Ponzi Scheme Payday Lender's Bankruptcy Leaves Investors Outraged
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Ponzi Scheme Payday Lender's Bankruptcy Leaves Investors Outraged

October 3, 2011


The 2009 bankruptcy filing of Spokane, Washington, based Little Loan Shoppe, a payday lender that federal officials claimed was a Ponzi scheme, is still causing ripples today, according to The Spokesman-Review. Apparently, bankruptcy trustees for the case have sued hundreds of people who invested in the company in an effort to fairly distribute money among the company's other investors.

It seems the lawsuit has not sat well with those investors, many of whom reportedly lost their initial investments (some ranging into the hundreds of thousands of dollars) when the company collapsed two years ago. But according to bankruptcy officials, taking money from these investors and redistributing it is the only fair way to proceed.

This type of proceeding during the bankruptcy process is nicknamed "claw-back" because it requires the court to "claw" money from people who may not at first appear to have gained from the business. In the case of Little Loan Shoppe, about 700 investors poured about $135 million in to the operation between 1999 and 2008.

Of them, about 50 apparently received no repayment at all. Some of the company's earlier investors collected interest on their investments. The Securities and Exchange Commission points to facts like this to support its claim that Little Loan Shoppe was run as a Ponzi scheme, using money collected from later investors to pay earlier investors.

Religious Ties Involved

According to sources, about three-quarters of investors for Little Loan Shoppe were members of the Jehova's Witness faith, and one prominent leader in the faith, Paul Cooper, promoted the payday lender as an opportunity to earn money for charity and missionary operations.

The claw-back litigation reportedly seeks more than $2 million from Mr. Cooper.

But some people involved in the case think that the claw-back attempt has gone after the wrong people. A local attorney representing many of the people who lost money from Little Loan Shoppe investments has reportedly noted that his clients were unaware that the payday lender was operating as a Ponzi scheme and thus should not be required to surrender their money to the court.

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