After dueling through grueling early fractions and holding the lead turning for home, Kentucky Derby winner Nyquist was overpowered in the stretch of the Preakness Stakes Saturday by his rival Exaggerator. Exaggerator would go on to win by four lengths, as Nyquist faded to third. Nyquist was unable to repeat his performance from two weeks ago when he overwhelmed 19 other three-year-olds and cruised to a 1 1/2 length victory, earning the horse's owner, J. Paul Reddam, a cool $1.2 million.
Four years ago, Reddam's horse I'll Have Another won both the Kentucky Derby and the Preakness Stakes, earning $2.7 million before retiring due to injury before the Belmont Stakes. Soon after, the horse was sold for $10 million to Big Red Farm in Japan. It was a phenomenal return on investment for Reddam, who purchased the horse a year earlier at auction for $35,000.
Reddam, a former philosophy professor, is used to big profits. In 1995, he entered a considerably more lucrative industry than academia when he founded the subprime mortgage lending company DiTech. The company was one of the first to take advantage of the internet to offer home-equity loans online of 125% of the home's value.
In 1999, Reddam capitalized on his company's success when it was acquired by GMAC Residential Mortgage Corp., a financial arm of General Motors, for what was estimated at $265 million.
A year later, Reddam stepped down from Ditech.com (the new name of the company) when three high-level managers were indicted for extortion. The men were accused of demanding kickbacks from a Pittsburgh mortgage servicing company who relied on Ditech.com for 20% of their business. Reddam resigned on the same day as the charges were made public, though he was never charged.
Reddam's next business venture was CashCall, another non-bank private lender. The company offers home, business and personal loans, including loans from $850 to $10,000 that carried annual interest rates as high as 343 percent.
Like DiTech, CashCall is also known for its aggressive advertising. The late former child actor Gary Coleman, of Different Strokes fame, starred in numerous commercials for CashCall.
For years, various states as well as the federal government have pursued legal action against CashCall. In 2009, CashCall settled with the state of California for $1 million for using "loan shark tactics" to pursue debtors. The company was ordered not to "harrass, oppress, or abuse any person in connection with the collection of a Consumer Loan."
Last year, after a lengthy legal battle with the West Virginia Attorney General, CashCall reached a $13 million settlement for practicing "abusive debt collections."
The company is currently fighting a lawsuit from the Consumer Financial Protection Bureau (CFPB), who initiated legal action in 2013 claiming that CashCall "engaged in unfair, deceptive, and abusive practices, including illegally debiting consumer checking accounts for loans that were void."
The CFPB complaint specifically names Reddam as having violated provisions of the Consumer Financial Protection Act, as well as either licensing requirements or interest-rate limits in eight different states.
The CFPB explains in its press release announcing the CashCall suit that "(u)nder statutes in at least these eight states, any obligation to pay such loans was rendered void or otherwise nullified in whole or in part by law. Therefore, the defendants are collecting money that consumers do not owe."
While the legal action is still pending, if the accusations are proven in court they would mean that the company was essentially representing that people owed debts which they did not, and taking money which did not rightfully belong to CashCall.