The multistate predatory lending and fraud litigation with more than a million low-income plaintiffs against two Fort Worth financial tech companies – Think Finance and Elevate Credit – is in “its final chapter,” lawyers told a federal bankruptcy judge Wednesday.
Lawyers for a court-appointed litigation trustee told U.S. Bankruptcy Judge Harlan Hale that Elevate agreed to pay $33 million to settle three class actions and an adversarial bankruptcy complaint that alleged a decadelong scheme of predatory lending and subsequent corporate transactional legal maneuvering that claimed victims in nearly every state.
Gary Lebowitz, a partner for Cole Schotz in Baltimore, also said Elevate has agreed to buy back 925,000 shares of its stock for another $3 million. The litigation trust obtained the shares as part of a settlement agreement with Elevate’s former CEO, Ken Rees, who now leads a Dallas healthcare-finance company called Covered Care.
In all, the litigation against Think Finance and Elevate, which is a publicly traded fintech company, recovered more than $125 million for the creditors and had $700 million in outstanding debt voided.
Lebowitz told Judge Hale that the deal needs final approval from the federal judge in Virginia who is overseeing the primary class action dispute. He said judicial approval is expected in April.
Dallas lawyer Joel Reese, who represents Elevate, told Judge Hale that his client endorses the settlement agreement.
The litigation started in 2017 when two consumer class actions were filed against Think Finance alleging the company’s business practices violated state usury laws and the federal Racketeer Influenced and Corrupt Organizations Act.
The complaints contended that Think Finance operated a fraudulent internet-lending business that generated billions of dollars in revenues through a so-called “rent-a-tribe” scheme that exploited Native American tribes by loaning money to those with bad credit at triple-digit interest rates.
When federal and state regulators cracked down on predatory lenders in 2013 and 2014, Think Finance created a new entity called Elevate Credit. Think Finance “transferred its assets out of the reach of creditors through a purported tax-free spin-off” and left all liabilities with Think Finance with no means of compensating the victims, according to court documents.
Cole Schotz partner James Walker, a Dallas lawyer also appointed to represent the Think Finance Litigation Trust, filed a complaint as part of an adversarial bankruptcy proceeding in Fort Worth in 2020, accusing Elevate executives of three counts of intentional fraudulent transfers of assets for the sole purpose keeping creditors from collecting.
The law firms involved in the litigation include Reese Marketos, Forshey Prostok and Cole Schotz.
Although the $33 million from Elevate is far short of the $248 million that the litigation trustee alone originally sought against the Fort Worth fintech spinoff, the class plaintiff lawyers now argue that the settlement is “an excellent result considering the circumstances of the litigation and the strength of the plaintiffs’ case.”
“The relief provided by the settlement is significant,” Virginia lawyer Kristi Kelly of Kelly Guzzo, who represents many of the plaintiffs, wrote in court documents. “Most consumers will receive a cash payment. This settlement also helps protect consumers against future predatory lending by preventing Elevate from working with Think Finance entities.”
“Although defendants did not concede liability, this settlement reflects that they felt vulnerable to a potential finding that they could have liability under various theories alleged in these cases,” Kelly wrote. “Plaintiffs were motivated to obtain significant and immediate relief for consumers and avoid substantial litigation risks and uncertainties, especially considering the unique theories of liability and potential collection issues.”
Elevate Credit, in court documents, called the litigation trust’s claims “complete fiction” and argued that the trust lacked standing to seek damages against the Fort Worth fintech operation. Lawyers for Elevate argued that Elevate actually incurred a net loss of $96 million for the three years following the 2014 spinoff, while Think Finance generated $122 million in net income.
Court records show Think Finance advertised loans over the internet to those desperate for immediate cash but with bad credit. The loans were almost always approved, according to documents.
The loans were funded through financial institutions created by Native American tribes, which claimed sovereign immunity from federal predatory lending laws.
“The tribe was made to look like the lender, but it was [Think Finance] and their affiliates that were the true lenders,” Walker wrote in his complaint against Elevate Credit.
The litigation trustee claims that Think Finance executives spun off Elevate with “the intent to hinder, delay and/or defraud” the creditors by rendering “the assets out of the reach of creditors.”
“In a final spasm borne of hubris and greed, Old Think Finance would siphon off to its shareholders, who were now also the owners of Elevate’s stock, the remaining $59 million in cash Elevate had left behind to contribute to the fiction of the tax-free spin-off,” Walker wrote to Judge Hale.
“The incestuous and conflicted nature of officers and directors for the companies in the spin-off enabled Old Think Finance to unilaterally dictate the terms of the deal, avoiding third-party due diligence and eliminate standard representations and warranties regarding its massive legacy liabilities,” Walker wrote.