The owner of The Income Store was sentenced to 7 ½ years in federal prison Thursday for a website development fraud scheme that prosecutors say caused hundreds of investors to lose more than $92 million collectively.
Kenneth Courtright, 53, who operated the business out of his home in Minooka, Illinois, a suburb of Chicago, lured more than 500 investors with promises of high annual returns in perpetuity if they paid a six-figure upfront fee to build and operate websites, according to the February 2020 criminal indictment.
Instead of website revenue, the returns were funded primarily by upfront fees from new investors in what prosecutors alleged was a Ponzi scheme, until the business model unraveled and the SEC froze the company’s assets in December 2019. The criminal complaint revolved around the upfront wire transfers from seven investors.
In July, a jury found Courtright guilty on seven counts of wire fraud following a seven-day criminal trial in Chicago federal court. A separate civil complaint filed by the Securities and Exchange Commission against Courtright and The Income Store is ongoing.
Federal prosecutors had been seeking 22 to 27 years in federal prison, arguing in a January memorandum that a “substantial sentence” was justified by the extent of losses suffered by investors, and would serve as a deterrent to “other would-be fraudsters” considering similar schemes.
During the course of the fraud, at least 518 investors lost $92.5 million through The Income Store, according to federal prosecutors.
“These losses are staggering and stem from defendant’s repeated false statements about how his business operated,” the sentencing memorandum stated. “The victims are real people who are unlikely to ever get back what they lost.”
On Thursday, U.S. District Judge Matthew Kennelly discounted some of the actual losses through recovered assets, and handed down a far lighter sentence than prosecutors sought.
Michael Leonard, a Chicago attorney representing Courtright, said the sentencing reflects his characterization of the defendant as a “hard-working guy” who operated a failed but not necessarily fraudulent business.
“We thought it was a huge win for Ken,” Leonard said. “Judge Kennelly did a great job kind of getting to the heart of Ken and the case.”
The scheme began in January 2017, with The Income Store marketing its website investment offering through radio and online ads, according to the criminal complaint. Investors paid $100,000 or more in upfront fees for buying, developing and running an assortment of commercial websites, with guaranteed annual returns of 13% to 20% in a revenue-sharing agreement.
The Income Store created and operated more than 3,100 mostly obscure websites, ranging from KeepingCarsClean.com, a waterless car washing e-commerce site, to HoneyBeeStings.com, an ad-supported site for beekeepers.
But website revenues were “insufficient to make guaranteed investor payouts,” generating about $9 million in advertising and product sales revenue through October 2019 — far less than The Income Store paid to investors over the same time, according to the federal complaints.
In addition to paying out investors through new upfront fees, The Income Store added a second source of funding in May 2019, taking out $11 million in high-interest loans, according to the complaint.
Courtright also spent some of the investor funds to pay his mortgage and school tuition for a family member, the criminal complaint alleged.
In December 2019, Courtright’s business model became unsustainable and he notified investors via email that the company would put a temporary “moratorium” on the payment of returns due to unspecified “challenges and headwinds,” the criminal complaint alleged.
The Income Store took in $144 million from investors and paid out about $44 million over three years before it ran out of money, according to the court-appointed receiver in the SEC complaint. There was less than $2 million left when the SEC froze the company’s assets.
The estate has since sold hundreds of websites and pursued claims against third parties, insiders and affiliates of The Income Store, seeking to recover funds to distribute to investors and other creditors.
In August, the receiver settled the estate’s claim against Heartland Bank, which helped finance The Income Store, for $9 million. The estate plans to distribute about $7 million of the money, representing nearly 10% of the outstanding investor claims against The Income Store, according to court filings.
While federal prosecutors produced a number of victim impact statements recounting the emotional and financial toll their losses with The Income Store have wrought, from divorce and depression to the depletion of retirement savings, Leonard contends Courtright did not operate a Ponzi scheme but rather a failed business.
“Clearly, money was lost, but from our standpoint, not in an intentional fashion,” Leonard said. “Ken’s intent was never to try to defraud people. I think they just got in over their head.”
Since relinquishing The Income Store, Courtright has remained peripherally involved in the computer business, recycling old PCs for companies, Leonard said.
Courtright is required to report to federal prison within 60 days. Leonard said Courtright plans to appeal the verdict.
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