The Securities and Exchange Commission has frozen the assets of two online payday loan companies and charged the owner with allegedly perpetrating a $47 million fraud and Ponzi scheme.
The SEC today alleged that John Scott Clark of Hyde Park, Utah, promised investors annual returns of 80% on their investments in his companies–Impact Cash LLC and Impact Payment Systems LLC. Investors were told their money would be kept in separate bank accounts and used to fund payday loans and other aspects of the companies’ operations. However, Clark instead commingled investor funds into a single pool and used them to make unauthorized investments, pay fictitious profits to earlier investors, and finance his lifestyle, the SEC said.
According to the SEC’s complaint filed in U.S. District Court for the District of Utah, 120 investors bought into Clark’s operations. From at least March 2006 to September 2010, Clark and the Impact companies raised funds from investors for the stated purposes of funding payday loans, purchasing lists of leads for payday loan customers, and paying Impact’s operating expenses. Impact did not distribute a private placement memorandum or any other document disclosing the nature of the investment or the risks involved to investors, the SEC said.
The SEC’s complaint charged Impact and Clark with fraudulently selling unregistered securities. In addition to the asset freeze approved late March 26, the court has appointed a receiver to preserve and marshal assets for the benefit of investors. The SEC’s complaint seeks a preliminary and permanent injunction as well as disgorgement, prejudgment interest and financial penalties from Impact and Clark.