SEC Accuses Washington Woman of Payday Loan Ponzi Scheme

The United States Securities and Exchange Commission filed a complaint against a Spokane woman on Thursday, charging her with orchestrating a Ponzi scheme disguised as a payday loan operation that defrauded thousands of investors out of tens of millions of dollars. Doris E. Nelson, 51, of Colbert, Washington, was charged with multiple violations of federal securities laws, including the Securities Act of 1933 and the Securities and Exchange Act of 1934.  In its complaint, the SEC is seeking injunctive relief permanently barring Nelson from future violations, disgorgement of ill-gotten profits, and the payment of civil monetary penalties.  

According to the Complaint, Nelson formed Little Loan Shoppe ("LLS") in 1997 in British Columbia, Canada, subsequently moving business operations to Spokane, Washington in 2001.  LLS was comprised of at least fifteen sub-entities, including Little Loan Shoppe Ltd., Team Spirit America, LLC, and Little Loan Shoppe Canada, LLC.  The entities offered short-term payday loans through storefronts, later expanding to offering the same loans through the internet.  In 2006, LLS ceased retail storefronts and operated exclusively as an internet-based  payday loan business.  Beginning in 1999, LLS issued hundreds, if not thousands, of promissory notes to more than 650 investors who were promised annual returns ranging from 40% to 60%.  Through the issuance of these notes, LLS raised approximately $135 million from investors.  Investors were reassured that their investments were risk-free, that LLS was financially sound, and that Nelson had a separate account to repay investors in the case that the economy went sour.  However, according to authorities, LLS failed to generate operational income from 1999 through 2008.  As a result, LLS used existing investor funds to make approximately $115 million in Ponzi-style payments of principal and interest to earlier investors.  Additionally, Nelson also misappropriated millions of dollars in investor funds for personal use, including the purchase of luxury automobiles, gambling, and home renovations.

As the scheme faced increasing difficulty in 2008, Nelson formulated additional ways to draw in much-needed investor funds, including the creation of new companies that promised a 60% annual return.  Eventually, the fund ceased making payments to investors, and in July 2009, several of the LLS entities either filed for or were forced into bankruptcy.

Washington state financial regulators filed suit against the companies in 2010.  It is unknown as to whether Nelson will face criminal charges.

A copy of the SEC Complaint is here.