LANCASTER COUNTY — The Lancaster office of an Illinois-based website company accused by the Securities and Exchange Commission of cheating investors out of $56.5 million in a “Ponzi-like scheme” has been shut down.
The Lancaster branch of the Income Store, located on the 1000 block of Millersville Pike in Manor Township, employed an estimated 80 people until the news of the company’s financial troubles surfaced, according to a LancasterOnline report.
Its workforce had dwindled to about 15 people at the time of its closure, LancasterOnline said.
The SEC accused the Income Store of paying “returns” to early investors with money from new or repeat investors.
The company and its founder, Kenneth D. Courtright III “have knowingly or recklessly engaged…in a scheme to defraud investors and obtain money by means of materially false and misleading statements,” the SEC said.
Based on those accusations, the SEC obtained a temporary restraining order and asset freeze against Courtright on Dec. 30. A federal judge was also asked to appoint a receiver to find at preserve the company’s assets and records.
According to the SEC, the Income Store offered customers a chance to earn lucrative returns by investing in websites that The Income Store would build or acquire, and then run.
In exchange for “upfront fees” ranging from $50,000 to $500,000, the Income Store promised a guaranteed minimum annual return of up to 20 percent, or the larger of 50 percent of their websites’ revenue.
The SEC said more than 500 investors contributed $87.6 million from January 2017 to October 2019.
But website revenues fell short of covering the guaranteed return, according to the SEC. The website revenue during that period was just $9 million, while the Income Store paid investors $31.1 million.
That’s a $56.5 million gap between the amount that investors paid in and the amount that investors got back, according to the SEC.
The payouts that the Income Store did make were funded largely with dollars from new or repeat customers, the SEC said. About $20 million in payouts were funded by diverting payments from the new or repeat investors that should have gone to buying websites, according to the SEC.
The Income Store also borrowed $11 million from lenders to help fund the payouts, the SEC said.
Meanwhile, the SEC alleged, Courtright used “at least $2 million” in investor funds for personal expenses, including his home mortgage and private-school tuition for his children.
On Dec. 13, the Income Store told investors it was putting a “temporary moratorium” on payouts, but promised to resume them in April.
The SEC suit, which accuses the Income Store of five counts of violations of federal law, asks the court to order the company to disgorge “all ill-gotten gains” plus interest and pay unspecified civil penalties.
Melanie E. Damian of Damian & Valori in Miami, Florida, was appointed by the federal judge to serve as receiver.