The Securities and Exchange Commission said Monday that it has obtained a court order freezing the assets of two online payday loan companies and their owner, charging them with perpetrating a $47 million offering fraud and Ponzi scheme.

The SEC alleges that John Scott Clark of Hyde Park, Utah, promised investors astronomical annual returns of 80 percent 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 own lavish lifestyle.

“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.”

The SEC alleges that in addition to buying multiple expensive cars and snowmobiles, Clark stole investor funds to purchase a home theater, bronze statues and other art for himself. Clark allegedly bragged about purchasing multiple vehicles worth more than $100,000 each, including at least three Mercedes Benz vehicles, and a 1963 restored Corvette. He also installed a $250,000 home theater system in his house, bought expensive furniture, and openly discussed giving large amounts of money to friends and family members.

According to the SEC’s complaint, filed in the U.S. District Court for the District of Utah, Clark lured at least 120 investors into his scheme. Besides word-of-mouth referrals from earlier investors, Clark also recruited investors by attending trade shows in various states, attending payday loan conferences, and paying salespeople to locate potential investors to meet with Clark. Clark paid one salesperson between more than a half-million dollars over a multi-year period to locate potential investors and attend payday loan conferences and trade shows.

The SEC alleges that 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’s complaint charges Impact and Clark with fraudulently selling unregistered securities.

According to the SEC’s complaint, Clark routinely altered investor account statements provided to him by Impact’s accounting department to create artificially high annual rates of return. The altered account statements with purported profits were then sent to investors. Account statements to customers showed annualized returns varying from 30 percent to more than 200 percent.

Clark allegedly directed the accounting staff to record all payday loan repayments as income rather than allocating the payments between principal, interest and fees. The instructions resulted in overstated revenue and receivables in the account statements shown to investors and prospective investors.

In addition to the asset freeze approved late Friday, 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 Clark and his companies.

Register or login for access to this item and much more

All Accounting Today content is archived after seven days.

Community members receive:
  • All recent and archived articles
  • Conference offers and updates
  • A full menu of enewsletter options
  • Web seminars, white papers, ebooks

Don't have an account? Register for Free Unlimited Access