The Unofficial Shopify Podcast: Entrepreneur Tales

An Alleged $75 million Ponzi Scheme

Episode Summary

SEC freezes guru's assets amid allegations that The Income Store, which bought hundreds of Shopify stores, was a Ponzi-like scheme that raised at least $75 million from more than 500 investors since 2017.

Episode Notes

Last Spring, a listener invited me to lunch with the Courtrights, a couple who ran a business that invested in Shopify stores– hundreds of Shopify stores– and offered a guaranteed rate of return to investors.

On January 14th, the SEC announced that, "it filed an emergency enforcement action and obtained a temporary restraining order and asset freeze against Illinois resident Kenneth D. Courtright, III and his company, Todays Growth Consultant Inc., in connection with an alleged Ponzi-like scheme that raised at least $75 million from more than 500 investors throughout the United States and abroad."

Let's unpack that.

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Episode Transcription

Kurt Elster: On today’s episode of The Unofficial Shopify Podcast, we discuss an alleged $75 million fraud. Okay, so two weeks ago I mentioned on the show as a top of the show housekeeping note, I said, “Look, it’s January. A lot of people are jumping into a new business, scaling up a business, are just generally looking to invest in themselves, in their own business. This also means there are a lot of con artists that come out around this time, willing to sell you the roadmap in a get-rich-quick plan.” Right?

And last January, there was really a phenomenal deep-dive article into guru culture around e-commerce, and Amazon, and those experiences that we discussed on this show.

Paul Reda: It was literally like a year ago. It was an article in The Atlantic, and one year ago today, that was the episode that we dropped, was talking about that.

Kurt Elster: So, today, purely coincidentally-

Paul Reda: Little did we know two weeks ago when we mentioned it again in the morning, someone was being arrested.

Kurt Elster: Oh, really? Were they arrested?

Paul Reda: Well, I don’t know. Was this guy arrested?

Kurt Elster: No, it says assets were frozen.

Paul Reda: All right, fine. He’s not in jail.

Kurt Elster: Okay, so there is-

Paul Reda: We almost were involved in a Ponzi scheme. An alleged Ponzi scheme.

Kurt Elster: Yeah, let’s make it clear. No one’s been convicted here.

Paul Reda: Essentially, every verb we use in this podcast, put the word allegedly in front of it.

Kurt Elster: Yes.

Paul Reda: Because we don’t want to get sued.

Kurt Elster: So, last spring, so I believe it was like May… I could look it up, but it was in the spring.

Paul Reda: It was like April or May, yeah.

Kurt Elster: Yeah, of 2019. Someone reached out to me. I believe they were a podcast listener, and said, “Hey, listen to your show, and I’ve got some friends who are involved in e-commerce, and do you want to go get lunch with us? It’ll be fun.” I said, “Sure! Why not? I’ll go get lunch.” And it was at Gibsons.

Paul Reda: It was at Gibsons downtown, which is, if you’re not in Chicago, that’s very fancy, nice, high-end steakhouse downtown.

Kurt Elster: And not just downtown, at Gold Coast, which of the downtown area in Chicago, Gold Coast is like premium.

Paul Reda: Yeah.

Kurt Elster: Gold Coast has a Bentley dealership. The folks I met with were Ken and Carrie Courtright, who are from… Their company is Today’s Growth Consultants, and at that time they were known for running the Income Store.

Paul Reda: Which, I gotta say, calling your business the Income Store is the biggest fucking con job name I’ve ever heard in my life.

Kurt Elster: Well, so the Income-

Paul Reda: Get Rich Quick, Inc.!

Kurt Elster: Yeah, so the Income Store is an odd… was a investment vehicle. You, as an Income Store client, invested $100,000 minimum, I think was what they said.

Paul Reda: I’ll run down what the business was.

Kurt Elster: Oh, you got? All right.

Paul Reda: All right, I got all the stuff. I’ll run down what the business was, and then Kurt could give us his man-on-the-ground perspective from his lunch with these folks.

Kurt Elster: Okay, hit me.

Paul Reda: All right, so the Income Store, what it was is years ago, it was a network of blogs that was essentially doing Google AdSense, that was running AdSense on the blogs, they had various affiliate links and that sort of stuff, and that was how these blogs generated money. And what you would do is, you would give Ken and Carrie Courtright, or the Income Store, $100,000, and they would buy a blog for you, and then they would manage the blog and do all the work, and then they would keep half the revenue as a management fee, and then they would send the other half of the revenue to you, and through this you would just generate passive income that would wildly outperform the $100,000 you gave them.

And as part of this, they had guarantees, and they personally guaranteed that you would get 15% return annually on your investment.

Kurt Elster: This is the first red flag.

Paul Reda: This is the first red flag. Guaranteed returns. If anyone promises you guaranteed returns, they are taking your money, they’re Bernie Madoff, that is a scheme. Do not listen.

Kurt Elster: Yeah, so number one, remind yourself all investments carry inherent risk. So, anyone who makes a guarantee on an investment, unless it’s like a savings account doing 1%-

Paul Reda: Unless it’s literally T-bills, that is like U.S. Treasury bonds, and even those are not guaranteed, because the government of the United States could collapse. Those aren’t guaranteed.

So, they promised you 15% a year, and they literally would send you, that’s $15,000 a year. They would send you a check for $1,250 every month. And obviously if the site performed higher than $1,250 every month, you would get a check for higher than that. And according to their claims, you actually were the owner of that website, so if you wanted to cancel the deal, or do whatever at any time, you could keep your website and walk away from their management. So, obviously these sites, and I looked at some of them, they were really shady. They were like weird review sites, weird health-focused sites. I’m guessing they used a lot of black hat, gray hat, SEO stuff, to boost them up in the Google search rankings.

Kurt Elster: So, A, that’s pure speculation.

Paul Reda: That’s pure speculation, but-

Kurt Elster: We do know they hired a team of copywriters to create content for these blogs.

Paul Reda: So that’s what they’re doing, yes, and they hired copywriters, obviously paying bargain basement, internet copywriter-needs-a-job prices. And so, let’s think about this step that has happened. You have just given them $100,000, and all they are required to do is write you a check for 1,200 bucks every month. So, where does the other $98,000 go?

Kurt Elster: That money was used ostensibly to purchase the website that you have invested in.

Paul Reda: Which you would hope so. Let’s talk about this. If you’re purchasing a website for $100,000, you would probably expect that website to generate say $30,000 annually. That’s-

Kurt Elster: Conservative.

Paul Reda: It’s conservative. I mean, this site is producing probably between $30,000 to $50,000. And then they declared that they were such gurus at SEO and monetization that, “Well, don’t worry that the website we bought doesn’t generate that much money now. We’re so good at management, we’re gonna supercharge this site’s revenue and it’s gonna be worth well over $100,000 when we’re done with it.”

Kurt Elster: And they had a history of managing internet, or growing internet businesses prior to this, prior to the Income Store?

Paul Reda: I don’t know what they did before this. I know they declared bankruptcy in 1999, so-

Kurt Elster: I think a lot of people did, though.

Paul Reda: Not in 1999. Things were going good then.

Kurt Elster: Oh.

Paul Reda: So, that’s what they pretty much were doing. Here’s a letter that they sent in 2017 to their investors. “To start, as many of you know, from 2012 to 2016 we battled Google algorithms and were in a constant dance of two steps forward, one step back. And in addition, as many have received, if we failed on a site we’d always replace it with another. In 2016, we made a hard charge at Facebook-driven assets, as they were providing us traffic and revenue the likes of which have never been seen before.”

So, what they were doing is they were counting on gaming Google to make the money, and then any time the Google algorithm changed for their kind of trash content blog network, they then switched to… They would just crater whenever Google changed anything, and then they moved on to Facebook in 2017.

Kurt Elster: Okay, so how long had this been going on?

Paul Reda: I mean, this has been going on for at least since 2012.

Kurt Elster: Oh, really?

Paul Reda: Yes.

Kurt Elster: Okay.

Paul Reda: And so, the same thing happened. Facebook then changed. Then their reasons for, “Oh, the reason that these sites aren’t generating things?” Well, it was… People aren’t getting the returns they expected. “Oh, well, it’s because Google keeps changing the algorithm, so we gotta somehow fight Google.”

Kurt Elster: But it was a guaranteed payout.

Paul Reda: But it was only a guaranteed payout of a tiny amount of money, and these people have access to the back end and see the revenue that’s being generated. And the revenue that’s being generated is not commiserate at all with the $100,000 that they gave these people.

Kurt Elster: Okay.

Paul Reda: So, and it’s always, again, as with these Ponzi schemes, it’s always a case of just like you gotta stay one step ahead of the people with another new excuse. “Oh, it’s because Google’s screwing us.” And then it became, “Okay, well, Facebook’s screwing us.” Including this line. I don’t even know what they said. This is again from their message to their investors. “A year or so ago, we had an immediate seven-figure monthly loss when the government mandated Facebook to turn off their paywalls due to selling everyone’s data through the paywalls.” I don’t even know what that means.

Kurt Elster: I really… It sounds like word salad. I don’t know what they’re talking about there.

Paul Reda: It’s just gobbledygook. It might be something involving the election guys in the U.K. that were helping out the Trump campaign, and that caused… They were doing a bunch of shady, terrible stuff that was against the Facebook TOS, and then there were a lot of Facebook alterations. But it wasn’t like government mandated.

Kurt Elster: You know, googling it, all I could find… So, literally if I Google government Facebook paywall, it’s all stuff about the $5 billion fine for the FTC from 2019.

Paul Reda: Yeah.

Kurt Elster: So, I added 2017 into my search, and I really can’t find anything what they’re talking about. Doesn’t ring true. We’ll move on.

Paul Reda: All right. Whatever. So, Facebook then, the government made Facebook screw them, and then, so now we’re pivoting yet again. “The only platform offering no algorithms, no paywalls, is that of e-commerce, with the leading platform being Shopify. As I shared in our Christmas state of the union last year, our first 22 Shopify stores launched the first week of January. I showed that they went from $21,000 a week to $100,000 a week in the final week of March. This new growth model showed growth opportunities 15% better than our Facebook-driven assets. We proceeded to build and buy what is now 422 Shopify stores.”

So, they pivoted directly into Shopify. All throughout this letter there’s just more garbage about they hired this guy, and now they’re involved in artificial intelligence-driven hubs to cross reference store inventories. It’s just all gobbledygook.

Kurt Elster: Just buzzwords.

Paul Reda: Yeah, buzzwords. And so, they moved big into Shopify. They had this giant portfolio of over 400 Shopify stores that they were gonna supercharge the revenue, and this is where Ethercycle comes in.

Kurt Elster: So, I get to go out to lunch with these folks, and I’d never heard of any of this, and they explained to me that they had… It wasn’t clear to me that it was investor money. Maybe I missed it, maybe they glossed over it. But they said, “Hey, we’ve got a portfolio of not dozens but hundreds of Shopify stores. We’re actively buying more and more Shopify stores. And we need help scaling them. Tell us what you think.”

So, I was like blown away by initially just the sheer-

Paul Reda: You were shocked by the sizing, because they were just like, “Oh yeah, we own 400 Shopify stores. NBD. Who cares?”

Kurt Elster: The sheer scale of this thing. Managing one store, anyone who has done this knows scaling one store is just blood, sweat and tears. Scaling 10 stores, oh my gosh, you’re a serial entrepreneur. You’re superhuman. How do you manage hundreds?

Paul Reda: You have employees. They had employees. People worked at this company.

Kurt Elster: 20 employees, I think I saw somewhere. And so we talked through like, “Yeah, here’s how you would… Here’s some ideas.” Just throwing stuff against the wall. And I flat out was like, “This is the most utter, just it would take phenomenal hubris for me to be able to try and attempt this. I wouldn’t even try it.”

Paul Reda: It smelled funny to you from the beginning.

Kurt Elster: Yeah, it did. Just because I know the amount of work that goes in, and I’m just thinking about customer support, and creating content, and literally it seemed like an impossible task. I really didn’t think that this could be done. But we talked through, like, “All right, here’s some ideas.” They followed up with me and said, “Hey, would you jump on the phone with a couple of the guys who are staff there?”

Paul Reda: It’s Pittsburgh, so apparently they had a bunch of development teams in Pittsburgh.

Kurt Elster: Yeah, so-

Paul Reda: If I recall.

Kurt Elster: Yeah, so it was Pennsylvania.

Paul Reda: Yeah. I thought I remember you from the phone calls. Anyway, they were located in Chicago. They lived in Minooka, which is a far southwest suburb. Ken has a giant 4,000 square foot house in Minooka. I wonder how he paid for that.

Kurt Elster: Allegedly. Well, actually, so we know in these articles and the SEC filing, he had a $2,800 a month mortgage, and the company was paying the mortgage, but the company wasn’t just paying the monthly payment on the mortgage. It was paying $3,000 a week on a $2,800 a month mortgage, so that one really speaks to this was not ever meant to be a legit effort.

Paul Reda: All right, but that’s forward ahead. That’s after they get busted.

Kurt Elster: All right.

Paul Reda: We’re still in the period where we’re smelling these guys out.

Kurt Elster: Yeah, so then I got a call with their guys. I was like, “How do you even manage this? Just tell me how you do it! And what your struggles are.” And the answer was like it was just unending spreadsheets to try and figure out-

Paul Reda: It was literally spreadsheets, like there was no system. It was just a spreadsheet with 400 tabs.

Kurt Elster: Yes. Yes. And that was like that was how you had the high-level overview of the thing, and where it was, like what developments, what state each was in, the stats about it. It didn’t seem terribly useful, and I basically said, I was like, “Wow, you’ve got your work cut out for you. Have a good day.” And then I never… We never communicated again after that.

Paul Reda: Well, and I think the workers there probably thought they were working at… You know, it’s a big… I guess you could conceive of like a giant company, that’s a venture capital company, with millions of dollars coming in, which is what this was, buying that many stores, and they’re like, “Okay, I can see this. They just have a ton of stores and they’re all just gonna put all the money in one big pot.”

So, like if you’re in the beast, I guess you can kind of see how it might be working.

Kurt Elster: So, after that, that was over the summer.

Paul Reda: But wait, so we kind of knew a guy that worked there. One of my old coworkers worked there, and you called him up and asked him point blank. You said-

Kurt Elster: He was the one that I talked to, and I flat out asked him-

Paul Reda: Yeah, and so it was a guy I knew. I used to work with him. He’s a good guy. He’s a legit person. And you straight up asked him.

Kurt Elster: At this point, I asked him semi-jokingly, I said, “Hey, on a scale of legit to scam, where does this fall?” And he goes, “Probably more toward legit.” And I don’t know if he was joking around with me, or he himself was not 100% confident.

Paul Reda: Yeah, he couldn’t say, “This is a legitimate business.” It was probably not a scam.

Kurt Elster: Yeah, that was how he phrased it, was probably not a scam. Poor guy.

Paul Reda: Yeah, he lost his job. We shouldn’t laugh.

Kurt Elster: Yeah. Last Wednesday night, an article breaks.

Paul Reda: Yeah, that gets… I forget how I saw it. I think someone else I knew tweeted it out, and it was because it was like, “Look at this random ass Ponzi scheme from Minooka. Who ever heard of them?” And I immediately texted the link to Kurt and was like, “Isn’t this that guy you had lunch with?”

Kurt Elster: Yeah.

Paul Reda: And he was like, “Yes.”

Kurt Elster: All right, read us a quote from the Sun-Times article about what happened, and when did this happen? January 1st?

Paul Reda: Well, the SEC actually busted him and shut the company down in December.

Kurt Elster: December 30th is what this says.

Paul Reda: But all this stuff didn’t really break, and I mean the other thing is let’s just talk about how deep this goes. This is a real company, with a real website. They’re on the Inc. 500 list of these fastest growing companies.

Kurt Elster: You could find plenty of articles quoting them. Articles about them.

Paul Reda: Yeah, and I kind of want to be like, “Hey-“

Kurt Elster: If you’re an Entrepreneur on Fire fan, that podcast with John Lee Dumas, you have heard this man, Kenneth Courtright, on that show. That episode has since been deleted. I don’t blame him. I’d do the same thing.

Paul Reda: And I’m like what kind of due diligence is Inc. doing? Do they really have that much revenue? Who even knows?

Kurt Elster: Well, those Inc. and Fortune 500 lists, the way they work, it’s like you can either send them your tax filings, or you can have a CPA send them your financial info, and it has to be notarized. You have to really go out of your way to lie to them when you apply.

Paul Reda: Well, if this company was employing a CPA, I would say that that CPA is allegedly not on the up and up. Allegedly.

Kurt Elster: All right, so give me the quote from this Sun-Times article.

Paul Reda: Oh, I don’t know. “A federal judge has frozen the assets of an Illinois man and the company he ran under the name the Income Store, after the Securities and Exchange Commission accused him of a Ponzi-like scheme that raised $75 million.”

Kurt Elster: Not only has the business run by Kenneth D. Courtright III of Minooka allegedly become “unstable,” the SEC said money for the business was used to overpay on his mortgage and make private school tuition payments, and so the SEC moved to freeze the assets of Courtright and the business last month, in December, out of fear that the alleged scheme would continue until the business collapses.

So, they’ve got a 22-page complaint about it. The reality is that the business model has not been successful according to the SEC lawyer. It’s not in satisfactory financial condition. It’s unable to perform its duties. It’s crumbling under its debt obligation.

Paul Reda: So, here we go. “Courtright and his business raised at least $75 million from more than 500 investors since January of 2017.” And, I mean 2017 is only a more recent tranche, because we saw in the earlier message he’s sending out that he’d been doing it since 2012. “They did so by striking deals in which the business offered a minimum guaranteed rate of return on revenue generated by websites the business built or acquired for the investors. However, the websites wound up generating just $9 million in advertising and sales between 2017 and 2019.”

“In the same time, Courtright’s business paid $30 million to its investors. In what the SEC described as classic Ponzi fashion, the business funded the gap between revenues and investor payouts by striking more deals with investors.” So, I mean, so here’s what happened. They bought these underperforming websites. They owe everyone their $1,200-

Kurt Elster: Their guaranteed payment.

Paul Reda: Their $1,200 a month check. And note, if you gave them half a million dollars, you’re getting five $1,200 a month checks, and they need to find that money somewhere, because the websites aren’t making the money, so they just bring in new investors to pay out the old investors. But think about this, though. So, they owe you 15 grand a year. Say they think about, “All right, we gotta pay him for two years. That’s 30 grand.” Where did the other 70 grand go?

Kurt Elster: Well, according to this, it was used on tuition and mortgage payments.

Paul Reda: Yeah. It allegedly went into Kenneth Courtright’s pocket, and his wife, too, because his wife was an employee of the business.

Kurt Elster: Yes.

Paul Reda: She was also a member of the Grundy County Board, which is my favorite Illinois county name.

Kurt Elster: Yeah, I feel like-

Paul Reda: Grundy.

Kurt Elster: If you’re a Married With Children fan, like there’d be… There are a lot of Chicago jokes in there. I’m sure there’s Grundy County jokes buried in that show.

Paul Reda: But yeah, so she’s like, and here’s one of my favorite things. The canary went off in the coal mine in the fall of 2019, when they started to stiff all their vendors. They outsourced a lot of their content generation and their work to independent contractors, of whom we were potentially going to be one of them, but we decided they were too shady, and we demand payment up front, which obviously any Ponzi scheme is not gonna want to do, because they can’t run out on you later.

But so they started stiffing their vendors. Here’s something from earlier in December, just a month ago. “I’m a contractor for the Income Store and they stopped paying us four weeks ago. We are owed tens of thousands of dollars. We’ve asked for our pay and we’ve been met with awful attitudes from the executives and the owners. Carrie Courtright was particularly nasty. She threatened to sue one of us for slander and stalking. A real nice lady.”

Kurt Elster: Where’d you find that?

Paul Reda: That was posted on a forum where people were discussing this. People who had, investors who had been burned by these guys were talking on a forum, and then I found a GoFundMe also started by people who used to work for them, and I’m assuming that’s where the slander came from, because they talk a bunch of shit about the Income Store on the GoFundMe, and they’re talking about Carrie Courtright again. But she ends all correspondence I have seen with “blessings,” so at least we know she’s a good Christian. Maybe God will step in and make payroll for her.

Kurt Elster: Oh God.

Paul Reda: So, there’s an elected member of Grundy County who is also involved in this sham. But yeah, so they took the money out of the business. Since January 2017, the business allegedly moved more than $1.5 million directly into the Courtright’s personal bank accounts, and then he took out 12 grand a month to pay his $3,000 mortgage.

Kurt Elster: Well, you don’t wanna get… That mortgage interest is very expensive!

Paul Reda: Yeah. Here’s a little tip, folks. If you are paying off a mortgage, something you could do is if you could make 13 mortgage payments a year, instead of the 12 monthly ones, that really adds up on the back end of the mortgage, because you’re saving on the whole thing.

Kurt Elster: This is just smart money management.

Paul Reda: This is actually smart money management. I’m not kidding here when I say this. If you make the 13th payment every year, that’s like a real force multiplier at the back end. It may seem like one extra month now, but it ends up being a bunch of extra months in the end.,

Kurt Elster: It’s dramatic.

Paul Reda: It’s a dramatic thing.

Kurt Elster: At the end, because of interest.

Paul Reda: So, he just took that, and instead of making one extra payment-

Kurt Elster: Per year.

Paul Reda: … he was making quadruple payments.

Kurt Elster: Yes!

Paul Reda: That’s another thing I think people don’t think about when they’re trying to think of money-saving tactics. Make quadruple payments on your mortgage. You want to pay four times as much your mortgage every month. Also, he allegedly paid more than $12,000 in 2018, and $24,000 in 2019 to a private secondary school attended by members of their family. So, they’re paying school tuitions, too.

So anyway, there was a dude, he was in Chicago, he was running a giant Ponzi scheme. Allegedly. And we had lunch with him, and he tried to hire us, and we thought he was a scam artist.

Kurt Elster: At the time, I was like, “This is either… There’s a non-zero chance this is a scam, but certainly this is just too big to work.”

Paul Reda: At the very least, it’s a terrible business model, because it’s just one random dude in Minooka who owns 400 Shopify stores and is like, “Make them all good.”

Kurt Elster: What I love here is five months ago on Reddit, someone posted in the investing subreddit, “Income Store. Looking for some feedback on investment I made about four years ago with a company called Income Store. They buy and run websites for investors and split the profits. They guarantee a minimum of 15% returns for life and you own the website. I promise that the website they bought for me is now worthless. I invested over 100 grand and have zero equity. They claim that all of the sites they’ve purchased are working out financially on their website, but this is clearly false. Anyone else have any experience with this group headed by Ken Courtright? I’m getting nervous. Ponzi scheme?” Question mark?

And first comment is exactly what you said. “Any time you see the words guaranteed returns, that should have automatically flagged it as a scam. Yes, this sounds like a fraud. Absolutely sketchy. You invested 100K in this? Sounds like a…” It just keeps going like that, and then the guy gets defensive. “Update: lots of naysayers out there, which is what I expect from those who don’t have any experience or knowledge with this investment.”

Sir, you already told us you invested 100 grand and have zero dollars. But I understand where that would be disturbing, and you would get defensive.

Paul Reda: I think another thing that might have triggered it is last December… By November, October-November of 2019, they started stiffing their contractors, and then on December 13th, just a month ago, they stopped paying out the guaranteed payments. So, clearly the scheme had slowed down by that point that they didn’t even have the guaranteed payment money, and if I wanted to make a guess, I would guess that that was the final trigger that someone dropped a dime on them. People stopped getting their guaranteed checks.

Kurt Elster: Is what triggered the SEC to get involved and stop this. Because it managed… They ran this for years. This was not like a flash in the pan thing.

Paul Reda: I mean, according to their own declarations, this has gone for seven years. And I think we were debating whether or not it’s like, “Oh-“

Kurt Elster: At the start, was this legitimate? And then you couldn’t make the payment, and so, “All right, well, we’ll just move some money.” And then the wheels fall off at that point, where it’s like it started off as, “I just have a big vision and I can do this, and how could we lose? I’m so confident.” And then the wheels fall off, and now they’re just trying to keep it going. Until we can figure it out kind of thing.

Paul Reda: Correct me if I’m wrong, but this, it feels not that far from sort of the venture capital business plan of, “We’re gonna drop in a bunch of dough. We’re gonna lose a bunch of money the first few years, but then we’re gonna get huge, and we’re gonna make money, and later rounds of investments will pay off some of the… will buy out and pay off some of the earlier investors.” I mean, does that not happen in venture capital?

Kurt Elster: No, you described it, but venture capital, there is no guarantee.

Paul Reda: There is no guarantee, and they’re not literally-

Kurt Elster: And they’re not like literally defrauding people.

Paul Reda: They’re not literally taking the money out for their fun stuff.

Kurt Elster: Yeah. If I’ve got a VC-backed company, and I buy a Rolls Royce with that money, or I pay for my mortgage, the VCs will not be pleased with me. The SEC will not be pleased with me. It would not be good.

Paul Reda: Isn’t that kind of what the… Not Airbnb. What was the offices?

Kurt Elster: WeWork?

Paul Reda: The WeWork, isn’t that what the WeWork guy did?

Kurt Elster: Supposedly everything he did was unethical, but not illegal.

Paul Reda: Isn’t that what the-

Kurt Elster: I would phrase his actions as not yet illegal.

Paul Reda: What about that Nissan guy? Didn’t the Nissan guy-

Kurt Elster: Oh, Carlos Ghosn?

Paul Reda: Yeah, didn’t he pay off, he has like three houses that Nissan was paying for?

Kurt Elster: Okay, he didn’t have any houses. Those were Nissan’s houses. Those were investments for Nissan that he made. He just lived in them. And Nissan looked the other way because he was successful.

Paul Reda: I mean, I’m kind of a side-eye guy at private capital, venture capital, private equity type stuff to begin with, so in my mind, Kenneth Courtright is a bad, shitty dude. But he’s only like two steps more shitty than a lot of other dudes.

Kurt Elster: Well, this is, by the end it’s just outright fraud.

Paul Reda: It is outright fraud by the end.

Kurt Elster: The question is when it started, was this a legitimate effort? Or did it always-

Paul Reda: Did he really think that he could take someone’s money… Let’s be honest. Let’s think about the steps here. I take your money, I take $100,000 of your money. I buy a website for 25, 30 grand, because I mean those websites were trash. I looked at a bunch of them. All the ones I clicked on were just clickbait terrible.

Kurt Elster: So, you found these sites.

Paul Reda: Oh yeah, and oh, but don’t worry, I’m going to quadruple the site’s revenue, so now it makes $150,000 a year, in which case I get to keep 75, and then you’re just getting… You’re gonna get half the revenue and all that sort of stuff. I mean, is that… Where do you get this idea that you’re just gonna form this network of sites? At the very least, he had to think that black hat SEO was some magic thing he was gonna pull off to make his crappy blog network AdSense affiliate links pay off.

Kurt Elster: Right. Yes. I mean, anyone who has experience with this would know there’s no guarantee. The idea that it would scale, that you could buy hundreds of sites and scale those, that’s… I have a hard time believing that… I accept that someone inexperienced wouldn’t know that this was a problem, that this wouldn’t work.

Paul Reda: That’s who all these guys prey on, is people who are inexperienced.

Kurt Elster: Yes. I think the people who invested, I really don’t blame them. I don’t see that they really could have thought that this would be plausible or sustainable, and certainly at the end, when the company is making quadruple payments on his mortgage, and he’s paying his-

Paul Reda: I mean, he’s straight up pulling money out of this company, and I mean-

Kurt Elster: The company’s paying for private school for their kids.

Paul Reda: And the fact that-

Kurt Elster: That tells you, like, “Okay, it’s not. At this point it’s not legit.” But was it always that way?

Paul Reda: But even in the beginning, there’s no way that they took your $100,000 and then invested that $100,000. None of the assets they bought cost $100,000, or even $50,000 and then we had to put in $50,000 worth of conversion rate optimizations.

Kurt Elster: Well, yeah. They don’t have to put in all of it.

Paul Reda: Did they put in 80% of it? I mean, they didn’t… They were taking way more than 50% of that money and putting it directly into their pockets, allegedly, is what I think. Allegedly.

Kurt Elster: Based on the SEC filing. That’s what the SEC alleges, so that’s what we’re basing this off of. I know, they told me the website broker they use, and I’m familiar with him. It’s a really well-known broker, especially in the Shopify space. So, that broker I know and think’s legitimate.

Paul Reda: And I mean, the websites existed.

Kurt Elster: The websites existed, so people did get a real website. The staff, we knew one of the guys, and I talked to two of them. I think they were making a best effort. We just don’t know, did this… Was this legitimate at the start and it got strange?

Paul Reda: I mean, I guess if it was a con job from the beginning-

Kurt Elster: Why would you even hire staff?

Paul Reda: Yeah, you wouldn’t build out that much staff. I mean, but here’s, again, to go back, I think the line between con artist and, “I’m a CEO and I get to pay myself a bunch of money, and the business will pay for a bunch of stuff for me,” in a legal fashion in America, that’s a thin line.

Kurt Elster: Yeah.

Paul Reda: There’s a thin line of just like, “Oh, by the way. I’m a CEO, so I just get all this free shit and I get to keep half the money generated.” People just think that that’s a thing that happens, and then-

Kurt Elster: And it’s not the case.

Paul Reda: And it’s not the case, but then when they get the opportunity to kind of make that thing happen, that’s what they make happen.

Kurt Elster: Yeah. There’s a thin line between business expense and embezzlement, as that’s really what we’re discussing here.

Paul Reda: Yeah, so it’s like, “I took your 100 grand, and by the way, 50 grand of that is now mine,” is shady and a terrible way to run a business.

Kurt Elster: But that’s still not illegal, because I go, “Listen, that’s my management fee.”

Paul Reda: Yeah.

Kurt Elster: That’s to compensate my time and my strategy, and you’re gonna get that back, because now I’m the one… It’s entirely hands-off and passive for you, the investor. I’m taking care of everything. So, I don’t expect them to spend 100 grand on a website if I invested 100 grand.

Paul Reda: I expect them to make more than, to invest more than like 20, though, which is what I think they probably did.

Kurt Elster: Yeah. Based on what we saw.

Paul Reda: Yeah. But yeah, so I think it was just like… It was all buzz related. They really liked… Okay, Google ads. The lynchpin of the business is Google ads in 2013, and then in 2015, it becomes Facebook ads, Facebook traffic, and then in 2018 and 2019, it becomes, “Well, Shopify. Passive income.” It’s just all whatever the current buzzword of the day is, that’s what they use to entice people, and being like, “Oh, well, this is what our new pivot is to, so don’t worry, the money is gonna come any second now.”

I mean, he even says this is great in his message, again, from when they switched everything. “So, if I’m hard to reach. Please forgive me, and please pardon me as I and the team are working tirelessly around the clock to recapitalize your websites and this company, to remedy all issues. If we are forced to go the bankruptcy route, it has been shared with us, our plan to get approved, but site partners might see anything for years.” So, I have to do this to stave off bankruptcy, and if we go bankrupt, you won’t see anything, so you better leave me alone.

Kurt Elster: Oh. Yeah. That is what’s going on there.

Paul Reda: I mean, that was at the end, though. That’s in 2017.

Kurt Elster: That’s in 2017. This thing didn’t go under till December 30th, 2019.

Paul Reda: But I think in our timeline of legit business to con job, we have fully swung the needle all the way over to con job by that point.

Kurt Elster: Okay. I see. So, what are our takeaways, here?

Paul Reda: Well, I think first of all, it’s guaranteed returns are a scam.

Kurt Elster: That’s the immediate-

Paul Reda: Unless it’s literally treasury bills and savings bonds. If the treasury bills and savings bonds don’t payout, you should horde gasoline and bullets. That’s the first thing.

Kurt Elster: Just put all your money into canned food and shotguns.

Paul Reda: That’s my thing with gold, where they’re like, “Well, I gotta invest my money in gold, because what if the dollar collapses?” Like, “Bro, if the dollar collapses, you should be investing your money in seeds, because that’s what you will need.”

Kurt Elster: Yeah, you’re gonna want AR-15s and tall fences. So yeah, number one is any investment opportunity, investment vehicle, whatever it is that has a guaranteed rate of return, all right, so that’s our giant red flag. That immediately tells you that’s a no go. Without that part, this otherwise would have looked like a legitimate business to most people from the outside in.

Paul Reda: Yeah. If they didn’t… I mean, obviously the guaranteed returns is what prompted people to invest with them, but if they didn’t promise the guaranteed returns, and they just literally took your money, and then just ran that as long as they could, and at the end of the day, maybe it only would have lasted like one or two years, and at the end of the day they were like, “Oh, by the way, it all failed. Sorry, company went bankrupt.” And he just walks away with everyone’s money, he probably would have got away with it.

Kurt Elster: You’re right.

Paul Reda: Yeah.

Kurt Elster: Yeah. I would love to know what the… and maybe it’s in the filing and we just don’t see it. I would love to know what got the SEC investigating. It was probably just complaints.

Paul Reda: Well, one of the complainants was… I found a YouTube video of this woman who’s like an attorney, who’s really into investments, and she was like, “Holy shit.” These videos only have like 500 views, but she read through the entire complaint, and she was like, “Okay, well, here are the complainants.” And it’s like four names, and two of them are like FBI dudes, but one of them is a banker at… I don’t remember the name of the bank, in the southwest suburbs. So, I think it was like literally his banker, so I wonder if the bank guy dropped a dime on him or what. Or the bank guy had to cooperate with the feds once the feds rolled in.

Kurt Elster: So, what they offered investors was, “Hands-free monthly income with no skills required.” And well, if it’s easy to understand like, “Oh, I’m investing and I’m getting a website. That’s an online business and I know that’s a big deal.” If that’s what you want to put your money in, the answer to doing that is just invest in tech stocks, invest in companies, in a traditional brokerage account, right?

Paul Reda: I’m sure there’s an ETF. Yeah, there’s exchange fund, they’re called ETFs, where it takes like a whole section of sort of the market, and it’s one stock you buy. So, there’s one called SPY, which is just the S&P 500. That’s where most of my money is, in SPY. There’s one called ITA that is defense and aerospace contractors, and after Trump won, I put a bunch of money in ITA. It’s going very well.

Kurt Elster: Yeah, the whole market’s up. You could throw a dart-

Paul Reda: After the 2016 election, I invested in what I call the evil sector of the economy, and my stocks are doing great. So, yeah, look at the ETFs. They’re really good. You’re kind of diversified, so it’s not just one stock, but you’re also just not like a total wiener and buying the entire stock market.

Kurt Elster: Well, so there’s semiconductor ETFs, would get you into technology, like hardware, but there’s also information services or IT ETFs. That’s probably closest to what you want. I don’t think there’s a minimum beyond what the brokerage wants.

Paul Reda: The joke of it is the S&P 500, over the past 40 years, has paid out, I think, at more than 15% a year. So, you literally could have just… and it outperformed Bernie Madoff, I think, and I think it obviously outperformed the 15% these people were claiming. If you literally put all your money in SPY and just sat on it for 40 years, you’d have more money than doing these wild ass investments.

Kurt Elster: Yes. That’s the dark truth of investing, is stop screwing around, just everything goes in the S&P 500, and don’t mess with it. You’ve gotta be in it for the long haul.

Paul Reda: Anyway, I don’t know how this turned into Mad Money.

Kurt Elster: Well, we gotta bring all the sound effects back for that.

Paul Reda: So anyway, if something’s too good to be true, it probably is. The most repeated line of a million times.

Kurt Elster: It’s the guaranteed return that’s immediately, like that’s the red flag. Sorry, without that, without… If you take that away from it, then from the outside looking in, it very… I could see where people thought this was legitimate and invested money, and I’m sorry that people lost… Over 500 people lost money to this thing, and I hope the SEC’s able to do a claw back on it.

Paul Reda: Well, if it was $100,000 a throw, and they raised $75 million, I can’t do the math in my head-

Kurt Elster: Well, some people would have invested more. The Sun-Times article just specifies “more than 500 investors since January 2017.”

Paul Reda: Yeah.

Kurt Elster: I feel bad.

Paul Reda: Also notes at least $75 million, so who knows how much money they got.

Kurt Elster: Yeah.

Paul Reda: But yeah, you thought they were shady. Give me more… I wont more color, here. I want to know more about the lunch, I want to know how shady they were, what did they order?

Kurt Elster: What did they order? They were on the keto diet. That came up. They did get cocktails with their dishes.

Paul Reda: And you were like, “How do you run all this?” And he was just like, “It’s fine. Don’t worry about it.”

Kurt Elster: They were like, “Well, we have a team. The team does it.” Yeah. I didn’t get into the actual logistics of it until I talked with a couple of their people some weeks later. It wasn’t obvious to me, when I met them for lunch, it really… It was not obvious to me that this was people invested and they bought a website for you.

Paul Reda: You just thought it was a company, and they had a ton of money, because they were rich or something.

Kurt Elster: Yes. I thought they were just… My impression, and I don’t know how accurate it was, my impression was this guy had experience in digital marketing, and he was going to buy and scale a whole bunch of stores, and sell those stores, and this really was his own investment. And maybe he had a few angel investors or whatever. I did not realize the scale of the investments that were occurring here. And at that time, if you googled him, you’d find tons of content, and articles, and interviews that would lead you to believe that this guy’s legit and knows what he’s talking about.

Paul Reda: Well, and it just goes to show the whole thing of like, “Pretend like you belong.” This guy was just like, “I’m a big time business man, I do a lot of investments, I definitely know what I’m talking about and how to run a business, and things are going great for me.” And everyone believed him.

Kurt Elster: Yeah. Well, you know, they talked about their… They were well dressed, and they talked about, “Oh yeah, we live in this big property.”

Paul Reda: Minooka.

Kurt Elster: That’s south of here. And they mentioned a condo in Gold Coast, and going to after parties at events, so I accepted that they were successful, and I accepted that they were legitimate and successful to that point, but I just… I did not believe in what they were pitching then. But I didn’t think it was like outright fraud until later, where I thought, “Okay, well, there is a chance that this thing’s a scam.” And then I walked away from it, and then months later I get a text from you that goes, “Hey, isn’t this those guys you had lunch with? The SEC says that they alleged $75 million Ponzi scheme.” I was like, “Oh my God, it was a scam!”

Paul Reda: We got good noses.

Kurt Elster: Yeah!

Paul Reda: Well, and I mean, you came back from the lunch and you were like, “Those people were weird.”

Kurt Elster: Yes.

Paul Reda: And you described the whole thing to me and I was like, “This is not a right thing.” It just… It was too ramshackle.

Kurt Elster: Yes.

Paul Reda: I mean, if you’re running 400 Shopify stores, you are a true fucking business that’s like you have offices in an office park, with an entire… with floors worth of people, and different levels of people, and people that focus on specific sites that they’re the head of, and all-

Kurt Elster: Yeah. Knowing… We’ll use AutoAnything’s example. Drew Sanocki was on the show and he talked about direct mail marketing, but he is the CEO of AutoAnything. That’s one website, right? One website that’s been around a while, that sells a bunch of stuff. They employ dozens of people, and it’s a big office, right? For one website! You’re gonna run 400, 800 websites, with 20 people? And they’re all completely disparate?

Paul Reda: I mean, if you told me that they-

Kurt Elster: Not happening.

Paul Reda: If you told me they had 5,000 employees, I would be like, “Okay, maybe they could pull it off.” That’s just 10 employees a store. I mean, that’s not crazy.

Kurt Elster: Yeah, that… You could do it.

Paul Reda: Plus whatever the HR was and all the other stuff to actually run the business. I mean, they’d need at least 5,000 employees, so the fact that they had 50-

Kurt Elster: Well, the other thing, initially I was asking them about strategy, and what are you doing, and it got a little combative with Carrie. I was like, “All right,” and we moved away from that, and then the only piece of marketing advice that they gave me, because I was like, I said, “You’re doing this big thing. You should be giving me advice. This is this huge thing you’re doing. What?”

And he said, “I’ll tell you the thing we’re really hot on right now. Micro influencers.” And that was it! That was the sole… Maybe he wanted to play his cards close to his chest. I don’t know, but the sole piece of marketing advice they gave me was, “You gotta use micro influencers. They gotta be 4,000 to 9,000. That’s followers on Instagram. That’s the sweet spot.”

Paul Reda: Oh, and that’s totally, that was the next pivot. That’s the next pivot, because I mean we see Instagram blowing up, and how important Instagram is to various stores. The next pivot he would declare to people is, “Well, we’re going in hard on Instagram now.”

Kurt Elster: Could be.

Paul Reda: Also, micro influencers, they generate nothing for you, right? Because Julie’s tried micro influencers.

Kurt Elster: That was a point in his favor, because it spoke to experience with influencers where the 100,000-person influencer is the one who’s probably not legitimate. The 8,000-person influencer, they probably have a legitimate following. That was a point in his favor. It was just odd that like that was the sole… It’s like you’re managing hundreds of stores and that’s your only advice?

Paul Reda: I don’t know. As Ethercycle’s resident skeptic, these people stunk to high heaven the moment you got back.

Kurt Elster: I did. Yeah, I got back and was like, “You won’t believe this.” I was like, “They got hundreds of Shopify stores.” You were like, “What?” Yep.

Paul Reda: It’s like, “All selling different things, and they don’t care about any of them.”

Kurt Elster: Yeah, it wasn’t like I had one store, one supplier and one store, and I divided up niches, or like they were for different countries, or languages. Yeah, they’re all, every one of them, completely different.

Paul Reda: Yeah, I remember seeing that spreadsheet. You sent me a link to that spreadsheet. It was a fucking disaster. It was terrifying. So, that’s that. Don’t get scammed, please.

Kurt Elster: Yes, please.

Paul Reda: No one will guarantee. Anyone who guarantees you returns is a scammer. Anyone who’s pitching you something where you won’t have to do any work, and it’s too good to be true, is a scammer. Don’t fall into those traps.

Kurt Elster: Yeah, that’s the takeaway. Man, I’m drained just even thinking about it.

Paul Reda: I love it. I was telling everyone last three days. I was like, “I had lunch with this dude.” Even though I didn’t. I stole your valor.

Kurt Elster: That’s fine. I’ll back you up. If someone’s like, “Uh, Paul said he had lunch.” Yep, that was him.

Paul Reda: That’s it.

Kurt Elster: That’s all I got. Yeah. Please don’t get scammed. Join us in the Facebook group. The next episode, I think we’ll do a Q&A, and I’ll post in the Facebook group with a call for your questions, so let us know what you want to hear next time.

Paul Reda: All right.

Kurt Elster: This was like my very own episode of American Greed. CNBC.

Paul Reda: CNBC.

Kurt Elster: American Greed.