Payday Loan Times

A federal grand jury in Florida has indicted a handful of payday loan executives and their sales agent for their roles in a scam that raised over $1.6 million.

In the latest step in the SEC’s case, a grand jury has indicted Eric Turner, Kenneth May and Anthony Pinone for their roles in the fraudulent offering and sale of stakes in Virtual Cash Card. Virtual Cash is a defunct South Florida company that purported to be in the payday loan business.

According to the indictment, the three men used an in-house sales force as well as Pinone’s firm, Omni Advertising & Marketing, to raise at least $1.6 million from more than 70 payday individuals. Starting in at least September 2001 until December 2002, those reps used boiler room tactics such as cold calling and unsolicited emails to push the investments.

The sales agents, who were unlicensed to sell securities, used fraudulent marketing materials to dupe investors into buying into a stake in the cash advance payday loan company.

Virtual Cash told investors it was part of the multi-billion dollar payday loan industry. Like other payday loan businesses, Virtual Cash claimed to provide customers with payday advances of up to $500. In return, customers authorized Virtual Cash to debit his or her bank account at a later date, normally within two weeks, for the amount of the loan plus a 20% fee, which amounts to more than a 400% annual return for the company making the loans.

Turner, 35, was the primary organizer of the venture, creating the original sales materials for investors, according to the SEC. Armed with the bold return figures of the payday loan industry, Turner had no trouble convincing May and Pinone that they could sell the idea to the public.

By February of 2002, Pinone had organized the boiler room of unlicensed agents to find potential investors in Virtual Cash. Its sales materials guaranteed investors a return of 3% a month on investments of less than $50,000 and of 4% per month on investments of more than $50,000, and promising annual returns of as much as 150%.

The sales materials also emphasized that the investors’ principle would always be safe because it was collateralized by the actual faxless payday loans.

But despite their promises, Virtual Cash was an actual fraud. It wasn’t even licensed in Florida to do the kind of business it claimed to do.

Despite its promises and detailed business plan, they men only invested $156,000 of the $1.6 million they raised to fund quick cash loans. In classic Ponzi scheme fashion, they paid out the rest in the form of monthly returns to previous investors.

They also used the money to pay the salaries of Turner and May, a 15% sales commission to Omni sales reps, and an additional 3% commission to May. According to bank statements, Turner also used investors’ money to fund outside companies he owned.

After 10 months, in December of 2002, Virtual Cash was forced to stop soliciting funds by an injunction from the court for the Southern District of Florida. It is difficult to determine how much Turner and May walked away with, but they are looking at disgorgement penalties of more than $350,000.

Pinone, on the other hand, was broke by 2004 and signed a sworn statement of financial condition and avoided a civil penalty.