Cane Bay was an unusual investment for Vector, which Mr. Slusky started in 1997 as a spin-off of the billionaire brothers Ziff’s financial management firm, where he oversaw technology transactions. He founded the firm just five years after graduating from Harvard Business School’s Baker Scholar, the school’s highest honor.
Vector, which only makes a few investments a year, struggled to find enough companies to buy for the new fund, according to the three ex-employees. It bought an English manufacturer of fleet management software in 2010 and invested in Technicolor SA, a French digital video company.
In 2012, Harvard was trying to withdraw its money due to investment delays, said two people with direct knowledge of the matter.
Former Vector employees said when discussing Cane Bay internally that they were clear it was in the payday lending arena. Unlike other transactions, the investment was not announced in a press release or listed on Vector’s website.
Regulators stepped up their scrutiny of internet lenders soon after Vector invested in Cane Bay. The Justice Department and other agencies began pressuring banks in 2013 to stop processing payments from payday lenders as part of an anti-fraud campaign called Operation Choke Point.
Vector’s investment in Cane Bay shows the continued appeal of the payday lending industry, even after most states, from California to New York, restricted or banned it to protect consumers. The crackdown has pushed borrowers online. Internet payday loans in the United States have doubled since 2008 to $ 16 billion a year, half of which is made by lenders based abroad or affiliated with Native American tribes who say state laws do not do not apply to them, according to John Hecht, analyst at Jefferies Group. LLC in San Francisco.
Ronn Torossian, a spokesperson for Cane Bay in New York City, said the company provides services to financial companies and does not provide payday loans.
“Cane Bay Partners is a management consulting and analysis firm,” Mr. Torossian wrote in an email. “In the past, owners held minority positions in some licensed short-term loan companies, which are no longer in operation.”
Mr Slusky, who founded Vector and is its chief investment officer, did not respond to email questions and hung up when reached on his cell phone. David Baylor, chief operating officer of Vector, denied that the company had misled investors.
“Any implication that we have not provided complete and accurate information to our investors on one or more of our investments is false,” Mr. Baylor wrote in an email.
Regulators who have attacked payday lenders said in interviews they had not heard of Cane Bay. Jim DePriest, assistant attorney general for Arkansas, said most of his state’s payday loan stores closed in 2010, when voters passed a voting initiative capping interest rates at 17%. It was then that he started to receive more and more complaints about loans on the Internet.
One of the websites Mr. DePriest said he discovered while making illegal loans was CashYes.com. A borrower had told her department that CashYes was calling her to raise more money after she had already paid $ 3,193.75 on a $ 775 loan.