Saturday, July 25, 2015

Former Teen Millionaire Sentenced in $16 Million Ponzi

By Greg Wright, 
MBA, CFE, CFP®, CLU, ChFC
Certified Fraud Examiner
Certified Financial Planner™

Ephren Taylor II
Whoever thought the walls of a church were a safeguard against fraud should think again.  Fraud examiners know that houses of worship — churches, synagogues, temples, mosques etc. — are among the most vulnerable.  

When we are in a group that we perceived to be very similar to ourselves, we tend to let our guard down.   In many religious communities there is a na├»ve confidence in leadership.  If the pastor introduces someone that says you can get 20 percent more if you make an investment with them, many people will believe it.  A church leader is often trusted without people being critical and questioning. 

In March of this year, Ephren Taylor II was sentenced to nearly 20 years in prison for defrauding $16 million from more than 400 people, mostly churchgoers. 

Taylor, a self-proclaimed “Social Capitalist” went around the country on a "Building Wealth Tour," where he gave seminars to church congregations claiming his socially conscious investment opportunities would make believers both godly and rich.  He said that 20 percent of his profits were donated to charity.

He appeared on and had been featured on TV shows including FOX News, ABC’s “20/20,” PBS, CNN, Black Enterprise, Montel Williams,and in a CNBC segment titled Secrets of a Teen Millionaire.” His speaking promotion may be seen here.  

He was marketed as the youngest black CEO of a publicly traded company,” Taylor claimed to have founded two tech companies—and made his first million—before graduating from high school. He promised “low-risk, high reward” investment opportunities that would show you how to get wealth.  In sermons, infomercials, books, and webinars, he would quote scripture, exalting Jesus, and make promises of “economic empowerment” and “attainable housing.”

His credentials were mostly bogus and few had checked him out.

Taylor made negative comments about traditional investments including stocks and mutual funds. The audience, he claimed, would be better off “firing their brokers” and buying into one of Taylor’s company, City Capital Corporation, which would then invest in inner-city businesses.

Taylor appears to have homed in on churches preaching prosperity theology, or prosperity gospel—a growing part of Christianity, popularized by preachers like Osteen, T. D. Jakes, and Eddie Long, that sees material wealth as physical manifestations of God’s blessings and the absence of wealth as a possible opposite sign.

So when Taylor displayed the trappings of wealth, many of his prosperity theology supporters and investors saw them not as red flags but rather as proof of his righteousness.

According to a Duke University expert, the prosperity gospel “offers a language of ambition and economic hunger for those on the way up. In tough times, it tells people God is on your side, there is always a solution. It allows people to feel they are still in control.” 

“It does seem that for people who are ripe for financial miracles—who are already expecting that God will supernaturally return money to them—that they are likely more invested, excited, and eager to hear a visiting preacher as an answer to their prayer.”

One of the mega churches on the 'Building Wealth Tour' was Eddie Long’s 25,000 member New Birth Missionary Baptist Church in Georgia.  “Your life is about to change,” according to sources, said pastor Eddie Long, introducing “my friend, my brother, the great Ephren Taylor” to his congregation. God, said Long, wants “to finance you well to do His will.” 

Joel Osteen’s behemoth Lakewood Church in Houston with 40,000 weekly visitors and T. D. Jakes megachurch were a target of Taylor along with COGOC Pentecostal churches.  It is also believed that Taylor targeted African-American members of the Church of Christ because his father, Ephren Taylor Sr. has served as a minister in several Churches of Christ in Missouri and Kansas for many years.

Taylor’s inner-city businesses failed to delivered the 12 to 20 percent returns he had promised investors.  In classic Ponzi fashion, most of the money was used to cover up losses and pay for other investments, or spent by Taylor himself to pay for self-promotional branding and PR campaigns, personal credit cards, and apartments and to bankroll his wife’s aspirant career as a pop star.

According to prosecutors Taylor promoted two fraudulent offerings. First, he sold promissory notes issued by City Capital and various affiliates, bearing annual interest rates of 12% to 20%, telling investors their funds would be used to purchase and support various small businesses – such as a laundry, juice bar or gas station – that City Capital had identified as good opportunities for the investors. For the second offering, Taylor sought the assistance of City Capital’s Chief Operating Officer, deefendant Wendy Jean Connor, in selling “sweepstakes machines,” basically computers loaded with various casino type games.

Taylor claimed the sweepstakes machines would generate investor returns of as much as 300% the first year. But, to tap into the investors’ largest source of available funds, their retirement assets, Taylor encouraged investors to roll-over retirement portfolios to self-directed IRA custodial accounts.  This technique is increasingly used by affinity fraudsters.

Many victims transferred their retirement savings to trust companies that act as custodians for self-directed IRAs, expecting these funds to be used to fund the investments pushed by Taylor.  After victims funded their self-directed IRAs, Taylor and his accomplices directed the use of those funds. The money was not invested as promised, but rather was used to pay ongoing business expenses of City Capital, pay personal expenses for Taylor and his staff.

Prosecutor Calls Taylor simply a ringleader at City Capital, saying it was never a legitimate  company

City Capital Corporation, a Nevada corporation with its last-known headquarters in Cypress, California. It was an Over-The-Counter quoted company and did have a class of registered securities. The company’s last-filed periodic report was its delinquent 2009 Form 10-K, filed June 15, 2010. The stock is no longer traded.

State and federal lawsuits and accuse Taylor of being involved in questionable dealings as far back as 2001 -- when he was just 18 years old.

After an extensive search, US Secret Service officials arrested Taylor at his low-rent apartment in the Kansas City suburb where his wife was working in a massage parlor under a pseudonym.

Following his arrest, responding to the acquisitions, Taylor’s attorney said he was awaiting his fate with the backing of his family. “The couple has two children, ages ten and nine, and the (family) currently resides in his parent’s basement apartment,” the filing stated. “Mr. Taylor is a devoted father and husband. Despite his current situation, (his) family remains supportive.”

On March 17, 2015, the US Attorney’s office in Atlanta released the following statement in part:

“ATLANTA - Ephren Taylor II, and Wendy Connor have been sentenced in connection with the fraud scheme they perpetrated while officers at City Capital Corporation. The scheme victimized over 400 people who invested over $16 million.”

With non-traditional churches growing especially rapidly and include everything from home churches to megachurches.  These organizations generally have less control and poorer financial practices.

Affinity fraud, in which predators exploit trust among members of a religious, cultural, social or interest group, is the most troublesome forms of financial crime.  Faith-based fraud accounts for half of all affinity fraud.  Few of these churches have adequate financial oversight, controls or audits.  

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