New York Attorney General (AG) Letitia James filed a lawsuit on March 5 against Yellowstone Capital, its founder David Glass, and a network of 30 other affiliated companies and individuals. James alleges that Yellowstone Capital, acting through a myriad of different company names, engaged in an orchestrated predatory lending scheme. James’ lawsuit is among a wave of recent enforcement actions targeting alleged deceptive financial practices.
In her lawsuit, James alleges that Yellowstone Capital and its related entities offered high-interest, short-term funding for small businesses provided through merchant cash advances (MCAs) in violation of the law. MCAs are a popular type of funding option among small businesses that are unable to secure traditional small business loans from banking institutions, and offer flexible payment amounts and open-ended terms.
However, according to the allegations, Yellowstone Capital and its related entities collected payments at fixed daily amounts, which were debited directly from the borrower’s bank accounts over short repayment periods, such as 60 or 90 days. The complaint alleges that the defendants, rather than reconciling daily payments to ensure they would not surpass a predetermined percentage of the borrowers’ receipts, essentially disqualified borrowers from payment refunds. They did this by using deceptive tactics when the daily payments surpassed the percentage of receipts. As a result of these practices, James alleges that the MCAs functioned as short-term loans with interest rates as high as 820%. The lawsuit also alleges that Yellowstone Capital manipulated the New York court system by fraudulently obtaining judgments against the borrowers.
James is seeking to recover at least $1.4 billion in interest and restitution, and an injunction, which would require that the companies cease their activities. The lawsuit follows a settlement between the Federal Trade Commission (FTC) and Yellowstone Capital involving similar allegations. The FTC investigation resulted in a July 2022 settlement that required Yellowstone Capital to pay $9.8 million.
Why It Matters
This case serves as a reminder of the regulatory priorities of regulatory bodies like the New York AG’s office to enforce consumer protection laws and protect consumers and businesses from what the regulators perceive as fraudulent practices. Interestingly, before initiating the lawsuit, James secured settlements with five individuals implicated in the Yellowstone Capital operation. These settlements recovered a total of $3.37 million in restitution and prohibited the individuals from participating in the merchant cash advance industry.
Additional articles on State Attorneys General offices in the alleged deceptive practices space:
- Massachusetts AG Settles With Major Student Loan Servicer for $1.8M Over Faulty Notices | Regulatory Oversight
- Rhode Island AG Seeks to Amend Complaint Filed Against Solar Company in Deceptive Trade Practice Act Case | Regulatory Oversight
- Michigan AG Launches Investigation Into Deceptive Practices by Pest Control Operators | Regulatory Oversight
Troutman Pepper State Attorneys General Team
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Ashley Taylor – Co-leader and Firm Vice Chair Ashley is co-leader of the firm’s nationally ranked State Attorneys General practice, vice chair of the firm, and a partner in its Regulatory Investigations, Strategy + Enforcement (RISE) Practice Group. He helps his clients navigate the complexities involved with multistate attorneys general investigations and enforcement actions, federal agency actions, and accompanying litigation. |
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Clay Friedman – Co-leader Clayton is a partner in the firm’s Regulatory Investigations, Strategy + Enforcement (RISE) Practice Group and co-leader of the State Attorneys General practice, multidisciplinary teams with decades of experience crafting effective strategies to help deter or mitigate the risk of enforcement actions and litigation. |
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Judy Jagdmann Judy is a partner in the firm’s Regulatory Investigations, Strategy and Enforcement (RISE) practice, based in the Richmond office. She brings experience serving as chair and commissioner of the Virginia State Corporate Commission (VSCC) from 2006 through 2022, which includes regulating the utilities, insurance, banking, and securities industries. She also served as Virginia’s attorney general from 2005-2006. |
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Stephen Piepgrass Stephen leads the firm’s Regulatory Investigations, Strategy + Enforcement (RISE) Practice Group. He focuses his practice on enforcement actions, investigations, and litigation. Stephen primarily represents clients engaging with, or being investigated by, state attorneys general and other state or local governmental enforcement bodies, including the CFPB and FTC, as well as clients involved with litigation, with a particular focus on heavily regulated industries. |
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Avi Schick A former deputy attorney general of New York, Avi applies his experience in bet-the-company matters, representing clients in criminal and civil investigations and enforcement actions before state and federal regulators, prosecutors and enforcement agencies. |
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Michael Yaghi Michael is a partner in the firm’s State Attorneys General and Regulatory Investigations, Strategy + Enforcement (RISE) Practice Groups, nationwide teams that advise clients on consumer protection enforcement matters and other regulatory issues. |
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Samuel E. “Gene” Fishel Gene is a member of the firm’s Regulatory Investigations, Strategy + Enforcement (RISE) practice, based in the Richmond office. He brings extensive regulatory experience, having most recently served as senior assistant attorney general and chief of the Computer Crime Section in the Office of the Attorney General of Virginia, and as special assistant U.S. attorney in the Eastern District of Virginia for 20 years. |
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Tim Bado Tim is an associate in the firm’s Regulatory Investigations, Strategy + Enforcement (RISE) Practice Group, where he represents corporations and individuals facing potential civil and criminal exposure. Tim’s experience in government investigations, enforcement actions, and white-collar litigation spans a number of industries, including financial services, pharmaceutical, health care, and government contracting, among others. |
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Chris Carlson Chris Carlson represents clients in regulatory, civil and criminal investigations and litigation. In his practice, Chris regularly employs his prior regulatory experience to benefit clients who are interacting with and being investigated by state attorneys general. |
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Natalia Jacobo Natalia is an associate in the firm’s Regulatory Investigations, Strategy and Enforcement (RISE) practice. She focuses her practice on two primary areas: government contracting and state attorney general work. |
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Namrata Kang Namrata (Nam) is an associate in the firm’s Regulatory Investigations, Strategy + Enforcement (RISE) Practice Group, based in the Washington, D.C. office. She routinely advises clients on a wide variety of state and federal regulatory matters, with a particular emphasis on state consumer protection laws relating to consumer financial services and marketing and advertising. |
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Michael Lafleur Michael is an associate in the firm’s Regulatory Investigations, Strategy, and Enforcement Practice Group. Based out of the firm’s Boston office, Mike has deep experience in litigation, investigations, and other regulatory matters involving state-level regulators and state attorneys general. |
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Susan Nikdel Susan is an associate in the firm’s Consumer Financial Services Practice Group, and focuses her practice on consumer financial services matters. She has defended several of the nation’s largest and most influential financial institutions in individual and class action litigation involving the Telephone Consumer Protection Act (TCPA), Fair Credit Reporting Act (FCRA), Fair Debt Collection Practices Act (FDCPA), and other consumer privacy statutes. |
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John Sample John is an associate in the firm’s Regulatory Investigations, Strategy + Enforcement (RISE) Practice Group. He focuses his practice on a wide range of general and complex litigation matters, including shareholder disputes, fraud, products liability, breach of contract, and Biometric Information Privacy Act claims. |
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Whitney Shephard Whitney is an associate in the firm’s Regulatory Investigations, Strategy + Enforcement (RISE) Practice Group. She represents clients facing state and federal regulatory investigations and enforcement actions, as well as related civil litigation. |
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Trey Smith Trey is an associate in the firm’s Regulatory Investigations, Strategy + Enforcement Practice. He focuses his practice on helping financial institutions and consumer facing companies navigate regulatory investigations and resulting litigation. |
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Daniel Waltz Daniel is a member of the firm’s Regulatory Investigations, Strategy + Enforcement (RISE) Practice Group and State Attorneys General team. He counsels clients in connection with navigating complex government investigations, regulatory compliance, and transactions, involving state and federal government contracting obligations. Drawing on his broad experience as a former assistant attorney general for the state of Illinois, Daniel is a problem solver both inside and outside the courtroom. |
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Stephanie Kozol Stephanie is Troutman Pepper’s senior government relations manager in the state attorneys general department. |