Carey V. Brown thought he was safe.
Since at least 2005, he's paid lawyers from Canada, Nevada, Georgia and Tennessee to craft an interlocking web of businesses that shielded his online payday loans from legal scrutiny, allowing him to charge interest rates in excess of the legal limit in many states, according to lawsuits filed across the United States.
Brown believed he was immune from state laws because he was operating from the nebulous world of the Internet, triggering the Interstate Commerce Clause of the U.S. Constitution that gives Congress -- in the form of federal agencies -- the sole power to regulate him. The 50 states, Brown was convinced, could do nothing to stop him.
Brown had the situation under control. He had all the angles covered. Except one.
Without warning, the business he had worked his life to build came crashing down. The legal and philanthropic walls he had built for himself were rendered impotent. Someone finally outsmarted the payday genius from Chattanooga.
It was a little-known New York official named Ben Lawsky, who rose through the ranks prosecuting terrorists and the mafia, who ultimately found a way to stop Brown.
Lawsky wasn't the first official to try his luck against the Chattanooga businessman. In recent years, attorneys general from all over the United States have tried and failed to stop Brown from charging interest rates considered exorbitant by lawmakers in many states.
Servers in Bermuda and on Indian reservations kept investigators guessing at the true scope and location of his businesses. Brown's legal team sued workers who talked to outsiders or violated noncompete agreements. His businesses were incorporated in Nevada, which has no usury laws. He paid third parties to maintain obscure post office box addresses for some of his companies, most of which were actually based in Chattanooga.
But that didn't matter on Aug. 6, when Brown's empire began to unravel.
Brown began his career in high-risk finance in Rossville where he worked at a buy here, pay here dealership named Happy Motors to pay his way through college, earning a degree in finance. He built a handful of brick-and-mortar stores, but quickly recognized that the future of payday lending was online.
In 2007, he created Basenine Inc., which later changed its name to Terenine, and then again rebranded itself as Cloudswell. Other businesses like Area203 Digital, ACH Federal, API Professional Services, SupportSeven, Credit Payment Services, and Eclipse in Action split off or were created as separate companies.
The businesses ostensibly were in business to sell IT, marketing and call center services, but they mainly operated in concert to support payday lending websites like MyCashNow.com, PayDayMax.com and DiscountAdvances.com.
Brown ignored repeated requests to comment for this article. Reporters have assembled the information contained in this story from a variety of sources including ex-employees, legal documents and the online trail he left behind during his rise to power.
Brown's officials changed the names of his support businesses every once in a while and spread them out across the city, telling reporters that payday loans were only a small portion of what his companies did, and that they could easily continue operating if he decided to stop offering the loans, which carried an annual percentage rate of nearly 500 percent.
As his earnings increased, Brown publicly announced that he planned to give $1 billion to charity, starting with a check to his alma mater, Tennessee Temple University. He also gave millions of dollars to feed starving children around the world. This step into the public eye was a dramatic departure for the man associates had previously described as an intensely private person.
Brown said he was following the example of Milton Hershey, owner of the Hershey Chocolate Co., who supported orphans with his substantial profits. By 2013, Brown said he had supported more than 10,000 orphans, founded 31,608 churches and brought 447,667 new believers to Christianity.
He hit a bump in the road when the Chattanooga Times Free Press in 2011 linked the legally separate companies together and reported that Brown was making unlicensed loans in Tennessee in excess of the legal rate. After the story ran, Brown stopped making high-interest loans in the Volunteer State, and the Tennessee Department of Financial Institutions, which declined to comment for this article, never announced any legal action against his businesses.
But New York isn't Tennessee.
On Tuesday, Aug. 6, New York Gov. Andrew Cuomo announced that his state's Department of Financial Services had identified Brown's websites among 35 that were violating New York law. Cuomo demanded that Brown and others cease and desist from offering "illegal" payday loans to New York consumers.
"Illegal payday lenders swoop in and prey on struggling families when they're at their most vulnerable -- hitting them with sky-high interest rates and hidden fees," said Cuomo. "We'll continue to do everything we can to stamp out these pernicious loans that hurt New York consumers."
Harsh words, to be sure. But the tongue-lashing was nothing unusual for Brown, who had received similar cease-and-desist orders from New Hampshire, California, Oregon and Pennsylvania. He passed those off as "orders regarding jurisdiction and interstate commerce."
After the letter from Cuomo came another letter, this one from a bureaucrat few people outside New York have ever heard of.
Most people know about the Securities and Exchange Commission, which oversees stock markets and sometimes makes public pronouncements. But few Americans could name Lawsky, superintendent of financial services for the state. Lawsky is the man who regulates Wall Street banks from behind the scenes. He supervises about 4,400 financial institutions with assets of about $6.2 trillion, with a 't.'
Lawsky has a legal background. After leaving his job as a trial attorney for the U.S. Department of Justice, he prosecuted white-collar crime, organized crime and terrorism cases for the Southern District of New York, tackling the worst of America's enemies. Today, he keeps his eye on financial entities with New York charters like Goldman Sachs, Western Union and American Express. He's earned the nickname Ben "long-arm-of-the" Lawsky.
The former prosecutor hit upon an innovative way to stop Brown that no state had ever attempted. Rather than simply take Brown to court, as others had done, Lawsky took on the underlying mechanics of the system that allowed Brown's business to flourish.
Here's how the system works: In the same way that employers can pay their workers through direct deposit, Brown's payday businesses could, with permission, deposit loans and withdraw payments directly from a customer's bank account. This happens through the computer magic of the nationwide automated clearing house, or ACH network.
The ACH network lets Brown deposit $100 in the account of a customer who needs the money to avoid losing a car, for example. But then it gets tricky. The next time a worker deposits a paycheck, the typical online lender takes back only the interest and finance charges from a consumer's account, Cuomo said, leaving the original $100.
In a few weeks, the consumer could unknowingly owe more in interest than the original loan was worth. This concept is called "churn," and it's how payday lenders make much of their money, according to the Center for Responsible Lending.
"In most cases, consumers must affirmatively contact the payday lender if they actually want to pay off the loan," Cuomo wrote on Aug. 6.
Lawsky hit upon an idea; an end run around the constitutional rules that had stymied other state regulators. If he could convince the banks to cut off access to the nationwide network that allowed Brown to reach into consumers' piggy banks, then Lawsky could force Brown to follow state law without waiting for the feds to act.
So he sent his own letter, this one to Bank of America, Capital One, Citigroup, J.P. Morgan Chase, Wells Fargo and dozens of others that together manage the ACH network. Previously, the group had claimed that no mechanism existed for them to identify illegal financial transactions. But Lawsky wasn't buying that.
Banks would be "a great asset in preventing their customers from being victimized by these illegal loans if they were aware of questionable activity before such debits were made," he wrote. "As such, changes to the ACH network may be necessary."
He then took it a step further, offering a soft ultimatum.
"It is also in your bank's long-term interest to take appropriate action to help ensure that it is not serving as a pipeline for illegal conduct," he wrote.
Given a choice between facilitating payday loans or doing a favor for a powerful regulator, the banks chose to cut off access to the ACH system for 35 payday websites, including Brown's. That made it impossible for him to do business.
A few weeks after Lawsky's letter, each of Brown's websites began to carry a message saying the site was temporarily unavailable, with a phone number for existing customers to call. Several of the numbers were disconnected. One number connected a reporter to a customer service representative who said the website was dealing with a technical glitch and would perhaps be back online next week.
The next day, Aug. 16, Brown called a meeting for the workers of Area 203, Cloudswell, Credit Payment Services, SupportSeven and others. The money had stopped coming in. Effective immediately, 400 of his workers lost their jobs.
Uriah King, vice president for the Center for Responsible Lending, cheered the shutdown of Brown's high-interest empire, calling it a "tremendous victory for families in every state."
"Contrary to payday lender spin, illegal lending can be stopped," King said. "And states are leading the way."
Contact staff writer Ellis Smith at firstname.lastname@example.org or 423-757-6315.