Enforcement News: SEC Charges Consultant with Operating a Long-Running Ponzi-Like Scheme That Raised At Least $75 Million from Hundreds of Investors

• Posted on: Jan 20 2020

Ponzi schemes remain a familiar and unfortunate risk for investors. Because Ponzi schemes purport to offer high returns with little or no risk, and rely on inflated credentials of a financial professional, investors are attracted to the investment products these scammers offer.

The most notorious Ponzi scheme in recent years was perpetrated by Bernie Madoff. In 2016, there were 59 Ponzi schemes uncovered in the United States, with losses totaling $2.4 billion, according to the Financial Times. See “Investors beware: the Ponzi scheme is thriving,” March 30, 2017 (here).

In today’s post, this Blog looks at a Ponzi-like scheme in which the promoter, Kenneth D. Courtright, III (“Courtright”), the founder, co-owner, and Chairman of Todays Growth Consultant Inc. (“TGC”), allegedly promised more than 500 investors a minimum guaranteed rate of return, in perpetuity, on revenues generated by websites that TGC acquired or built for the investors and then developed, maintained, and hosted.

On January 14, 2020, the Securities and Exchange Commission (“SEC” or “Commission”) announced (here) that it filed an emergency enforcement action and obtained a temporary restraining order and asset freeze against Courtright and TGC in connection with an alleged Ponzi-like scheme that raised at least $75 million from more than 500 investors throughout the United States and abroad.

According to the SEC, from at least 2017 through at least October 2019, TGC, which also operated under the name “The Income Store,” and Courtright, promised investors an “endless minimum guaranteed rate of return on revenues generated by websites.” In exchange for an investor’s “upfront fee,” TGC claimed that it would either buy or build a website for the investor, and develop, market, and maintain the website. As alleged, TGC falsely promised that it would use investors’ funds exclusively for expenses related to the investor’s website. In reality, the SEC alleged, the sales were conducted through unregistered securities offerings (through Consulting Performance Agreements advertised via websites and radio ads), and TGC used new investors’ funds to pay investor returns, in Ponzi-like fashion, and to pay Courtright’s personal expenses, including his mortgage and private school tuitions for his family.

In particular, according to the SEC complaint (here), TGC promised investors the larger of either 50% of their website revenues or a minimum annual guaranteed return (typically ranging from 13% to 20% of the initial investment amount) to be paid monthly, even if the investor’s website revenue was insufficient to pay that return. TGC allegedly backed its guarantee with various representations, including that it was in “‘satisfactory financial condition, solvent, able to pay its bills when due and financially able to perform its contractual duties’ and that it [was] ‘debt-free … with no accounts payable or loans outstanding.’” The SEC maintained, however, that TGC was not a successful business, was not in satisfactory financial condition, and was not able to perform its contractual duties under Consulting Performance Agreements.

According to the Commission, from at least January 2017 through the present, investor websites generated materially less revenue than the guaranteed amounts specified in TGC’s Consulting Performance Agreements. From January 1, 2017 through at least October 31, 2019, alleged the SEC, investor websites generated approximately $9 million in advertising and product sales revenue. During the same period, TGC paid investors at least $30 million. The SEC contended that “TGC’s financial statements and bank records show[ed] that, in classic Ponzi-like fashion, from at least January 2017 into at least May 2019, TGC funded the gap between website revenues and its guaranteed investor payouts primarily through the offer and sale of Consulting Performance Agreements to new or repeat investors.” The SEC said that “[o]n December 13, 2019, TGC informed investors that it was putting a temporary moratorium on investor payouts due to cash flow problems.”

Commenting on the SEC’s action, Antonia Chion, Associate Director in the SEC’s Division of Enforcement, said: “TGC and Courtright’s alleged fraud promised a guaranteed return when the company’s business model and financial condition could not possibly support it. To avoid further harm to investors and preserve the misused assets that have not already been dissipated, we have sought and obtained emergency relief.”

The SEC filed its complaint in U.S. District Court for the Northern District of Illinois on December 27, 2019. The complaint was unsealed on January 14, 2020. The Commission charged Courtright and TGC with violating the antifraud and registration provisions of the federal securities laws and sought certain emergency relief as well as the imposition of permanent injunctions, return of ill-gotten gains with prejudgment interest, and civil penalties. On December 30, 2019, the Court issued a temporary restraining order, ordered an asset freeze and other emergency relief, and appointed a receiver for TGC (here).

The Court case is captioned: SEC v. Todays Growth Consultant Inc., et al., Civil Action No. 19-cv-08454 (N.D. Ill.).

Tagged with: Enforcement Proceedings, Ponzi Scheme, Regulatory Defense and Investigations, SEC, Securities, Securities and Exchange Commission