BULLETIN: SEC Alleges ‘Payday Loan’ Ponzi Scheme In Utah; Second Major Ponzi Case Brought In State In Two Days; Schemes Attracted Almost $75 Million

BULLETIN: The SEC has gone to federal court in Utah to halt what it described as a $47 million “payday loan” Ponzi scheme and offering fraud in which investors were lured by the prospect of “extraordinary returns” while the alleged operator diverted large sums of cash to himself and other business interests.

The payday-loan Ponzi case against John Scott Clark, Impact Cash LLC and Impact Payment Systems LLC was the second major Ponzi case brought by the SEC in Utah in a matter of days. On March 23, the SEC charged Mike Watson Capital LLC of Provo, Michael P. Watson of Mapleton and Joshua F. Escobedo of Spanish Fork in an alleged real-estate and promissory-notes Ponzi scheme that gathered more than $27.5 million from more than 120 investors.

Clark and his companies were charged on March 25. Utah has been plagued by Ponzi schemes and other forms of fraud, many of them directed at people of faith. The FBI said last year that thousands of residents of the state had been victimized in investment-fraud schemes.

Now, Clark’s alleged payday-loan fraud has been added to Utah’s Ponzi mix by the SEC. If the alleged Clark total is added to the total gathered in the alleged Watson/Escobedo fraud, a figure of at least $74.5 million emerges from the two schemes.

“Investors were promised extraordinary returns while Clark was actually diverting their money to make such extraordinary personal purchases as a fully restored classic 1963 Corvette Stingray,” said Ken Israel, director of the SEC’s Salt Lake Regional Office. “Clark recruited new investors through referrals from earlier investors who thought the Ponzi payments they received were actual returns on their investments and sought to share the lucrative opportunity with family and business associates.”

Clark also bought “multiple expensive cars and snowmobiles” and “stole investor funds to purchase a home theater, bronze statues and other art for himself,” the SEC charged.

In October, the SEC’s Salt Lake office also filed charges against Imperia Invest IBC, a mysterious offshore firm alleged to have stolen millions of dollars from thousands of deaf investors. The Imperia scheme was promoted on Ponzi boards such as TalkGold and MoneyMakerGroup.

In the Clark case, the SEC said “at least” 120 investors were affected. The scheme operated between March 2006 and September 2010.

Investors were recruited to fund payday loans, the SEC said. One recruiter was paid more than $500,000 to help drive business to the unregistered offering, according to the complaint.

Clark 58, of Hyde Park, “has never been registered with the Commission or any other regulatory agency in any capacity,” the SEC charged.

Investors were offered their own companies with an LLC designation and lured by suggestions that Clark and his Impact companies could generate returns “averaging at least 80% per year,” the SEC said.

“Clark explained to investors that Impact would create a unique LLC for each investor or investor group for the purpose of investing with Impact,” the SEC said. “The investor LLC would then enter into a Joint Operating Agreement with Impact to provide money to Impact to fund payday loans.”

And Clark’s “early investors” — impressed by their returns — helped the Ponzi gain a head of steam, the SEC said.

“Many of Clark’s early investors mentioned their astronomical returns to their families or
business associates, who then invested with Clark,” the SEC said. “Clark paid one salesperson between $500,000 and $600,000 over a four or five year period to locate potential investors and attend payday loan conferences and trade shows. Clark also paid certain individuals commissions ranging from 2% to 4% for bringing in investors to Impact.”

Neither firm that used the word “Impact” in its name was registered, the SEC said.

Although investors believed they were funding payday loans, Clark diverted cash to “to make unauthorized investments, including a real estate investment company, a diabetes research company and an online products store,” the SEC said.

The assets of Clark and his companies have been frozen. Read the SEC complaint against Clark.

Read the SEC’s statement on the alleged Ponzi scheme involving Watson and Escobedo, who have settled without acknowledging wrongdoing.