The Subprime Wolf Of Wall Street: Trained by Veteran of Jordan Belfort, World Business Lenders is Pitching Loans with Annual Interest Rates as High as 125 Percent
Doug Naidus made his fortune selling a mortgage company to Deutsche Bank AG months before the U.S. housing market collapsed. Now he’s found a way to profit from loans to business owners with bad credit.
From an office near New York’s Times Square, people trained by a veteran of Jordan Belfort’s boiler room, call truckers, contractors and florists across the country pitching loans with annual interest rates as high as 125 percent, according to more than two dozen former employees and clients. When borrowers can’t pay, Naidus’s World Business Lenders LLC seizes their vehicles and assets, sometimes sending them into bankruptcy.
Naidus isn’t the only one turning to subprime business lending. Mortgage brokers and former stock salesmen looking for new ways to make fast profits are pushing the loans, which aren’t covered by federal consumer safeguards. Goldman Sachs Group Inc. (GS) and Google Inc. are among those financing his competitors, which charge similar rates.
“This is the new predatory lending,” said Mark Pinsky, president of Opportunity Finance Network, a group of lenders that help the poor. “And the predators, just as they did in the mortgage market, have gotten increasingly aggressive.”
Naidus, 48, chief executive officer of World Business Lenders, declined to be interviewed. Marcia Horowitz, a spokeswoman at public relations firm Rubenstein Associates Inc., said the company explains loan terms in plain English and takes steps to ensure that borrowers understand.
“World Business Lenders’ sales and marketing techniques, as well as the interest rates it charges and the default rates it experiences, are generally consistent with those throughout the industry,” Andy Occhino, general counsel for the company, wrote in a May 21 letter. “In serving the underserved small-business community along Main Street USA, World Business Lenders complies with all applicable laws and endeavors to ensure a positive experience for its customers.”
Horowitz, the spokeswoman for World Business Lenders, said the company works with borrowers to avoid defaults.
“If the default cannot be cured, World Business Lenders enforces its rights under the loan documents, including the recovery of the pledged collateral,” she said.
Wall Street banks are helping the industry expand by lending originators money. They’re starting to package the loans into securities that can be sold to investors, just as they did for subprime-mortgage lenders.
OnDeck Capital Inc., a lender with funding from Google’s venture-capital arm and PayPal Inc. co-founder Peter Thiel, sold $175 million of notes backed by business debt last month in a deal put together by Deutsche Bank. Interest rates on the loans ranged from 29 percent to 134 percent, according to a report from credit rater DBRS Ltd., which labeled most of the deal investment grade.
Representatives for Thiel, Google Ventures and Goldman Sachs, which lends money to OnDeck, declined to comment.
Brokers are popping up around the country to originate loans on behalf of lenders including OnDeck and World Business Lenders. The companies pay fees to the brokers of about $6,000 for finding people willing to take a $50,000 loan, according to current and former brokers, most of whom asked not to be identified to preserve their job prospects.
Some stock brokers have jumped to business loans after getting kicked out of the securities industry by regulators.
World Business Lenders put up job listings seeking former brokers, and they came. A February orientation schedule provided by a former employee shows that training is run by Bryan Herman, who got his start under Stratton Oakmont Inc.’s Belfort, the con man portrayed in “The Wolf of Wall Street.” Herman later ran his own boiler room in the 1990s and avoided jail by informing on other brokers when he was charged with fraud in 1998, court records show. Another salesman was released from prison in 2010 after serving about a year for penny-stock fraud.
Herman has paid for his crimes, according to his lawyer, Marty Kaplan.
“It’s really like saying Bill Clinton smoked dope in college,” Kaplan said. “Who cares?”
Full article from Bloomberg here…