a De Facto Officer and Shareholder of
Yellowstone
718. Glass has for years been a de facto officer and shareholder of
Yellowstone, even as Respondents have attempted to conceal his integral role in the
company due to his criminal background.
719. Glass is a notorious white-collar criminal in the New York financial
world. From 1995 to 1996 he was an account manager for the Long Island-based
investment firm Sterling Foster, see Glass Tr. at 38:22-24, which was regarded as a
“classic ‘pump and dump’ scam.”
16
Glass later told the story of his experiences at
Sterling Foster to a filmmaker who created the 2000 movie Boiler Room based on
Glass’s story. See Glass Tr. at 39:7-25.
720. From 2002 to 2007, Glass ran a securities trading company that he
founded called Jasper Capital LLC. See Glass Tr. at 39:4; Ex. 440 at 1-2. In
February 2007, Glass was indicted in U.S. District Court for the Southern District
of New York and charged with committing securities fraud and conspiracy to
commit securities fraud in violation of 15 U.S.C. §§ 78j(b) and 78ff and 18 U.S.C.
§ 371, respectively. Ex. 440 at 1-8. Prosecutors alleged that Glass had participated
16
Joe Hagan, The Sucker Wears a Wire, N.Y. Mag. (Oct. 29, 2007), Ex. 441 at 4-5.
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in a “massive insider trading scheme[],”
17
that was reported on as “an elaborate
trading and bribery ring that is being billed as one of the biggest insider trading
cases since the Ivan Boesky scandal of the late-1980s.”
18
721. In December 2008, Glass pled guilty and was sentenced to three years
of probation and ordered to forfeit $2.7 million to the government. See Glass Tr. at
260:10-16; Ex. 440 at 23, 27. Glass was also barred for life by the Securities and
Exchange Commission from working in the securities industry. See Glass Tr. at
261:15-19; Ex. 440 at 29; Ex. 440 at 32.
722. In April 2009, five months after pleading guilty, Glass opened
Yellowstone Capital LLC. See Glass Tr. at 28:2-30:5. During the first five years of
Yellowstone’s existence, Glass was its majority owner, Managing Member, and
Chief Financial Officer. See Glass Tr. at 29:8-13 (majority owner), 29:25-30:5
(CFO); Stern Tr. at 37:10-13 (majority owner); Ex. 409 at 1 (“Managing Member”);
Ex. 414 at 2 (same).
723. By late 2014, Yellowstone realized that outside investors were
reluctant to commit money to Yellowstone as long as Glass held a visible role in its
management, due to his history and reputation, so Yellowstone arranged for an
17
Press Release, U.S. Att’y S.D.N.Y., UBS Executive and Former Morgan Stanley
Lawyer Among 13 Charged in Massive Insider Trading Schemes (Mar. 1, 2007), Ex.
440 at 12.
18
Liz Moyer, A Big Splash on Wall Street, Forbes (Mar. 2, 2007), Ex. 441 at 20; see
also Jenny Anderson, 13 Charged in Insider Trading Ring, N.Y. Times (Mar. 2,
2007), Ex. 441 at 27; 2 Plead Guilty to Insider Trading, L.A. Times (Feb. 28, 2008),
Ex. 441 at 30.
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investor to buy out Glass’s ownership share and purportedly removed him from his
management role as CFO. See Reece Tr. at 91:24- 92:3; McNeil Tr. at 35:16-21.
Yellowstone did not replace Glass as CFO thereafter, however, and Glass remained
Yellowstone’s de facto CFO until at least May 2021. See infra ¶¶ 733-745.
724. In December 2014 and January 2015, Glass sold his share to an entity
called Barnes Asset Management, LLC (“BAM”), see Glass Tr. at 51:24-52:6; Stern
Tr. at 34:24-35:14, and purportedly resigned as CFO, see Glass Tr. at 29:25-30:5.
Glass later admitted that Yellowstone’s new owner “did not want [Glass’s] name
anywhere near the company.” Glass Strike Tr. at 603:1-13.
725. But Glass remained intimately involved in Yellowstone’s operations.
726. From 2015 to 2017, Glass was personally involved in Yellowstone MCA
deals, either as a Funder, Glass Tr. at 97:16-99:10 (discussing Ex. 321), through his
company Arch Capital, which brokered and invested in individual Yellowstone’s
MCAs, Glass Tr. at 104:10-105:14 (discussing Ex. 317), 105:22-109:20 (discussing
Ex. 316), 121:15-25; see also Dahan Tr. at 152:15-19; S. Davis Tr. at 257:7-16; and
through Nevada Factoring LLC and Slice Capital, which he owned jointly with
Stern and Reece and which was managed by Maczuga, and which also invested in
individual Yellowstone MCAs, Glass Tr. at 115:5-14, 117:8-120:23 (discussing Ex.
423); Maczuga Tr. at 54:17-56:20; S. Davis Tr. at 260:18-261:2 see also Yagecic II Tr.
at 93:12-94:22 (discussing Ex. 301); Maczuga Tr. at 61:13-22, 63:10-19.
727. During this period, Glass continued to appear at Yellowstone offices,
and Stern regularly flew to Florida to visit Glass. See Stern Tr. at 85:22-86:21.
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728. Glass also continued to participate in the onboarding and training of
new Funders. One former Yellowstone Funder testified that Glass met with him
before he started in March 2015 to explain the PNL and how Funders are
compensated. Saffer Tr. at 31:12-22; see Ex. 454.
729. In 2017, Glass repurchased an ownership stake in Yellowstone through
a “management buyout,” or “MBO,” in which Glass, Stern, and Reece bought BAM’s
controlling stake in Yellowstone. See Glass Strike Tr. at 919:15-21; Reece Tr. at
30:22-24; Mazcuga Tr. at 70:16-19; see also Glass Tr. at 34:23-35:7.
730. Glass was architect of the management buyout, as he later testified:
I allowed Isaac and Jeff to come in with me on the deal because I was
convinced that they would bring value to my deal. . . . Had either of
those people brought other parties to the table, passive investors, I
would have thrown them out of the deal. . . . I was not looking for
passive investors. I would not have allowed [them].
Glass Strike Tr. at 578:20-579:12 (emphasis added); see also Ex. 418 (Purchase
Agreement).
731. On paper, Glass configured his share of Yellowstone to be purchased by
a trust organized for the benefit of his son, who was at the time a minor. See Glass
Tr. at 52:25-53:21. But the equity is in effect controlled and owned by Glass. As he
later testified, “I repurchased shares [in Yellowstone] through my son’s trust in
May of ‘17.” Glass Strike Tr. at 565:2-3 (emphasis added); accord Reece Tr. at
30:11-24, 50:8-10. The trustee of the trust that holds Glass’s share of Yellowstone is
Carlos Jimenez, a long-time subordinate of Glass and employee of Yellowstone,
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Arch Capital—and now Delta Bridge. See Glass Tr. at 55:14-60:12, 204:10-17; Ex.
51 at 1.
732. Stern testified that after the buyout, Glass was involved in
Yellowstone management “through me [Stern],” Yellowstone’s CEO. Stern Tr. at
87:16-18. Glass spoke with Stern on a “[p]robably daily” basis concerning
“everything” about Yellowstone’s business, including “corporate policy and rules
concerning the merchant cash advances.” Stern Tr. at 87:16-89:8.
733. As de facto CFO, Glass was “in charge of finances,” and Yellowstone co-
CEO Maczuga reported to Glass concerning financial matters at the company.
Maczuga Tr. at 369:4-21, 374:3-7. Reece testified that Glass “typically had to sign
off on policies applicable to Yellowstone’s Funders and its MCA agreements,” and
that he was often one of the primary drafters of those policies, and the
announcements implementing them. Reece Tr. at 160:19-161:20 (discussing Ex.
260).
734. Glass, together with Stern, made the decisions about the compensation
that Yellowstone paid to its senior management, including Maczuga, Reece, and
Serebro. See Ex. 367 at 8-10.
735. Glass was also involved in supervising compensation of Yellowstone’s
Funders and Sales Reps. In June 2017, Reece referred a Yellowstone Sales Rep to
Glass to address a question about sales commissions. See Ex. 310. The Sales Rep
asked, “[W]hy is Glass answering this question?” to which Glass responded, “I wrote
the new commission policy (and the old one).” Id.; see also McNeil Tr. at 63:14-
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64:15; S. Davis Tr. at 105:4-6, 267:19-271:9 (Glass responsible for deciding Steve
Davis’s “book limit,” which set the amount of money he was approved by
Yellowstone to lend); Ex. 258 (Yellowstone employee telling Respondent Davis to
“[S]peak to Glass” about his book limit, not Stern, who was also copied on the
email); Ex. 188 (Funder asking Yellowstone management, including Glass, for a
book limit increase); c.f., Ex. 357 at 4-8 (Glass overruling the rest of management on
granting a policy exception to a Funder, in the management group chat). Glass also
supervised Yellowstone’s preparation of Funders’ PNL reports, which determined
their compensation. See McNeil Tr. at 60:5-61:22; Yagecic II Tr. at 86:10-87:23
(testifying about comments left by Glass in Yagecic’s May 2016 PNL); Ex. 290
(email from Glass sending a Funder his PNL in 2018). In January 2019, Glass
participated in a meeting with Stern, Reece, and others, about potential changes to
Yellowstone’s system for compensating Funders. See Ex. 204.
736. As a de facto officer “at the top of the company,” Glass ran Yellowstone,
along with Stern, and the two of them “made decisions” for managing the company.
Reece Tr. at 50:18-23; see also Maczuga Tr. at 74:12-75:17; Dahan Tr. at 35:2-6,
47:4-9; Ehrlich Tr. at 29:4-14, 61:16-62:4; McNeil Tr. at 65:6-20, 197:11-16; Miller
Aff. ¶ 14; Schwartz Tr. at 89:3-21; Williams Tr. at 52:7-54:14, 215:23-217:7, 222:15-
224:8; Worch Tr. at 24:21-28:12, 62:2-24.
737. As testified by Steve Davis, Glass had “the largest say in the
[Yellowstone] company,” such that “if David Glass said something to Isaac [Stern],
Isaac was going to change his tune.” S. Davis Tr. at 268:5-10; see also id. at 99:21-
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100:9, 101:24-102:16; Yagecic I Tr. at 94:25-95:12 (“[T]he whole company pretty
much reported to him [Glass].”); id. at 50:20-23; McNeil Tr. at 198:2-7; Williams Tr.
at 215:17-216:5; Ex. 296; Ex. 260.
738. As a top officer, Glass held the authority to terminate high-level
personnel. In August 2018, Glass fired Steve Davis, Yellowstone’s top Funder. See
Stern Tr. at 104:19-25. In doing so, Glass spoke about Yellowstone in the first
person, saying, “Steve, you’ve killed us and we’re done with you.” Glass Tr. at
225:11-15 (emphasis added); see also Ex. 252; Ex. 236; Glass Tr. at 226:6-24 (Glass
fired Funder Mark Worch); Ex. 286 (Glass involved in termination of Funder
Desmond Miller).
739. Respondents continued, however, to conceal Glass’s role as an officer,
both from Yellowstone’s lenders and from company personnel. When asked under
oath why he did not “put [his] name” on the company after the management buyout
and become a member of its board, Glass responded, “Because we’re still dealing
with institution such as YESCO [Yellowstone’s lender] and credit. I cannot be
formally involved . . . . It’s bad optics.” Glass Strike Tr. at 617:23-618:9; see also
Ex. 262.
740. In September 2019, Reece texted Glass in advance of a meeting to
address the topic of MCA payment Reconciliation and wrote, “Give me a ring so
Isaac [Stern] and I can be your voice in the group.” Ex. 365 at 2. Glass complained,
“[We] are a target because of a 12-year-old insider trading plea,” and Reece
responded, “Right. Let’s keep you off the calls. Work through us.” Id.; see also Ex.
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376 (Reece texting Glass a screenshot of an email and adding, “[D]idnt want to copy
you on the email”); Ex. 354 at 2-3 (Glass drafting company policy statement to be
communicated through other officers); Ex. 356 at 4 (same).
741. Working behind the scenes, Glass served as the architect behind
Yellowstone’s dealings, including designing the purported “asset sale” between
Yellowstone and Delta Bridge. Supra ¶ 667. Glass described his role by testifying,
“It was my idea. I negotiated it,” and, “There’s nobody that would [know] more
about [the deal], including the buyer.” Glass Strike Tr. at 567:14-24.
742. After the “asset sale”, Glass has continued to communicate frequently
with Maczuga, Carlos Jimenez, and other Delta Bridge personnel about their
management of the purportedly new Delta Bridge entity. See supra ¶ 674; see
generally, e.g., Ex. 342; Ex. 339 at 4-8.
743. Glass further demonstrated his intimate involvement in Yellowstone
affairs in July 2021, when he appeared as the sole witness on Stern’s behalf in an
arbitration between Stern and a former Yellowstone investor. See supra ¶ 600 n.13;
see also Ex. 458 ¶ 28 (Final Award, Strike PCH, LLC v. Stern, Mar. 30, 2022).
744. As compensation for his de facto officer role, Glass has from 2014
through at least 2022 received money pursuant to an “agreement with Isaac [Stern]
to share in his compensation” from Yellowstone. Glass Tr. at 245:7-247:8. Glass
testified that he and Stern divided Stern’s compensation on a “probably 50/50”
basis, but that he is unaware of how much he has received from Stern in
Yellowstone income over the years. Glass Tr. at 246:4-247:14.
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745. During the NYAG’s investigation, Yellowstone, Stern, and Reece
admitted Glass’s de facto officer role through their attorney, who stated as follows:
The documentary and testimonial record contains hundreds (perhaps
even thousands) of instances of [Glass’s] participation in critical
discussions and playing an instrumental role in Yellowstone’s corporate
decision-making, throughout the entirety of relevant time period. As
you have seen in your investigation, he frequently was consulted
regarding key strategic issues that implicated not only corporate
decision-making but also critical legal matters. These communications
took place not just with Mr. Stern, but also with virtually every key
member of Yellowstone’s management, often without Mr. Stern’s
participation.
Ex. 448 at 2 (Letter from Yellowstone Counsel to NYAG, May 12, 2023).
2. Isaac Stern
746. Stern is liable for the repeated and persistent fraud and illegality
committed by Respondents through Yellowstone, including the Yellowstone
Entities.
747. Stern co-founded Yellowstone in 2009 and has been its CEO since that
time. Supra ¶ 88.
748. Stern has been involved in and aware of Yellowstone’s fraud and
illegality, as shown by the facts set forth above and shown in the evidence filed
herewith, including the following.
749. Stern regularly discussed and formulated Respondents’ policies and
practices for its MCA business during frequent discussions—by text message, email,
and in person—with the other Officer Respondents, including Stern, Reece,
Maczuga, and Serebro. See, e.g., supra ¶¶ 184, 192, 207, 218, 229-232, 294, 326, 340,
460, 554, 668; Stern Tr. at 91:7-94:12.
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750. As Yellowstone’s “hands-on boss,” Schwartz Tr. at 82:23-83:8,
“touching every part of the business,” Worch Tr. at 99:25-100:5, Stern “ran the floor”
on which its Funders and Sales Reps worked, Dahan Tr. at 172:23-173:3, supervised
its Funders, Dahan Tr. at 164:2-7; Ehrlich Tr. at 58:23-25, and served as
Yellowstone’s voice in communicating Yellowstone policy and practice to the
company’s Funders and other personnel, including through quarterly meetings,
Reece Tr. at 143:12-144:7, and on a “day-to-day basis,” Melnikoff Tr. at 72:13-15.
751. Stern was “very familiar with reconciliation,” Stern Tr. at 292:12-13,
and personally supervised and closely monitored Respondents’ responses to
merchants’ requests for payment reconciliation, Yagecic I Tr. at 193:21-194:2.
752. Stern participated in discussions among Yellowstone management
about how to handle specific Reconciliation requests. See supra ¶ 229.
753. Stern was aware that Yellowstone, through its contract-generating
software, instructed Funders that their Specified Percentages “must be 25%,”
regardless of how that percentage related to the Daily Amount and to a merchant’s
revenue. Supra ¶¶ 218-220, 222-223.
754. Stern was aware that Yellowstone exercised no oversight of
representations made by its Funders to merchants during Funding Calls. Supra
¶ 340.
755. Stern was aware that Yellowstone took no measures to prevent
Funders from planning MCAs to be set to finite repayment terms, and that “[t]he
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Yellowstone model as a whole allowed funders the freedom to price deals in any way
they wanted.” Supra ¶ 136; Stern Tr. at 256:6-264:13 (discussing Exs. 247, 248).
756. Stern was aware that Yellowstone fraudulently processed merchants’
Reconciliation requests so as to avoid refunds by treating funds received by
merchants from other MCA companies as revenue. Supra ¶ 269.
757. Stern was indifferent to the results of the Reconciliation process
Yellowstone eventually established and whether it actually resulted in any refunds
to merchants, see supra ¶ 213, but nonetheless testified that in his view Yellowstone
had an “effective[], adequately functioning reconciliation program,” Stern Tr. at
295:12-16.
758. Stern instructed Yellowstone personnel to add to Yellowstone’s MCA
agreements the Fixed Payment Addendum including a Discretionary Reconciliation
Clause. Supra ¶ 196.
759. Stern was aware that merchants did not understand Specified
Percentages and commonly mistook them for interest rates. Supra ¶ 326.
760. Stern was aware that Yellowstone discouraged Funders from issuing
refunds to merchants by decreasing their compensation as a result. Supra ¶¶ 292-
294.
761. Stern, together with Glass, maintained Yellowstone’s policy of
overcollecting payments beyond the total repayment amounts stated in
Respondents’ agreements and using such amounts as slush funds for charging fees
to the merchants. Supra ¶¶ 544-545, 554.
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762. Merchants were instructed to make payments to Yellowstone at
Stern’s attention. E.g., Ex. 428.
763. Stern was personally involved in Yellowstone’s sales and marketing
efforts. Supra ¶ 456.
764. Stern has made enough money issuing fraudulent and illegal loans
that he will “never [have to] work again for his entire life.” Supra ¶ 697. Whatever
large sum that amounts to, Stern has in fact made at least double, upon information
and belief, having shared half with Respondent Glass through their “50/50”
compensation sharing arrangement. Glass Tr. at 246:4-247:14; supra ¶ 744.
3. Jeffrey Reece
765. Reece is liable for the repeated and persistent fraud and illegality
committed by Respondents through Yellowstone, including the Yellowstone
Entities.
766. Reece joined Yellowstone as an officer in 2015 and is its president and
co-owner. See Reece Tr. at 30:11-13, 33:6-20, 36:19-37:3, 39:19-21; Stern Tr. at
28:23-29:3.
767. Reece has been involved in and aware of Yellowstone’s fraud and
illegality, as shown by the facts set forth above and shown in the evidence filed
herewith, including the following.
768. Reece regularly discussed and formulated Respondents’ policies and
practices for its MCA business during frequent discussions—by text message, email,
and in person—with the other Officer Respondents, including Glass, Stern,
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Maczuga, and Serebro. See Stern Tr. at 91:7-94:12; see, e.g., supra ¶¶ 192, 218-222,
229-232, 269, 282, 294, 508, 545, 551, 554.
769. Reece supervised Yellowstone’s Funders, Dahan Tr. at 174:6-13,
actively communicated company policy and rules to Yellowstone personnel, Reece
Tr. at 137:18-22, and in January 2020 worked with Maczuga to create a “master
rule book” of Yellowstone policies for its personnel, Reece Tr. at 144:25-146:16; see
Ex. 407 (master rule book).
770. Reece supervised Yellowstone’s creation of its Contract Generator,
Reece Tr. at 57:16-58:3, through which Yellowstone set default Specified
Percentages for its MCAs, supra ¶¶ 218-222, and stated that Specified Percentages
“must be 25%,” regardless of how that percentage related to the Daily Amount and
to a merchants’ revenue, supra ¶ 223.
771. Reece was aware that Yellowstone took no measures to ensure that the
Daily Amounts in its agreements were calculated as good-faith estimates of
Specified Percentages of merchants’ revenue, took no measures to do so himself, and
denied that such calculations were even possible. See Reece Tr. at 194:25-195:21.
772. Despite his role in communicating company policies to Yellowstone’s
personnel, see Reece Tr. at 136:17-137:22, Reece took no measures to ensure that
Funders determined Daily Amounts based on good-faith Specified Percentage
calculations and was aware that Yellowstone created no guidelines for how such
determinations should be made, see Reece Tr. at 62:25-63:7, 159:4-20, 189:21-190:5.
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773. Reece was aware that Yellowstone treated the Specified Percentages
stated on its agreements as “an upper limit, like a ceiling, on what [it] could collect
from the merchant each day,” see Reece Tr. at 205:7-13, instead of a precise
benchmark to which its Daily Amounts should be set at the outset.
774. Reece was aware that Yellowstone stated Specified Percentages in its
agreements as high as 49%, although he was not aware of any business reason for
doing so. See Reece Tr. at 72:14-18, 74:11-14.
775. Reece was aware that Yellowstone exercised no oversight of how
Funders underwrote Yellowstone MCAs and determined their terms, including the
Daily Amount and Specified Percentage. See Reece Tr. at 62:25-63:7, 159:4-20,
189:21-190:5.
776. Reece was aware that the only time that Yellowstone used its Specified
Percentages was during Reconciliation. See Reece Tr. at 74:15-75:3.
777. Reece was aware that Yellowstone’s imposition of higher Specified
Percentages made it less likely that merchants would qualify for refunds as the
result of Reconciliation. See Reece Tr. at 205:25-206:5.
778. Reece participated in discussions among Yellowstone management
about how to handle specific Reconciliation requests. See supra ¶ 229.
779. Reece was involved in Yellowstone’s decision to fraudulently process
merchants’ Reconciliation requests so as to avoid refunds by treating funds received
by merchants from other MCA companies as revenue. See supra ¶¶ 269, 272.
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780. Reece was aware that Respondents’ Reconciliation clauses provided
merchants with no relief for sudden, recent revenue drops but only on an averaged
basis over the entire transaction. See supra ¶ 282.
781. Reece was aware that Yellowstone discouraged Funders from issuing
refunds to merchants by decreasing their compensation as a result. See Reece Tr. at
210:14-211:13.
782. Reece was aware that Yellowstone exercised no oversight on
representations made by its Funders to merchants during Funding Calls. See supra
¶ 340; Reece Tr. at 184:13-19.
783. Reece jointly supervised and participated in Respondents’ practice of
overcollecting payments beyond the total repayment amounts stated in
Respondents’ agreements and using such amounts as slush funds for charging fees
to the merchants. See supra ¶¶ 544-545, 554.
4. Bart Maczuga
784. Maczuga is liable for the repeated and persistent fraud and illegality
committed by Respondents through both Yellowstone, including its Subsidiaries,
and Delta Bridge.
785. Maczuga joined Yellowstone in 2011, began working as a Funder for
Yellowstone in 2012, was ranked as one of its top Funders in 2016 through 2019,
and was promoted to its co-CEO in 2019. Maczuga Tr. at 39:7-17, 45:8, 45:19-21;
Ex. 54. In May 2021 Maczuga became CEO and majority owner of Delta Bridge.
Maczuga Tr. at 28:17-19; Ex. 52.
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786. Maczuga has been involved in and aware of Yellowstone’s and Delta
Bridge’s fraud and illegality, as shown by the facts set forth above and shown in the
evidence filed herewith, including the following.
787. Maczuga has regularly discussed and formulated Respondents’ policies
and practices for its MCA business during frequent discussions—by text message,
email, and in person—with the other Officer Respondents, including Glass, Stern,
Reece, and Serebro. See Stern Tr. at 91:7-94:12; see, e.g., supra ¶¶ 229-232, 269,
340, 359, 460.
788. Maczuga was a hands-on supervisor at Yellowstone and periodically
held meetings at which he gathered Respondents’ personnel to discuss company
policy and make announcements, see Reece Tr. at 143:12-144:8, Stern Tr. at 116:15-
117:2, and in January 2020 worked with Reece to create a “master rule book” of
Yellowstone policies concerning its MCA transactions, see Reece Tr. at 144:25-
146:16; Maczuga Tr. at 187:14-190:23; see also Ex. 407 (master rule book).
789. Maczuga was aware that by setting its Specified Percentages as high
as 49%, Yellowstone and Delta Bridge were choosing “unrealistic” percentages that
were not connected to merchants’ actual revenue and thereby making it difficult for
merchants to obtain refunds through payment reconciliation. See supra ¶¶ 206,
208-209, 236, 237.
790. Maczuga was involved in Yellowstone’s decision to fraudulently process
merchants’ Reconciliation requests so as to avoid refunds by treating funds received
by merchants from other MCA companies as revenue. See supra ¶ 269.
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791. While working as a Funder, Maczuga did not use Specified Percentages
to determine merchants’ Daily Amounts. See supra ¶¶ 138, 143, 147.
792. Maczuga was aware that Yellowstone and Delta Bridge took no
measures to ensure that the Daily Amounts in their agreements were calculated as
good-faith estimates of Specified Percentages of merchants’ revenue, and he took no
such measures himself, despite his role in crafting company policies and
communicating them to Yellowstone’s and Delta Bridge’s personnel. See supra ¶¶
136-138.
793. Maczuga was aware that merchants did not understand Specified
Percentages and commonly mistook them for interest rates. See Ex. 374 at 7
(Maczuga writing to Stern and Glass: “Ppl still think the 15-25% on page one is an
interest rate.”).
794. While Maczuga was working as a Funder, no money was ever refunded
to a merchant as the result of a Reconciliation in connection with a transaction he
worked on. See supra ¶ 191.
795. Maczuga was aware that Yellowstone issued almost no Reconciliation
refunds in practice. Maczuga Tr. at 233:12-234:21.
796. Maczuga participated in discussions among Yellowstone management
about how to handle specific Reconciliation requests. See supra ¶ 229.
797. Maczuga was aware that Yellowstone discouraged Funders from
issuing refunds to merchants by decreasing their compensation as a result. See
supra ¶¶ 291-293.
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798. Maczuga was aware that Yellowstone exercised no oversight on
representations made by its Funders to merchants during Funding Calls. See Ex.
374 at 7 (Maczuga writing to Glass and Stern: “Ppl are saying whatever the fuck
they want” on Funding Calls).
799. Maczuga participated in Respondents’ practice of overcollecting
payments beyond the total repayment amounts stated in Respondents’ agreements,
and directly overcollected payments from merchants while working as a Funder.
See supra ¶¶ 545, 551.
5. Vadim Serebro
800. Serebro is liable for the repeated and persistent fraud and illegality
committed by Respondents through both Yellowstone and Delta Bridge.
801. Serebro joined Yellowstone in April 2013, see Ex. 50, and in 2018
became its General Counsel, see Serebro Tr. at 19:22-20:3, a position he still holds to
this day, see Stern Tr. at 17:8-11. In May 2021 Serebro also became co-owner,
general counsel, and Chief Strategy Officer of Delta Bridge. See supra ¶¶ 94-95.
802. Serebro has been involved in and aware of Yellowstone’s and Delta
Bridge’s fraud and illegality, as shown by the facts set forth above and shown in the
evidence filed herewith, including the following.
803. Serebro has been deeply involved in Respondents’ business and
shaping their corporate policy. See, e.g., Maczuga Tr. at 329:6-15 (involved in
negotiating APA); Serebro Tr. at 51:25-52:17 (chief strategy officer title); Reece Tr.
at 161:3-15 (Serebro drafted Yellowstone policies), 233:21-234:5 (Serebro oversaw
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HR); Ex. 133 at 1 (Serebro reviewed Delta Bridge financials); Ex. 141 at 5-8; Ex. 139
at 1-3; Ex. 194 at 1; Ex. 255; Ex. 231 at 1; supra ¶¶ 220, 229, 544.
804. Serebro has supervised and has been personally involved in
Yellowstone’s and Delta Bridge’s drafting of their MCA agreements. See Serebro
Tr. at 39:18-25, 49:15-19.
805. Serebro instructed Yellowstone personnel to add to Yellowstone’s MCA
agreements the Fixed Payment Addendum, which included an illusory
Discretionary Reconciliation Clause. See supra ¶ 196.
806. Serebro participated in discussions among Yellowstone management
about how to handle specific Reconciliation requests. See supra ¶ 229.
807. Serebro instructed that Yellowstone’s Contract Generator set 25% as
the default Specified Percentage in Respondents’ MCA agreements. See McNeil Tr.
at 175:25-176:15; Yagecic II Tr. at 143:15-145:4, 160:19-23.
808. Serebro was aware that by setting its Specified Percentages as high as
49%, Respondents were choosing unrealistic percentages that were not connected to
merchants’ actual revenue and thereby making it difficult for merchants to obtain
refunds through payment Reconciliation. See Saffer Tr. at 234:20-238:22.
809. Serebro dismissed complaints that Delta Bridge’s Specified
Percentages were unrealistically high, telling one Funder “not to worry about those
types of things.” Saffer Tr. at 187:24-188:5.
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810. Until at least 2020, Serebro personally invested in Yellowstone’s MCAs
through his company VS Ventures, viewing them as a profitable “opportunity for
investment.” Serebro Tr. at 62:25-63:3; see supra ¶ 96; see also, e.g., Ex. 234.
811. In making such investments, Serebro took no measures to determine
whether Daily Amounts stated in the MCA agreements were good-faith estimates of
Specified Percentages of the merchants’ future revenue, Serebro Tr. at 130:24-
133:18, and he repeatedly invested in MCAs managed by Funders who have
admitted that they made no such calculations when setting Daily Amounts, see id.
at 103:13-107:7; see, e.g., Ex. 234 at 1 (investing in MCA funded by former Funder
McNeil); id. at 3 (and former Funder Dahan); id. at 6 (and Respondent Maczuga);
id. at 9 (and former Funder Saffer); see also supra ¶¶ 138-147.
812. Serebro personally authorized Yellowstone’s Funders to fraudulently
overcollect payments from merchants—from which overcollected amounts
Yellowstone collected purported “fees” as they wished—by as much as 51 days after
the transactions were paid in full by merchants. See supra ¶ 544.
813. As general counsel of Yellowstone, and as owner and controlling officer
of Max Recovery since 2017, Serebro has played a central role in managing
collections for Yellowstone and Delta Bridge. See Serebro Tr. at 19:22-20:14, 68:17-
69:17, 74:11-21.
814. Serebro has been personally involved in collecting on Respondents’
agreements by contacting merchants and demanding that they pay their MCA-
related debt and threatening them with litigation if they failed to do so. E.g., Israel
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Aff. ¶ 23 (Serebro directly contacted merchant to collect on MCA debt); Ex. 426
(same).
815. Through his receipt of profits from Max Recovery, Serebro has
benefited personally when merchants default on their MCAs. See Serebro Tr. at
69:18-70:4, 74:22-75:11.
816. As a result of his dual role, Serebro has benefitted financially whether
Delta Bridge and Yellowstone’s deals with merchants succeeded (as general counsel
and part owner of Delta Bridge and Yellowstone) or whether they failed (as owner of
Max Recovery). See, e.g., supra ¶¶ 487-489 (describing deal where Serebro invested
$750 and then won a judgment including $5,000 in “Attorney’s Fees” and also
earned a contingency).
817. Serebro has filed many affidavits and complaints in New York State
Supreme Court, repeatedly and as a matter of practice, that falsely stated to the
courts that Yellowstone collected payments based on Specified Percentages of
merchants’ revenue. See supra ¶¶ 471-472.
B. Funder Respondents
818. Each Funder Respondent—including Aaron Davis, Steve Davis, Bart
Maczuga, Matthew Melnikoff, Mark Sanders, and David Singfer—has worked
directly in effecting Respondents’ fraudulent and illegal MCA transactions,
including by promoting, underwriting, planning, negotiating, investing in,
organizing others’ investments in, issuing, and collecting upon the transactions; and
referring merchants to Serebro and Respondents’ other attorneys for fraudulent
CAUTION: THIS DOCUMENT HAS NOT YET BEEN REVIEWED BY THE COUNTY CLERK. (See below.) INDEX NO. UNASSIGNED
NYSCEF DOC. NO. 1 RECEIVED NYSCEF: 03/05/2024
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legal proceedings in connection with them, as set forth herein and as shown by the
evidence filed herewith.
819. Through such conduct, each Funder Respondent has participated in
repeated and persistent fraud and illegality, in violation of Executive Law § 63(12).
820. As a result, each Funder Respondent is jointly and severally
individually liable for all repeated or persistent fraud or illegality conducted by
Respondents in connection with transactions of Yellowstone and/or Delta Bridge
that he has managed or has participated in as Funder or investor.
FIRST CAUSE OF ACTION AGAINST ALL RESPONDENTS
PURSUANT TO EXECUTIVE LAW § 63(12):
ILLEGAL ACTS IN THE FORM OF USURY
821. Petitioner repeats and re-alleges the preceding paragraphs as if fully
set forth herein.
822. Executive Law § 63(12) provides for relief upon petition by the NYAG
“whenever any person shall engage in repeated fraudulent or illegal acts or
otherwise demonstrate persistent fraud or illegality in the carrying on, conducting
or transaction of business.”
823. As set forth above, Respondents have engaged in usury in violation of
General Obligations Law § 5-501(1) by repeatedly and persistently charging, taking,
or receiving money as interest on the loan of money at rates far exceeding the
maximum permissible rate of 16% prescribed in Banking Law § 14-a(1).
824. Accordingly, Respondents have engaged in repeated and persistent
illegality in violation of Executive Law § 63(12).
CAUTION: THIS DOCUMENT HAS NOT YET BEEN REVIEWED BY THE COUNTY CLERK. (See below.) INDEX NO. UNASSIGNED
NYSCEF DOC. NO. 1 RECEIVED NYSCEF: 03/05/2024
This is a copy of a pleading filed electronically pursuant to New York State court rules (22 NYCRR §202.5-b(d)(3)(i))
which, at the time of its printout from the court system's electronic website, had not yet been reviewed and
approved by the County Clerk. Because court rules (22 NYCRR §202.5[d]) authorize the County Clerk to reject
filings for various reasons, readers should be aware that documents bearing this legend may not have been
accepted for filing by the County Clerk.
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SECOND CAUSE OF ACTION AGAINST ALL RESPONDENTS
PURSUANT TO EXECUTIVE LAW § 63(12):
ILLEGAL ACTS IN THE FORM OF CRIMINAL USURY
825. Petitioner repeats and re-alleges the preceding paragraphs as if fully
set forth herein.
826. Executive Law § 63(12) provides for relief upon petition by the NYAG
“whenever any person shall engage in repeated fraudulent or illegal acts or
otherwise demonstrate persistent fraud or illegality in the carrying on, conducting
or transaction of business.”
827. As set forth above, Respondents have engaged in criminal usury in
violation of Penal Law § 190.40 by repeatedly, persistently, and knowingly
charging, taking, or receiving money as interest on loans at rates exceeding 25% per
annum, or the equivalent rate for periods a longer or shorter than a year, without
being authorized or permitted by law to do so.
828. Accordingly, Respondents have engaged in repeated and persistent
illegality in violation of Executive Law § 63(12).
THIRD CAUSE OF ACTION AGAINST ALL RESPONDENTS
PURSUANT TO EXECUTIVE LAW § 63(12):
ILLEGAL ACTS IN THE FORM OF ENGAGING IN THE BUSINESS OF
MAKING HIGH-INTEREST LOANS WITHOUT A LICENSE IN VIOLATION
OF BANKING LAW §§ 340 AND 356
829. Petitioner repeats and re-alleges the preceding paragraphs as if fully
set forth herein.
830. Executive Law § 63(12) provides for relief upon petition by the NYAG
“whenever any person shall engage in repeated fraudulent or illegal acts or
CAUTION: THIS DOCUMENT HAS NOT YET BEEN REVIEWED BY THE COUNTY CLERK. (See below.) INDEX NO. UNASSIGNED
NYSCEF DOC. NO. 1 RECEIVED NYSCEF: 03/05/2024
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otherwise demonstrate persistent fraud or illegality in the carrying on, conducting
or transaction of business.”
831. Under Banking Law § 340 it is unlawful for a person or entity to
“engage in the business of making loans . . . in a principal amount of fifty thousand
dollars or less for business and commercial loans, and charge . . . a greater rate of
interest than the lender would be permitted by law to charge if [it] were not a
licensee hereunder except as authorized by [Banking Law Article IX] and without
first obtaining a license from the superintendent.”
832. Under Banking Law § 356 it is unlawful for a person or entity, “other
than a licensee under [Banking Law Article IX],” to “charge . . . interest . . . greater
than [it] would be permitted by law to charge if it were not a licensee hereunder
upon a loan not exceeding the maximum amounts prescribed” in Banking Law
§ 340.
833. As set forth herein, Respondents have repeatedly and persistently
engaged in the business of making business and commercial loans in New York in
principal amounts of fifty thousand dollars or less.
834. In making such loans, Respondents have charged interest at rates
above the maximum interest rate a lender is permitted to charge without a license,
which is 16% pursuant to General Obligations Law § 5-501(1) and Banking Law
§ 14-a(1).
CAUTION: THIS DOCUMENT HAS NOT YET BEEN REVIEWED BY THE COUNTY CLERK. (See below.) INDEX NO. UNASSIGNED
NYSCEF DOC. NO. 1 RECEIVED NYSCEF: 03/05/2024
This is a copy of a pleading filed electronically pursuant to New York State court rules (22 NYCRR §202.5-b(d)(3)(i))
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835. Respondents have not obtained licenses from the Department of
Financial Services or the Superintendent of Banking allowing them to engage in the
business of making loans or charging interests in excess of statutory amounts.
836. Accordingly, Respondents have engaged in repeated and persistent
illegality in violation of Executive Law § 63(12).
FOURTH CAUSE OF ACTION AGAINST ALL RESPONDENTS
PURSUANT TO EXECUTIVE LAW § 63(12):
FRAUD
837. Petitioner repeats and re-alleges the preceding paragraphs as if fully
set forth herein.
838. Executive Law § 63(12) provides for relief upon petition by the NYAG
“whenever any person shall engage in repeated fraudulent or illegal acts or
otherwise demonstrate persistent fraud or illegality in the carrying on, conducting
or transaction of business.”
839. Executive Law § 63(12) defines “fraud” to include “any device, scheme
or artifice to defraud and any deception, misrepresentation, concealment,
suppression, false pretense, [or] false promise.”
840. As set forth above, Respondents have repeatedly and persistently
engaged in fraud by, inter alia:
• Misrepresenting to merchants the nature of their loans as purchases of
merchants’ revenue;
• Misrepresenting that their merchant agreements are enforceable when
in fact they are usurious loans, and thus void under New York law;
• Falsely advertising that Yellowstone’s MCAs require no collateral and
no personal guarantee;
CAUTION: THIS DOCUMENT HAS NOT YET BEEN REVIEWED BY THE COUNTY CLERK. (See below.) INDEX NO. UNASSIGNED
NYSCEF DOC. NO. 1 RECEIVED NYSCEF: 03/05/2024
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• Falsely promoting their transactions as having flexible repayment
plans;
• Misrepresenting to merchants that they will provide them with “lines
of credit” and other financial products that Respondents do not in fact
provide;
• Falsely representing to merchants that the Daily Amounts stated in
Respondents’ agreements are calculated in good faith based on
“Specified Percentages” of the merchants’ revenue;
• Manipulating the Specified Percentages stated in their agreements to
make it virtually impossible for merchants to obtain a Reconciliation of
past payments or Adjustment of future payments based on the
Specified Percentage, despite declining revenue;
• Falsely representing that they will adjust merchants’ future payments
based on Specified Percentages of merchants’ revenue;
• Fraudulently continuing to debit merchants’ bank accounts after they
were fully paid off, and misrepresenting to merchants the total
amounts collected, and the remaining balance;
• Short-changing merchants on their funded amounts and overcharging
them on fees deducted from the advances;
• Misrepresenting the basis of the fees Respondents deduct from MCAs;
• Obtaining judgments in New York State Supreme Court based on
affidavits and complaints that falsely state that Respondents collect
payments from merchants based on Specified Percentages of
merchants’ receipts, thereby concealing from courts the fact that their
transactions are in fact usurious loans; and
• Obtaining judgments in New York State Supreme Court based on false
affidavits that misrepresent the facts of merchants’ purported defaults.
841. As set forth above, Respondents have repeatedly and persistently
engaged in fraud in the form of unconscionability by, inter alia:
• Preying on financially desperate merchants;
• Making it likely, if not certain, that merchants would default on their
agreements, even on “Day One” of the agreements, supra ¶ 369;
CAUTION: THIS DOCUMENT HAS NOT YET BEEN REVIEWED BY THE COUNTY CLERK. (See below.) INDEX NO. UNASSIGNED
NYSCEF DOC. NO. 1 RECEIVED NYSCEF: 03/05/2024
This is a copy of a pleading filed electronically pursuant to New York State court rules (22 NYCRR §202.5-b(d)(3)(i))
which, at the time of its printout from the court system's electronic website, had not yet been reviewed and
approved by the County Clerk. Because court rules (22 NYCRR §202.5[d]) authorize the County Clerk to reject
filings for various reasons, readers should be aware that documents bearing this legend may not have been
accepted for filing by the County Clerk.
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• Printing agreements in tiny, illegible type, e.g., Ex. 105 at 2; Ex. 89 at
2;
• Concealing from merchants the amounts of their fees until after the
agreements are signed;
• Misrepresenting the fundamental nature of their MCAs;
• Requiring merchants to repay the transactions at fixed amounts, finite
terms, and sky-high interest rates;
• Requiring secured, guaranteed repayment rights that Respondents
may exercise in the instance of bankruptcy or inability to pay;
• Requiring merchants and guarantors to sign confessions of judgment,
enabling Respondents to immediately obtain and execute judgments
against them;
• Requiring that when a merchant obtains a new MCA to Refinance a
prior MCA, the total Payback Amount of the prior advance is deducted
from the new MCA principal, including all interest that would have
been paid over time;
• Requiring merchants to provide Respondents with “right to enter,
without notice, the premises of [merchant’s] business” and “access to
[merchant’s] employees and records and all other items of property
located at the [merchant’s] place of business,” Delta Bridge Exemplar
at 7 § 19(s); Yellowstone 2020 Exemplar at 8 § 21(s);
• Requiring merchants to assign Respondents the lease of merchants’
business premises, Delta Bridge Exemplar at 9 § 26(e);
• Requiring merchants to provide Respondents the log-in information to
their bank accounts, e.g., Ex. 111 at 3 § 8, 20; Yellowstone 2018
Exemplar at 9;
• Requiring merchants and guarantors to pay Respondents’ attorneys’
fees in the event of litigation in which Respondents are successful but
not imposing corresponding requirements on Respondents, Delta
Bridge Exemplar at 9 § 26(d); Yellowstone 2020 Exemplar at 10 § 29;
and
• Requiring merchants to “irrevocably” appoint Respondents as
“attorney[s]-in-fact” with “power of attorney” over merchants’ finances,
CAUTION: THIS DOCUMENT HAS NOT YET BEEN REVIEWED BY THE COUNTY CLERK. (See below.) INDEX NO. UNASSIGNED
NYSCEF DOC. NO. 1 RECEIVED NYSCEF: 03/05/2024
This is a copy of a pleading filed electronically pursuant to New York State court rules (22 NYCRR §202.5-b(d)(3)(i))
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e.g., Delta Bridge Exemplar at 9 § 28; Yellowstone 2020 Exemplar at
10 § 32.
842. Accordingly, Respondents have engaged in repeated and persistent
fraud in violation of Executive Law § 63(12).
FIFTH CAUSE OF ACTION AGAINST ALL RESPONDENTS
PURSUANT TO EXECUTIVE LAW § 63(12):
DECEPTIVE ACTS AND PRACTICES IN VIOLATION OF GENERAL
BUSINESS LAW § 349
843. Petitioner repeats and re-alleges the preceding paragraphs as if fully
set forth herein.
844. GBL § 349(a) declares unlawful “deceptive acts or practices in the
conduct of any business, trade or commerce or in the furnishing of any service in
[New York].”
845. GBL § 349(b) authorizes the NYAG to bring an action for an
injunction, restitution, and penalties whenever the NYAG has reason to believe that
any person, firm, corporation, association, or agent or employee thereof, has
engaged in deceptive acts and practices in this state.
846. As set forth above, Respondents have repeatedly and persistently
engaged in deceptive acts and practices by, inter alia:
• Misrepresenting to merchants the nature of their loans as purchases of
merchants’ revenue;
• Misrepresenting that their merchant agreements are enforceable when
in fact they are usurious loans, and thus void under New York law;
• Falsely advertising that Yellowstone’s MCAs require no collateral and
no personal guarantee;
CAUTION: THIS DOCUMENT HAS NOT YET BEEN REVIEWED BY THE COUNTY CLERK. (See below.) INDEX NO. UNASSIGNED
NYSCEF DOC. NO. 1 RECEIVED NYSCEF: 03/05/2024
This is a copy of a pleading filed electronically pursuant to New York State court rules (22 NYCRR §202.5-b(d)(3)(i))
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• Falsely promoting their transactions as having flexible repayment
plans;
• Misrepresenting to merchants that they will provide them with “lines
of credit” and other financial products that Respondents do not in fact
provide;
• Falsely representing to merchants that the Daily Amounts stated in
Respondents’ agreements are calculated in good faith based on
“Specified Percentages” of the merchants’ revenue;
• Manipulating the Specified Percentages stated in their agreements to
make it virtually impossible for merchants to obtain a Reconciliation of
past payments or Adjustment of future payments based on the
Specified Percentage, despite declining revenue;
• Falsely representing that they will adjust merchants’ future payments
based on Specified Percentages of merchants’ revenue;
• Steering merchants to Adjustments of their payment amounts, when
they are entitled to Reconciliation;
• Misrepresenting the total amounts Respondents will collect from
merchants’ bank accounts over time, then “overcollecting” Daily
Amounts in excess of the stated total amounts;
• Short-changing merchants on their funded amounts and overcharging
them on fees deducted from the advances;
• Misrepresenting the basis of the fees Respondents deduct from MCAs;
• Obtaining judgments in New York State Supreme Court based on
affidavits and complaints that falsely state that Respondents collect
payments from merchants based on Specified Percentages of
merchants’ receipts, thereby concealing from courts the fact that their
transactions are in fact usurious loans; and
• Obtaining judgments in New York State Supreme Court based on false
affidavits that misrepresent the facts of merchants’ purported defaults.
847. Accordingly, Respondents have engaged in deceptive acts and practices
in violation of GBL § 349.
CAUTION: THIS DOCUMENT HAS NOT YET BEEN REVIEWED BY THE COUNTY CLERK. (See below.) INDEX NO. UNASSIGNED
NYSCEF DOC. NO. 1 RECEIVED NYSCEF: 03/05/2024
This is a copy of a pleading filed electronically pursuant to New York State court rules (22 NYCRR §202.5-b(d)(3)(i))
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accepted for filing by the County Clerk.
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SIXTH CAUSE OF ACTION AGAINST DELTA BRIDGE FUNDING LLC:
VOIDABLE TRANSFER PURSUANT TO THE UNIFORM VOIDABLE
TRANSACTIONS ACT
848. Petitioner repeats and re-alleges the preceding paragraphs as if fully
set forth herein.
849. The Uniform Voidable Transactions Act (“UVTA”) provides that:
A transfer . . . is voidable as to a creditor, whether the creditor’s claim
arose before or after the transfer was made . . ., if the debtor made the
transfer . . . (1) with actual intent to hinder, delay or defraud any
creditor of the debtor; or (2) without receiving a reasonably equivalent
value in exchange for the transfer . . ., and the debtor: . . . (ii) intended
to incur, or believed or reasonably should have believed that the debtor
would incur, debts beyond the debtor’s ability to pay as they became due.
N.Y. Debt. & Cred. Law (“DCL”) § 273; N.J. Stat. Ann. § 25:2-25.
850. The UVTA also provides that:
A transfer made . . . by a debtor is voidable as to a creditor whose claim
arose before the transfer was made or the obligation was incurred if the
debtor made the transfer or incurred the obligation without receiving a
reasonably equivalent value in exchange for the transfer or obligation
and the debtor was insolvent at that time or the debtor became insolvent
as a result of the transfer or obligation.
DCL § 274(a); N.J. Stat. Ann. § 25:2-27.
851. As set forth above, Yellowstone transferred substantially all of its
assets to Delta Bridge on May 21, 2021. Supra ¶¶ 597-615.
852. Yellowstone did not receive equivalent value in exchange for the assets
it transferred to Delta Bridge. Supra ¶¶ 680-685.
853. At the time of the asset transfer, Yellowstone management was aware
that the company was approaching insolvency and facing liabilities far beyond its
CAUTION: THIS DOCUMENT HAS NOT YET BEEN REVIEWED BY THE COUNTY CLERK. (See below.) INDEX NO. UNASSIGNED
NYSCEF DOC. NO. 1 RECEIVED NYSCEF: 03/05/2024
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ability to pay, including liabilities that management valued at $2 billion if its MCAs
were determined to be loans. Supra ¶¶ 654-659.
854. At the time of the asset transfer, the NYAG was investigating claims
against Yellowstone including usury, and the State of New Jersey had filed a
lawsuit against Yellowstone that included claims of usury. Yellowstone was also
facing myriad other lawsuits. Supra ¶¶ 114, 655-656.
855. At the time of the asset transfer, Yellowstone had just resolved (less
than one month prior) a lawsuit by the FTC, incurring a liability of $9,837,000 to
the FTC. Supra ¶ 655.
856. Yellowstone management admitted that Yellowstone transferred its
assets with intent to avoid its liabilities. Supra ¶¶ 660-666.
857. Delta Bridge, the recipient of Yellowstone’s assets, is 70% owned by
Yellowstone insiders, including majority-owner Respondent Maczuga, as well as
Respondent Serebro and Robin Spence. Supra ¶¶ 573-575.
858. Yellowstone retained significant control of the assets, including by
prohibiting Delta Bridge from transferring or licensing them to anybody else, and
by holding a security interest that allowed Yellowstone to take control of Delta
Bridge, including if Delta Bridge missed a single payment. Supra ¶¶ 677-679.
859. The asset transfer from Yellowstone to Delta Bridge was undisclosed
except as strictly necessary to effect the transfer. Supra ¶¶ 632-635.
860. Accordingly, the transfer of assets from Respondent Yellowstone
Capital LLC to Respondent Delta Bridge Funding LLC is voidable under the UVTA,
CAUTION: THIS DOCUMENT HAS NOT YET BEEN REVIEWED BY THE COUNTY CLERK. (See below.) INDEX NO. UNASSIGNED
NYSCEF DOC. NO. 1 RECEIVED NYSCEF: 03/05/2024
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and Petitioner is entitled to judgment, to the extent necessary to satisfy the
Petitioner’s claims against Yellowstone: (i) setting aside the transfer; (ii)
disregarding the transfer and allowing Petitioner to attach or levy execution upon
property conveyed and proceeds therefrom; and (iii) awarding the value of the
property, including interest or appreciation. See DCL § 276; N.J. Stat. Ann. § 25:2-
29.
REQUEST FOR RELIEF
WHEREFORE, the People of the State of New York respectfully request that
the Court issue an order and judgment:
a. Permanently enjoining Respondents; their agents, trustees, employees,
successors, heirs, and assigns; and any other person under their direction or control,
whether acting individually or in concert with others, or through any corporate or
other entity or device through which one or more of them may now or hereafter act
or conduct business, from engaging in the fraudulent and illegal practices alleged
herein, including but not limited to (i) misrepresenting the nature of the products
and services they provide; (ii) issuing, selling, or servicing loans under the guise
that they are Merchant Cash Advances or any non-loan transaction; (iii) violating
New York Banking Law §§ 340 and 356; (iv) misrepresenting the amounts of funds
that Respondents will provide to merchants, fees that Respondents will charge and
the basis for such fees, and the amounts of payments that Respondents will collect;
b. Permanently enjoining David Glass from participating in the business
of advertising, marketing, soliciting, brokering, underwriting, consulting on,
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NYSCEF DOC. NO. 1 RECEIVED NYSCEF: 03/05/2024
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offering, servicing, or collecting on merchant cash advances, purchases of
receivables or receipts or revenue, factoring, loans, or any other type of business
financing, including by receiving compensation or other financial benefit from or
participating in such activities;
c. Enjoining Respondents from involvement in the Merchant Cash
Advance business for an appropriate length of time of no less than ten years;
d. Ordering Respondents to cease all collection of payments or other
moneys related to their Merchant Cash Advances pending the hearing of this
Petition;
e. Ordering the rescission of each agreement entered into between
Respondents and any merchant in connection with the issuance of a Merchant Cash
Advance, including all riders, amendments, appendices, attachments, or other forms
or papers appended thereto, and all agreements between merchants and
Respondents (or agents or representatives of Respondents) memorializing purported
debts of merchants and/or imposing obligations of merchants with respect to
Respondents’ Merchant Cash Advances, including agreements of settlement;
f. Ordering Respondents to file papers in court sufficient to obtain
vacatur of all court judgments issued in their favor and against merchants and/or
their guarantors concerning purported defaults or breaches of Merchant Cash
Advance transactions by merchants, or settlement agreements with merchants,
including judgments issued based on the filing of a confession of judgment and
CAUTION: THIS DOCUMENT HAS NOT YET BEEN REVIEWED BY THE COUNTY CLERK. (See below.) INDEX NO. UNASSIGNED
NYSCEF DOC. NO. 1 RECEIVED NYSCEF: 03/05/2024
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based on filing of a complaint, by all courts of this State that have issued such
judgments, in papers acceptable to Petitioner;
g. Staying all marshals, sheriffs, and collections agents who hold
executions under such judgments from executing or collecting upon them;
h. Ordering Respondents to apply for dismissal of all pending court
proceedings filed on their behalf against merchants and/or their guarantors
concerning purported defaults or breaches of MCA transactions by merchants;
i. Ordering Respondents to take measures sufficient to terminate all
liens or security interests related to their MCAs;
j. Ordering Respondents to provide an accounting to Petitioner of their
collections concerning MCAs including but not limited to: a list of names and
addresses of each merchant from whom Respondents collected or received monies
since 2013 in connection with MCAs; a complete history, including dates, amounts,
and sources, of all monies collected or received by Respondents from all such
merchants (whether through Daily Amounts, fees, execution of judgments, or any
other avenue), as well as all moneys provided by Respondents to such merchants; a
complete history, including dates, amounts, and sources, of all fees collected or
received by Respondents from all such merchants, including the type and basis of
the fee; and copies of all MCA agreements and/or judgments purportedly providing
for such collection;
k. Ordering Respondents to pay full restitution and damages as to all
merchants that have entered into agreements with Respondents for MCAs,
CAUTION: THIS DOCUMENT HAS NOT YET BEEN REVIEWED BY THE COUNTY CLERK. (See below.) INDEX NO. UNASSIGNED
NYSCEF DOC. NO. 1 RECEIVED NYSCEF: 03/05/2024
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including those not identified at the time of the order, with such an award providing
for (i) the refund of all interest collected by Respondents, whether directly or
through intermediaries, from each payment made by merchants or their guarantors
in connection with MCAs; (ii) the refund of all moneys collected by Respondents
pursuant to their fraudulently obtained court judgments; (iii) the refund of all
moneys collected by Respondents as fraudulent fees; (iv) the refund of all moneys
overcollected by Respondents beyond the total collection amounts represented; (v)
damages for losses caused by Respondents’ conduct; and (vi) such affirmative action
as may be necessary to ensure that the monetary relief is effectively delivered to
such merchants and guarantors;
l. Ordering Respondents to pay a civil penalty of $5,000 for each
fraudulent MCA transaction pursuant to GBL § 350-d;
m. Ordering Respondents to disgorge all profits from the fraudulent and
illegal practices alleged herein;
n. Awarding to Petitioner, pursuant to New York Civil Practice Law and
Rules § 8303(a)(6), costs in the amount of $2,000 against each Respondent;
o. Pursuant to the UVTA, setting aside the asset transfer between
Yellowstone and Delta Bridge to the extent necessary to satisfy the judgment
against Yellowstone; allowing satisfaction of the judgment against Yellowstone from
the transferred assets and all of Delta Bridge’s proceeds attributable thereto,
directly from the funds of Delta Bridge; and awarding, up to the amount of the
judgment against Yellowstone, the value of the transferred assets and Delta
CAUTION: THIS DOCUMENT HAS NOT YET BEEN REVIEWED BY THE COUNTY CLERK. (See below.) INDEX NO. UNASSIGNED
NYSCEF DOC. NO. 1 RECEIVED NYSCEF: 03/05/2024
This is a copy of a pleading filed electronically pursuant to New York State court rules (22 NYCRR §202.5-b(d)(3)(i))
which, at the time of its printout from the court system's electronic website, had not yet been reviewed and
approved by the County Clerk. Because court rules (22 NYCRR §202.5[d]) authorize the County Clerk to reject
filings for various reasons, readers should be aware that documents bearing this legend may not have been
accepted for filing by the County Clerk.
286 of 289
279
Bridge’s proceeds attributable thereto, including interest or appreciation, to the
maximum extent allowed by law; and
CAUTION: THIS DOCUMENT HAS NOT YET BEEN REVIEWED BY THE COUNTY CLERK. (See below.) INDEX NO. UNASSIGNED
NYSCEF DOC. NO. 1 RECEIVED NYSCEF: 03/05/2024
This is a copy of a pleading filed electronically pursuant to New York State court rules (22 NYCRR §202.5-b(d)(3)(i))
which, at the time of its printout from the court system's electronic website, had not yet been reviewed and
approved by the County Clerk. Because court rules (22 NYCRR §202.5[d]) authorize the County Clerk to reject
filings for various reasons, readers should be aware that documents bearing this legend may not have been
accepted for filing by the County Clerk.
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p.
Granting
such
other
and
further
relief
as
the
Court
deems
just
and
proper.
Dated:
March
5,
2024
New York, New York
Of
counsel:
JANE
M.
AZIA,
Bureau
Chief
Respectfully
submitted,
LETITIA
JAMES
Attorney
General
of
the
State
of New York
B:ttomAZitione
Adam
J.
Riff
Assistant
Attorney
General
Bureau
of
Consumer
Frauds
and
Protection
28
Liberty
Street
New York, New York 10005
212-416-6250
adam.riff@ag .ny .gov
John
P.
Figura
Assistant
Attorney
General
Oluwadamilola
E. Obaro
Assistant
Attorney
General
Emily
E.
Smith
Attorney
General
Fellow
Attorneys
for the People
of
the
State
of
New
York
LAURA
J.
LEVINE,
Deputy
Bureau
Chief
280
CAUTION: THIS DOCUMENT HAS NOT YET BEEN REVIEWED BY THE COUNTY CLERK. (See below.) INDEX NO. UNASSIGNED
NYSCEF DOC. NO. 1 RECEIVED NYSCEF: 03/05/2024
This is a copy of a pleading filed electronically pursuant to New York State court rules (22 NYCRR §202.5-b(d)(3)(i))
which, at the time of its printout from the court system's electronic website, had not yet been reviewed and
approved by the County Clerk. Because court rules (22 NYCRR §202.5[d]) authorize the County Clerk to reject
filings for various reasons, readers should be aware that documents bearing this legend may not have been
accepted for filing by the County Clerk.
288 of 289
STATE
OF
NEW
YORK
COUNTY
OF
NEW
YORK
VERIFICATION
)
) ss.:
)
Adam
J.
Riff, being duly sworn, deposes
and
says:
I
am
an
Assistant
Attorney
General
in
the
office of
Letitia
James,
Attorney
General
of
the
State
of New York,
assigned
to
the
Bureau
of
Consumer
Frauds
and
Protection. I
am
duly
authorized
to
make
this
verification.
I
have
read
the
foregoing
petition
and
know
the
contents
thereof,
which
are
to
my knowledge
true,
except
as
to
matters
therein
stated
to be alleged on
information
and
belief,
and
as
to
those
matters,
I believe
them
to be
true.
The grounds for
my
beliefs
as
to
all
matters
stated
upon
information
and
belief
are
investigatory
materials
contained
in
the
files of
the
Bureau
of
Consumer
Frauds
and
Protection
in
the
New York
State
Office
of
the
Attorney
General.
The
reason
this
verification is
not
made
by
Petitioner
is
that
Petitioner
is a
body politic,
and
the
Attorney
General
of
the
State
of New York is
the
Petitioner's
duly
authorized
representative.
Sworn
to
before me
this
_!/__th day
of
March, 2024
KRISTIN LILIANA
MANZUR
Notary Public, State of New York
Qualified
in
Richmond
County
No.
01MA6318068
281
CAUTION: THIS DOCUMENT HAS NOT YET BEEN REVIEWED BY THE COUNTY CLERK. (See below.) INDEX NO. UNASSIGNED
NYSCEF DOC. NO. 1 RECEIVED NYSCEF: 03/05/2024
This is a copy of a pleading filed electronically pursuant to New York State court rules (22 NYCRR §202.5-b(d)(3)(i))
which, at the time of its printout from the court system's electronic website, had not yet been reviewed and
approved by the County Clerk. Because court rules (22 NYCRR §202.5[d]) authorize the County Clerk to reject
filings for various reasons, readers should be aware that documents bearing this legend may not have been
accepted for filing by the County Clerk.
289 of 289
