SEC hits “Ponzi-like” schemer with an emergency asset freeze
Why did the Securities and Exchange Commission (SEC) hit Illinois resident Kenneth Courtright, III, and his company, Today’s Growth Consultants Inc. (TGC), with a temporary restraining order and an emergency asset freeze?
Courtright raised approximately $75 million from more than 500 US and foreign investors, and the Commission sought to stop a potential Ponzi-schemer in his tracks before he could completely deplete his organization’s holdings.
Endless ROI, really?
No. Not really.
According to the Commission’s complaint, Today’s Growth Consultants, which also operated under the name “The Income Store,” and Courtright, the company’s founder and current chairmen promised investors an endless minimum guaranteed rate of return on revenues generated by websites. From January 2017 through at least October 2019, TGC sold its consulting performance agreements through unregistered offerings advertised on websites and via radio ads.
Investors were promised the larger of either 50% of their website-generated revenues or a minimum annual guaranteed return (typically ranging from 13% to 20% of the initial investment amount). Returns were to be paid monthly, regardless of whether the investor’s website revenue was sufficient to pay that return. Make-up funds were to be generated from the company’s own “satisfactory financial condition” that ensured it was solvent, able to pay its bills when due and financially able to perform its contractual duties,” and so on.
In reality, TGC’s business model was never successful. Rather, it was crumbling under its debt obligations. From January 1, 2017, through at least October 31, 2019, investor websites generated approximately $9 million in advertising and product sales revenues. However, during that same time, TGC paid investors at least $30 million.
Investor funds for personal expenses
In classic Ponzi fashion, TGC funded the gap between revenues and guaranteed investor payouts primarily through the offer and sale of consulting performance agreements to new or repeat investors. Moreover, the company diverted millions in investor funds to pay Courtright’s personal expenses, including his mortgage and private secondary school tuition, among other personal items.
Finally, on Friday, December 13, 2019, TGC told investors it was putting a temporary moratorium on payouts due to cash flow problems. It offered investors a host of options, including to buy back their investments in exchange for an interest-bearing promissory note. It also told investors it would resume payouts in April 2020.
Unless it acted, the SEC was concerned that TGC and Courtright would continue to raise new investor funds, use those funds to satisfy its other investor payment obligations, and continue to pay Courtright’s personal expenses. Hence, the emergency asset freeze.
According to Antonia Chion, Associate Director in the SEC’s Division of Enforcement, “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’s complaint, filed in federal court in Chicago on December 27, 2019, and unsealed on January 14, 2020, charges Courtright and TGC with violating the antifraud and registration provisions of the federal securities laws and seeks emergency relief as well as permanent injunctions, return of the ill-gotten gains with prejudgment interest and civil penalties.
On December 30, 2019, the Court issued a temporary restraining order, ordered the asset freeze and appointed a receiver for TGC. A potentially happier new year for investors
Where was compliance?
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