The Securities and Exchange Commission has hit Ephren W. Taylor II with fraud charges, alleging that he swindled church parishioners out of millions under the guise of being a “socially conscious entrepreneur.”
Mr. Taylor, former chief executive of City Capital Corp., and Wendy Jean Connor, former chief operating officer, were hit with a slate of charges for their alleged roles in a large Ponzi scheme that targeted African-American churches.
In a suit filed with the U.S. District Court for the Northern District of Georgia in Atlanta, the SEC claimed that the defendants made untrue statements of material facts, employed devices to defraud and sold securities without registering them.
Mr. Taylor, a 29-year-old who touted himself in books and in the press as the youngest African-American CEO of a public company, allegedly told parishioners that traditional
investment vehicles, including mutual funds and the stock market, were “foolish” and “money losers.” They were told they could get better returns using self-directed individual retirement accounts to invest in small businesses and “sweepstakes machines” — computers loaded with games, similar to those found in casinos, the SEC alleged.
“Ephren Taylor professed to be in the business of socially conscious investing. Instead, he was in the business of promoting Ephren Taylor,” said David Woodcock, director of the SEC's Fort Worth, Texas, regional office. “He preyed upon investors' faith and their desire to help others, convincing them that they could earn healthy returns while also helping their communities.”
The alleged scheme goes back to 2008, during which time Mr. Taylor and City Capital raised over $7 million from issuing promissory notes to investors, including churchgoers.
The notes, which typically had a one-year term and interest rates of 12% to 20%, supposedly backed local small businesses.
Proceeds from the note sales were mostly spent on a variety of other items, including promotions for Mr. Taylor's book and consultants for his speaking engagements, as well as rent for his apartment in New York, according to the SEC.
However, the notes were rarely repaid in full, and City Capital talked investors into rolling over their notes for longer periods. with promises to raise their rate of return, according to the complaint.
The solicitations “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 alleged.
As City Capital's cash flow dwindled, Mr. Taylor allegedly sought other revenue streams by offering investment opportunities in sweepstakes machines that were purportedly placed in Internet cafes, according to the claim. Investors paid as much as $4,997 per machine and were told they could get returns as high as 300% in the first year, the SEC said.
Mr. Taylor and Ms. Connor allegedly received overriding commissions of 10% per machine, while City Capital paid 10% commissions to employees who hawked the investment.
Investor funds in the sweepstakes machines were used to help City Capital cover its own expenses and pay Mr. Taylor's credit card bills, the SEC said. None of the money went to charity. Mr. Taylor and Ms. Connor allegedly authorized the payment of phony monthly returns to investors around April 2010 after realizing that the machines were losing money, according to the suit.
In the end, investors who had been in the scheme longer began receiving “returns” funded by new money coming in from other investors, according to the claim.
Mr. Taylor's whereabouts are currently unknown. A call to City Capital Corp.'s offices was not immediately returned. A call to Ms. Connor's attorney James D. Williams was not immediately returned.
