- Mike Lindell, the MyPillow CEO and an avid supporter of President-elect Donald Trump, filed a lawsuit against two small financial services that gave his company a loan when it needed money urgently.
MyPillow owner and CEO Mike Lindell is suing a loan provider, alleging his firm was deceived into borrowing $1.6 million at a 409% interest rate, according to a lawsuit filed in Minnesota.
Lindell, alongside more than a dozen other entities, some of which are connected to his other business interests, are suing Cobalt Funding Solutions and Streamline Advance. The two firms gave MyPillow the $1.6 million loan under a merchant cash advance. A merchant cash advance is a specific type of convoluted financial agreement that lets the issuer bypass laws that limit interest rates on business loans. They are almost always targeted toward companies in dire financial straits that have nowhere else to turn to in order to get loans. These loans have most often been compared to the business equivalent of a payday lender.
In the lawsuit, Lindell’s lawyers claimed the details of the loan were misrepresented.
“While couched as the purchase of future receivables,” the agreement’s terms and conditions show that “no actual sale of receipts ever took place,” wrote Barbara Podlucky Berens, an attorney at the Minneapolis-based Berens & Miller. “The agreement is “merely a sham intended to evade the applicable usury law,” she added.
According to the agreement, MyPillow would have had to make 50 daily payments of just over $45,000, which would have amounted to a total of $2.3 million, according to the suit. The company also paid $125,000 in an upfront “origination fee.”
MyPillow has been involved in at least two other lawsuits with merchant cash-advance lenders. In those cases, however, MyPillow was the defendant, not the plaintiff. In October, business lender Lifetime Funding sued MyPillow for failing to pay back a $600,000 advance. Just about a week later, Shine Capital Group sued because MyPillow missed payments on a $2 million loan.
Merchant cash advance businesses often target struggling small and medium-sized businesses and then saddle them with huge debts on exorbitant interest rates. The industry has little regulation, giving an underwater business little recourse.
At the time it took the loan from Cobalt and Streamline, MyPillow fit the bill. It was “a cash-strapped business that needed funds quickly,” according to the suit. MyPillow was once a thriving business, hitting $300 million a year in sales, Lindell told CNBC in 2018. However, Lindell’s support of election fraud conspiracy theories after the 2020 election caused the product to be pulled from major retailers. Last July, he told the Minnesota Star Tribune the company had lost $100 million in sales.
Berens told Fortune she couldn’t comment on why MyPillow had turned to a merchant cash advance despite its poor reputation.
“I’m not at liberty to say that, but you can draw your own conclusions,” she said.
Berens said her law firm had had a “bad experience” with merchant cash advance providers. A search in a legal database showed her law firm sued a company called Apex Funding Source for predatory lending practices in February over a combined $1.2 million in loans.
The lawsuit also names two specific individuals as defendants: Sam Berger, listed as associated with Cobalt, and Shawn Rodgers from Streamline. Cobalt did not immediately provide comment on the lawsuit when reached by Fortune. Rodgers, from Streamline, declined to comment.
