Federal regulators have accused an Illinois-based website company of cheating its investors out of $56.5 million, leading to the shutdown of its Lancaster office, where about 80 people had recently worked.
The Securities and Exchange Commission alleges that the Income Store ran a “Ponzi-like scheme,” paying purported “returns” to early investors with money from new or repeat investors.
The company and its founder “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 in a court filing last month.
Based on those allegations, the SEC convinced a federal judge in Chicago to freeze the Income Store’s assets on Dec. 30 and appoint a receiver to find and preserve its assets and records.
That civil action forced the shutdown of the local office at 1001 Millersville Road in Manor Township the next day. Its workforce had dwindled to about 15 by that time.
Earlier in the month, before its financial troubles surfaced, it had about 80 employees in the local office, plus others working remotely or as contractors, said Landon Wenger, formerly an e-commerce specialist for the Income Store’s Lancaster office.
The SEC can only take civil action. Whether the U.S. Department of Justice is investigating the case as a possible criminal matter is not known; it’s department policy to neither confirm nor deny whether a matter is under investigation, a department spokesman said Tuesday.
According to the SEC, the Income Store offered customers the opportunity to earn lucrative returns by investing in websites that The Income Store would build or acquire, then run.
The Lancaster office ran “thousands” of websites for the investors, said Wenger, but the local office was not involved in pitching the product to potential investors.
“The office just handled the websites,” said Wenger. “We did not onboard new investors.”
In exchange for “upfront fees” ranging $50,000 to $500,000, the Income Store promised investors the larger of 50% of their websites’ revenue or a guaranteed minimum annual return of up to 20% “to start.”
The offer was enticing, judging from the response — more than 500 investors contributed $87.6 million from January 2017 through October 2019, the SEC said.
But the website revenue fell way short of covering those guaranteed returns. In that same time period, website revenue was just $9.0 million while the Income Store paid investors $31.1 million, the regulators said.
That’s a $56.5 million gap between the amount that investors paid in and the amount that investors got back.
Whether investors get any more money back will be determined by the receiver, based on what Income Store assets she can locate. The court wants her findings by Jan. 30.
New money, old promises
The payouts that the Income Store did make were funded largely with dollars from new or repeat customers, the SEC said in a 22-page civil complaint filed in Chicago federal court on Dec. 27.
About $20 million in payouts were funded by diverting payments from the new or repeat investors that should have gone to buying websites.
The Income Store also borrowed $11 million from lenders to help fund the payouts, according to the regulators.
Compounding the Income Store’s financial woes was the conduct of its top executive, the SEC indicated.
The Income Store’s founder and co-owner, Kenneth D. Courtright, used “at least $2 million” of investor funds for his personal expenses, the commission said.
These expenses included his home mortgage and private secondary-school tuition for his children, said the SEC.
The scheme collapsed in December, said the regulators, with the Income Store telling investors on Dec. 13 that it was putting a “temporary moratorium” on payouts, but vowing to resume them in April.
Courtright, 49, who has the Income Store’s headquarters in his house in Minooka, Illinois, could not be reached for comment.
The SEC suit, which alleges five counts of violations of federal law, asks the court to order the Income Store to disgorge “all ill-gotten gains” plus interest and pay unspecified civil penalties.
Messages sent by LNP to the receiver, Melanie E. Damian of Damian & Valori in Miami, Florida, drew no reply.
Courtright and his wife Kerri bought the Millersville Road building in 2017 for $575,000, according to courthouse records, and moved its website-operating function there from Quarryville.
The year it came to Quarryville was not immediately available; the Income Store was founded in 2011.
The Millersville Road location is best known as the former headquarters of APBA International, which produced a board-game version of baseball featuring major league players.