The Income Store Scam: An Inside Look and What Happens Now
We’re getting sued.
More specifically, we’re getting sued by a company that was recently brought down by the SEC for running a Ponzi scheme.
And even more precisely, we’re being sued by the receivership of that company who has (unintentionally) damaged the value of the assets under her control, putting the original investors of the Income Store in a position to be screwed…again.
But I’m getting way ahead of myself. Let’s back up and tell the whole story, discuss what went down, and look at the next steps – including what we’re proposing to help the victims.
What Is The Income Store?
Today’s Growth Consultant Inc. (Doing Business As “The Income Store”) was a company started in 2008 and run by Ken and Kerri Courtright out of Illinois.
Their basic pitch to investors was that they would purchase income-producing websites and online businesses. They promised via contracts to use their investment money to purchase a site on the investor’s behalf, which the investor would own, and then continue to run that site, splitting the profits 50/50.
What’s problematic about the offer, though, is they were offering a “guaranteed” rate of return, whether or not the site continued to earn the same amount of money months or years down the road.
Here’s an example of what they were using to sell investors as late as 2019:
From 2012 – 2019 they went through years of significant growth, even getting themselves listed on the INC 5000 – purporting themselves to be one of the fastest growing companies in America.
While they had been buying sites for a few years beforehand, we were first introduced through a colleague in 2014 and they became buyers from Empire Flippers as well.
In Nov/Dec 2019 rumors began to circulate about them not being able to pay employees, a possible SEC investigation, etc. By early 2020, those rumors were confirmed true when the SEC stepped in to shut the company down as an alleged Ponzi scheme.
In January 2020, the SEC shut the business down, handed over the assets and management of what was left over to a court-appointed receiver, Melanie Damian, and filed both civil and criminal charges against Ken Courtright and the Income Store.
I won’t go through all the details, but for the best in-depth reporting on the topic and a real deep-dive, check out this YouTube channel by Emilia Gardner. She’s a (recovering?) lawyer, familiar with our industry, that has followed the case through today.
I’ll be referencing her videos later in this post as we get into the details.
The video series I linked to above is quite detailed. For a brief overview, you can check out:
If the allegations are true, Ken and the Income Store horribly defrauded more than $100M from investors in our industry and deserve zero sympathy. They’ve left a black mark on the industry that the rest of us will have to work even harder to overcome.
Was The Income Store Really A Ponzi?
I don’t have any insider information on this, but that’s definitely what the SEC is alleging. Based on my understanding of the facts/evidence, it’s certainly looking that way.
The SEC alleges that even though new investor funds were contractually obligated to be spent on only purchased websites, Ken & Co. were using new investor funds to pay off previous investors, cover business and personal expenses, etc.
In fact, the bank they were using claimed Ken admitted as much – that he was using new investor payments outside of their contractual purpose – the reason they ended their relationship with Ken and the Income Store.
This was alleged in a court filing:
Still – the question remains – was the Income Store a Ponzi from the beginning or did Ken & Company start off with good intentions and take a bad path somewhere along the way?
The SEC has shared some details, but the picture remains a bit clouded on this point.
On one hand, it really doesn’t matter what their intentions were – particularly to the investors they (allegedly) scammed.
The problem, I think, is that the Income Store was effectively pooling investor and business funds together. Based on the lawsuit’s allegations, Ken seemed to be “treating” new investor funds as revenue he could do with as he wished, with no consideration that he’d entered an agreement that specifically stated what the money was to be used for.
One thought I had is that IF the Income Store set out from the beginning as a Ponzi – why would they bother buying sites at all from FE International, Empire Flippers, Acquisition Station, etc.? If you were planning to just spend new investor money paying off the old investors, wouldn’t it be simpler to say you spent their money building sites from scratch? The Income Store spent approximately $2M buying sites from sellers on our platform over the years and (an estimated) $10M+ from our competitors – why bother if you’re knowingly running a Ponzi from the beginning?
Also – why be so brazen about it with the bank? If their original intention was to run a Ponzi, they probably wouldn’t have gone to the bank and, at that time, (allegedly) admitted to financial crimes, causing the bank to end the relationship. Couldn’t they have taken in investor funds in one bank and used a separate bank and account for expenses?
My guess is that they didn’t start off as a Ponzi, but co-mingling funds and not being transparent about where and how the money was spent opened the door for them to turn it into one. Thinking they would only be dealing with a cash flow issue for a month or two, they “borrowed” investor funds to pay off expenses and previous investors and fell into a hole they couldn’t crawl out of.
This would have led to them actively deceiving previous investors, potential investors, etc. as they attempted to maintain their charade.
That’s all speculation on my part as to their motives and intentions along the way, but it tracks with the evidence I’ve seen so far. If the allegations hold true, one bad decision led to more until they were openly defrauding investors for more than $100M.
Other Issues With The Income Store
There were other signs of mismanagement at the Income Store.
Typically, when we’re in the process of migrating site(s) to a new buyer, they’re eager to gain control of the site, review the earnings, etc. But with the Income Store, it was completely different. They would go days or even weeks in migration without communicating anything. We would have to press them to respond and even plead with the owner to get on his team about migrating the sites.
I’ve removed names and sensitive information from the screenshot below, but it took us a full week to even hear back:
I don’t think this was particularly nefarious or anything, but I do think it was a sign they were growing too quickly and weren’t capable of onboarding new sites/acquisitions at the scale required. This has become even more apparent over the last couple of years as we work with dozens of larger and more capable funds.
Ken would also ask us to sell him off-market deals and we consistently told him no. He mentioned he’d set up agreements with other competitors in the industry where they would get early access to listings and be able to pre-sell the seller before taking the listings to market. While we were wary of turning away a repeat buyer, we stuck to our guns, telling Ken he’d have to compete directly when listings went live – the same time as everyone else.
What Has Happened Since The Income Store Was Shut Down?
The court-appointed receiver, Melanie Damian, took control of the company in Q1 2020 including the office, employees, bank accounts, and all assets including the websites under the Income Store’s control.
While the original contracts stated each individual investor owned the site(s) assigned to them, the receiver was given permission to seize and freeze all assets, including the websites, effectively blocking investors from the very assets they owned.
We realized we were still holding $10K on deposit from the Income Store from back in 2018 that they never used. They had stopped primarily buying from us due to the higher multiples our businesses were being listed at, instead choosing other competitors to acquire more assets. We returned the $10k and had our lawyers get in contact with the receiver. We wanted to both return the funds and also offer any help/assistance we could in the recovery process, but we never heard back.
At some point, in the course of filing legal documents, the receiver publicly released a list of all the domain names under the Income Store’s control. This, as you might imagine, was a horrible decision.
A major blow for investors who may have wanted to take ownership of the sites and try to recover their earnings themselves. Now, they’ll have to compete with copycats who know exactly which sites were running and profitable.
This is exactly why we don’t make publicly available the URLs of websites on our marketplace unless buyers go through our unlock process. It’s not just to protect sellers, but it’s to protect the end-buyers who will eventually own that asset. In this case, the investors had no choice in whether to reveal the websites. The receiver made the choice for them.
That list was shared far and wide in the industry, causing lots of speculation about which sites might be the most valuable.
In fact, several articles were written, analyzing the sites to determine their estimated traffic, earnings, and value:
The receiver releasing this information publicly was an open invitation to copycats to recreate (and potentially harm) the top-earning sites, and thus the investors. All of this was being discussed behind the scenes and the above bloggers thought it useful to at least share their analysis with the investors.
Because the receiver gave the investors only one choice:
You get to choose to receive the site you were assigned OR you get to a percentage of the funds left over once the sites have been picked through.
Investors: Choose Wisely
The investors were scammed by the Income Store, but were now given a choice between taking ownership of the site or receiving a percentage of the money left over at the end.
The problem is that there were a few solid earners and a ton of sites worth next to nothing. Through algorithm changes, mismanagement, and poor upkeep post-purchase there would only end up being a few sites worth a significant amount of money and, with those sites taken out of the pool by the investors who claimed them, there wasn’t likely to be much left.
If we thought the Income Store did a bad job at managing the sites under their control, the receivership just continued that trend.
From January 2020 to January 2021, the receiver and staff failed to keep up with the basics of managing websites. Updating WordPress and plugins, adding and updating content, making sure the pages/posts were crawled, basic onpage SEO, etc.
None of this was done well for 12 months, further damaging any value the sites had held.
There wasn’t going to be a great outcome for the investors here no matter what the receiver did, but I’d expect the receiver to at least not make things worse. Between releasing the domains publicly and poor management of the sites under her control, she took a horrible situation and made it worse for the investors. I can’t imagine they’re happy with her management of this.
After Mismanaging The Assets The Receiver Decides To…Sue Us?
In September 2020 the receiver filed with the court to change their fee structure from a fixed, per-hour rate to contingency.
What does that mean?
My guess is she realized the sites were in decline under her management and there wasn’t enough cash to pay her hourly fees. Instead, she asked to try the case on contingency – meaning she would take 30% of what she was able to collect from anyone in the case.
Once her requested contingency was approved, she fired out lawsuits at the end of 2020 – likely looking to quickly settle and collect her fees.
In doing so, she came at us hard.
Her lawsuit isn’t just asking for the fees we earned. She’s asking for the entire value of the businesses – including the funds rightfully paid to the sellers:
Worse still, the receiver goes above and beyond, claiming the sites were “worthless” and that we “facilitated and perpetuated the fraud against current investors and recruited new investors”
These claims are incredibly inflammatory, and grossly untrue. We keep meticulous records and can easily show:
- These sites were sold under the same process other buyers used
- These sites retained their value during and through their purchase
- Our vetting process doesn’t allow for valueless businesses to be listed
I’d love to dig into the details here – let’s see exactly what happened to the sites under the Income Store (and then the receivers) management.
We know it would be impossible for the receiver to prove the claims above – they’re just not true. So…why would she make them then?
The thought process might be that she didn’t know whether we were or weren’t involved with the Income Store scam, so it might be better to make the claims and see how things shake out. If there was a groundswell of support that we were running a scammy business, defrauding our customers, then she’d have more to go after. (And could collect a larger dollar amount considering her approved 30% contingency fee)
Also – why us? We know that a competitor of ours sold significantly more sites to the Income Store than we did, and for a much larger dollar amount. Why not go after them?
We think it’s one of two reasons:
1. The receiver may be working with one of our competitors
While I think this is less likely, we can’t exactly rule it out. Some of our competitors worked very closely with the Income Store. They spoke at their events, met with Ken regularly, and even modified their process to give them first-access to deals they were selling.
Did that closer connection to the Income Store cause them to work closely with the receiver to avoid a lawsuit or worse? We can’t know this and, honestly, it doesn’t seem likely. Some competitors would be a bigger moneypot and I don’t see why they wouldn’t be a target for a lawsuit as well.
2. Other brokers used Escrow while we were paid directly
Their forensic accounting likely showed many more payments to an escrow company, but it’s probably not as clear who the sellers were, who the broker was on those transactions, etc. They’d likely need to compel the escrow company to release that information.
With us, however, the payments were made directly and transparently to Empire Flippers. (And our previous holding company, CMS United) We were simply an easier target – particularly if they were coming up against filing deadlines at the end of 2020.
The fact she waited a whole year and rushed to file a lawsuit with these inflammatory and untrue remarks about us is bewildering. What is going on here?
So What’s The Next Step?
We were incredibly frustrated to see the receiver insinuate that we were involved with the Income Store Ponzi scheme in any way. It’s incredibly damaging to our business to make those unfounded claims. Our business is built on trust, and the receiver has done their best to damage that trust we’ve spent years nurturing with our customers.
Unfortunately, our attorneys tell us that these types of statements are protected under “litigation privilege” and there isn’t much we can do about them. We can, however, publicly repudiate her claims and demand evidence of her claims. Evidence she can’t have.
Pair that with how incredibly inept their team has been regarding the privacy of the portfolio and their horrible management of sites under their control and we were ready to take this to court.
Still – our significant frustration with the receiver shouldn’t carry over to the investors she’s representing. They were duped by the Income Store and now a terrible situation has gotten even worse due to mismanagement.
Look – I get that the receiver is in an almost impossible situation. There’s no way for her to make all parties happy or whole here.
It’s also very unlikely that she knew releasing the entire list of domains would be detrimental to the assets she was supposed to be protecting. She’s not an expert in this industry.
Still – it makes it all the more frustrating that she didn’t reach out directly, earlier in the process. We were willing to help – why weren’t we asked then?
It’s obvious to anyone who looks here that we weren’t bad actors and we believe it’s very likely that, through the courts, we wouldn’t have to pay anything. Still – that doesn’t mean the protracted legal battle wouldn’t cost us.
Legal cases (particularly those that drag on for years) can get expensive. We could be looking at a 2-3 year case costing us upwards of $400K – $500K in legal fees. And those fees don’t just get reimbursed when you win!
So – here’s the plan.
How The Industry (Including Us) Can Help The Victims
We don’t care about the feelings or the reputation of the Income Store, but what we do care about are the investors. The industry is amazingly fast growing, but that also tends to attract scammers to the space. Frankly, these investors got screwed by a bad actor. And we want to do our part, and hopefully the industry as a whole can come together to do the same, in helping these victims recover from fraud of bad actors and subsequent mismanagement of the assets.
We’re going to return every dollar in commission we made from Income Store – approximately $300,000 – to the investors.
Not just our profit. Not some lowered settlement amount the lawyers work out. Every. Dollar.
We have only two conditions:
1. We will not voluntarily release the names and contact information of the sellers
The assumption here is that the receiver is looking to go after the individual sellers. We will fight and do everything else within our power to protect our sellers.
Aside from the fact that the sellers did nothing wrong, they’re much less equipped to deal with a relentless lawyer working on contingency and we refuse to put them through that. We will fight to protect our customers. If you want to deal with someone you can deal directly with us.
The only thing we’re willing to cede is that if the Receiver brings a list of potential Income Store partners and/or conspirators, we’re willing to confirm whether they were on the sell-side of the transaction. (We’ve looked and don’t see anything, but if any of Ken Courtright’s friends, partners, or family members were on the sell-side of the transaction we won’t shield them.)
2. Our full commission received goes directly to the investors. No 30% contingency for the receiver
The receiver’s mishandling of the assets is bad enough, but disparaging us and our company in a court case is completely unacceptable. We’re sympathetic to her clients, but we’re terribly disappointed in what she’s done here – particularly around her lack of care regarding the assets under her control.
When we reached out to her to return the $10,000 good faith deposit that was an opportunity to work with us. Instead, she waited the majority of the year and then came after us – that’s unacceptable.
What if she doesn’t accept our terms? Fine – we’ll see her in court. It’s worth a hell of a lot of money to us to protect our reputation and it helps that the facts are on our side. She may be thinking that’s exactly what she’s hoping for – a large legal budget she can tap into as part of her contingency, but that thinking is dead wrong. Beyond the estimated $300K, we’d rather spend every dollar of that defending our reputation in court.
Even if this does end up in court, that doesn’t change the fact that we’re willing to give every dollar we made in commission back to investors (we’ll just have to figure out a way to do it around the receiver).
Nobody Should Profit From This
Frankly, our lawyers are telling us this is a horrible negotiation tactic on our part. “We could potentially get this case thrown out anyway.”
The fact is, though (and the reason you’re reading this post) it’s about more than money.
I’m frustrated with the Income Store and their scamming investors out of their money all the way through 2019. They were claiming things were great while (allegedly) funneling new investor money out to older investors to keep the ship afloat.
I’m also disappointed with the receiver. Primarily for the way she’s mishandled the assets under her control, but also for her accusatory approach towards us. She could have come to us directly, as we’d asked her to do rather than ignoring us for a year, and we could have helped with advice on how best to manage the assets, thoughts on how to value and liquidate the assets, etc.
But I also feel terrible for the investors. Yes, any company that’s offering you a perpetual, guaranteed return should be a red flag, but good people can be sucked in by bad actors.
FE International, Empire Flippers, Latona’s, Acquisition Station, Website Closers and others likely sold websites on behalf of their clients to the Income Store and did so in good faith. I don’t believe any of the brokers/marketplaces have done anything wrong specifically through the brokering of the sites.
Still – it doesn’t sit right that any of us should profit from the Income Store scam.
Additionally, there were affiliates and partners that invited Ken and the Income Store to speak at their events, sponsor their shows, and even earned a commission from the investors they signed up.
These include people like Ryan Moran and his conference/affiliate relationships, CPA’s who were referring clients to Income Store for a commission, etc.
We’re calling on any and all other partners, brokers, affiliates and marketplaces who received money from deals done through the Income Store – let’s go above and beyond here and return each and every dime received.
Let’s do our best to help these investors that fell victim to a terrible scam.
It’s not going to make the investors whole and it’s painful for us to do financially, but do you really want to keep ANY money that was received from investors in such a way?
Nobody wins here, but at the very least you won’t be sitting on money you received through a scam.
We’re currently waiting on a settlement/mediation appointment, scheduled for March. We’re not looking to negotiate as we’ve already laid our cards on the table, so to speak.
Our goal is to get as much money as possible into the hands of the defrauded investors.
We’re calling on anyone who partnered with or was an affiliate for the Income Store to return your tainted gains.
We’re calling on anyone who inadvertently sold sites to the Income Store and their (alleged) Ponzi scheme to return every dollar you received in commissions.
We’re involved in an industry going through an incredible amount of growth. There will be frauds, scammers, bad actors, and grifters who want to ride the wave and take advantage of people.
While we can’t protect everyone (and we’re nearly certain to see more of this in the future), we can do our best to help out the investors who were scammed in THIS deal and better educate all of the new people coming into the space so that they’re less likely to fall for something like this in the future.
We’ll have more to say as this continues. I’ll be adding some questions, comments, and answers to this post as they come in.
We’d love to hear your thoughts – let us know below.