URGENT >> BULLETIN >> MOVING: SEC Charges Ephren W. Taylor II In Alleged Ponzi Scheme Targeting African American Church Congregations; Media Darling Hailed Himself A ‘Social Capitalist’ And Youngest Black CEO Of A Public Company

“Ephren Taylor professed to be in the business of socially-conscious investing. Instead, he was in the business of promoting Ephren Taylor. He preyed upon investors’ faith and their desire to help others, convincing them that they could earn healthy returns while also helping their communities.” — David Woodcock, director of the SEC’s Fort Worth Regional Office, April 12, 2012

URGENT >> BULLETIN >> MOVING:  The SEC has gone to federal court in Atlanta, alleging that well-known speaker Ephren W. Taylor II was at the helm of an $11 million Ponzi scheme targeting African American church congregations through two investment “programs” offered by City Capital Corp.

Taylor is 29, the son of a minister. Taylor last was known to be living in New York, but [h]is current whereabouts are unknown,” the agency alleged.

“He failed to respond to a number of Commission investigative subpoenas, including a subpoena requiring his appearance for testimony,” the agency advised a federal judge in a complaint filed in Atlanta.

Former City Capital COO Wendy Jean Connor, 43, of metropolitan Raleigh, N.C.,  also was charged in the alleged caper. The agency said that she pocketed “hundreds of thousands of dollars” in salary and commissions that came from money investors plowed into the Ponzi, which was at least in part a promissory-notes scam married to a “sweepstakes machine” business and other purported businesses.

Taylor “secretly” funded his wife’s singing career with Ponzi money and “diverted hundreds of thousands of dollars to publishing and promoting his books” and “hiring consultants to refine his public image,” the SEC charged.

The scheme was multifaceted and occurred across multiple jurisdictions, with Taylor focusing on African Americans, denigrating traditional investment options and encouraging his audience to plow money from their Individual Retirement Accounts into his schemes, the agency charged.

The ‘Building Wealth Tour’

“Taylor conducted a multi-city ‘Building Wealth Tour,’ on which he spoke to church congregations — including Atlanta’s New Birth Church — or at wealth management seminars featuring other speakers,” the agency charged. “Taylor promoted the Building Wealth Tour on his personal website, through City Capital press releases, and in conjunction with the churches and civic groups that hosted him. Taylor heavily emphasized his Christian background . . .  and, indeed, was at times referred to as ‘Minister Taylor.’

“He also touted his ‘socially conscious’ investment focus and successful entrepreneurial history,” the agency continued. “Taylor devoted considerable time to denigrating traditional investment vehicles, such as CDs, mutual funds and the stock market, labeling them as ‘foolish’ and ‘money losers.'”

One of his scam websites was styled SweepstakesIncome.com, the agency alleged, further alleging that the purported investment opportunity was positioned as the “brainchild of self-made millionaire Ephren Taylor.”

Part of the pitch “featured Taylor’s lengthy dissertation about ‘How You Can Create a Zero-Maintenance, Residual Income Using the Sweepstakes Empire!'” the agency alleged.

Priming The Ponzi

To prop up the multifaceted Ponzi, the SEC alleged, investors were encouraged to “roll their notes over” for another year or longer — with corresponding promises that delaying redemptions would “increase the rate of return,” the SEC charged.

“The roll-over solicitations typically touted the supposed ‘great things — usually of a socially conscious nature — City Capital was doing with the investor’s money, which were all untrue,” the SEC charged. “Investors who renewed were issued new promissory notes with the new term and interest rate. Any investor who resisted was subjected to an endless cycle of unreturned phone calls and emails, empty promises of imminent action, and claims that the investor had in fact already agreed to roll over his note. To the extent investors survived this gauntlet to still insist on repayment, any funds they received invariably came from new investor money.”

Undisclosed Risks

Meanwhile, the SEC alleged today that schemes involving sweepstakes machines already were on the radar of law enforcement even as Taylor dialed up his efforts to get investors to send him money.

“Offering materials stressed that the sweepstakes machines did not involve gambling, comparing them to McDonald’s ‘Monopoly’ prize game,” the SEC charged. “Investors were not told about the risks of illegality of the machines, or that several law enforcement agencies had taken action against City Capital’s and other parlors.”

Investors paid up to $4,497 per machine, amid claims City Capital had purchased and established several ‘internet cafes’ featuring the machines,” the SEC alleged.

City Capital paid employees a commission of 10 percent for selling the machines, and Taylor and Connor were paid “overriding commissions of 10% per machine,” the SEC charged.

All in all, the sale of sweepstakes machines raised at least $4 million from more than 250 investors, the agency charged.

Returns From ‘Thin Air’

In April 2010, the SEC charged, “City Capital’s bookkeeper alerted Taylor and Connor to the weak performance of the company’s recently acquired North Carolina and Texas parlors, explaining that the locations each suffered a loss after deducting operating expenses.

“Rather than tell investors assigned to machines in those locations that they would get no distributions — perhaps to avoid an investor backlash — Taylor and Connor instructed the bookkeeper to pay simulated returns essentially pulled from thin air,” the SEC continued.

“The bookkeeper had to divert funds received from new sweepstakes machine investors — and from investors’ funds in other City Capital ventures — to make these payments,” the agency charged. “As the parlors continued to lose money over the ensuing months, Taylor and Connor instructed the bookkeeper to continue making these simulated payments, telling her simply to make the same payment ‘as last month.’ These payments ended after August 2010, when City Capital ran out of money.”

Read the SEC complaint.