BALTIMORE (CN) — A St. Croix-based financial services and consulting company is facing a class action racketeering suit that claims it is using a North Dakota-based Indian tribe as a legal shield for a nationwide usury operation.
Cane Bay Partners VI, based in the U.S. Virgin Islands, sits at the center of a web of corporations that specialize in lending small sums over the internet at interest rates exceeding 800%, according to the suit, filed in federal district court in Baltimore Monday on behalf of plaintiff Glendora Manago by Martin E. Wolf of Gordon Wolf & Carney in Towson, Maryland.
The company is part of an industry that has shifted tactics over the past two decades as states reinstituted usury laws in order to crack down on payday and car title lenders. The lenders first moved offshore, but after federal law enforcers focused on money laundering, many of them moved on to so-called "rent-a-tribe" agreements.
"In a tribal lending scheme, the lender affiliates with a Native American tribe to attempt to insulate itself from federal and state law by piggy-backing on the tribe’s sovereign legal status and the tribe’s general immunity from suit under federal and state laws," the complaint says.
The companies are not licensed to lend in Maryland, the complaint says, rendering their loan contracts with Maryland residents unenforceable.
Calls to Wolf and his Minnesota-based co-counsel were not immediately returned, and Cane Bay did not respond to an email seeking comment.
Cane Bay was formed in 2009 by David Johnson and Kirk Chewning, veterans of the high-interest microloan sector, the suit says. The pair had previously owned "Hong Kong Partners which made online loans supposedly from Belize under the names 'Cash Yes' and 'Cash Jar,'" the complaint says, adding that the company was shuttered after a federal anti-money laundering effort called "Operation Chokepoint."
Johnson and Chewning were among a group of lenders previously sued in California in 2013, along with corporate spokesman Montel Williams. That case, Gilbert v. Money Mutual LLC, was settled in February.
The pair also served as executives of TranDotCom, a company that keeps records for payday lenders and is currently affiliated with Strategic Link Consulting, which provides "lending solutions" and is owned by Johnson and Chewning, according to the complaint.
"Rather than complying with state lending and licensing requirements, Defendants entered into a tribal lending scheme with the Mandan, Hidatsa, and Arikara Nations … three Native American tribes located on the Fort Berthold Reservation in a remote area of North Dakota," which in turn lends through a tribal company called MaxLend. It charges up to 84% annual interest on loans up to $2,500.
MaxLend acts as a front for the Johnson and Chewning companies, the complaint says.
The tribe is paid 1.8% of revenues, which the suit characterizes as "small amount," and no tribal members operate the business, according to the complaint.
That could be key. Last year the Fourth Circuit overturned a district court case that found another payday lender was not shielded by the upstate New York tribe it had affiliated with. In that case, the tribe bought out the lending and marketing companies and employed 15 tribal members in the operations, enough so that the entity as a whole is protected by the tribe's sovereign immunity, the federal appeals court ruled.
In 2017 a federal jury convicted the "godfather of payday lending" in a criminal case after finding that the file server he housed on tribal land was not connected to the lending business at all. Charles Hallihan was sentenced to 14 years for fraud, money laundering and racketeering.
"Hallinan helped to launch the careers of many of the other lenders now headed to prison alongside him – a list that includes professional race car driver Scott Tucker, who was sentenced to more than 16 years in prison in January and ordered to forfeit $3.5 billion in assets," the Philadelphia Inquirer reported.
Cane Bay’s business appears to fall between those two extremes. It's not meaningfully housed on tribal land or operated by tribal members, the suit alleges, but controlled by Johnson and Chewning who ran Makes Cents, Inc. dba MaxLend, "a purportedly tribal entity in North Dakota that makes usurious loans to persons located throughout the United States."
The tribe is not named as a defendant.
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