July 23, 2009 in Business

Loan shop files for bankruptcy

Investors say business owes them millions
By The Spokesman-Review
 

A payday loan business with its roots in Spokane sought bankruptcy protection Wednesday, claiming it owes more than $100 million to more than 1,300 creditors.

LLS America LLC filed for reorganization in U.S. Bankruptcy Court in Nevada, but the headquarters of its operating affiliate – Little Loan Shoppe – is a small office building on West Broadway Avenue in Spokane.

One investor group has been trying to push a related company, LLS-A LLC, into bankruptcy since July 10.

The 450 individuals in the group had a total investment of nearly $80 million in Little Loan Shoppe through its owner, Colbert resident Doris E. Nelson, and the company’s other affiliates. They claim the operation was a Ponzi scheme, attracting new investors to fuel outsized returns to people who’d already invested.

Also, suits alleging fraud, conspiracy, breach of contract and violations of numerous Washington securities and consumer protection laws have been filed against the businesses in Spokane, Tacoma and West Palm Beach, Fla.

Most of the complaints also name Nelson, who in court filings has denied the claims brought against her and her businesses, which include Team Spirit America.

The claim that Little Loan Shoppe and Nelson were engaged in a Ponzi scheme was made by investor Joseph Nelson, whose statement was included in the petition for involuntary bankruptcy filed last week in U.S. Bankruptcy Court in Spokane against LLS-A LLC.

Joseph Nelson, an Arizona resident, is not related to Doris Nelson.

He said he personally invested $1.5 million with LLS-A or Doris Nelson between September 2005 and October 2007, receiving in return promissory notes guaranteeing a 55 percent annual rate of interest.

The high returns were possible because investor money was backing Little Loan Shoppe’s payday loans, with possible yields in excess of 1,000 percent.

All notes held by group members are in default, Joseph Nelson says. And Doris Nelson as late as January continued to offer new investors 40 percent to 60 percent returns despite an Oct. 27 e-mail she sent notifying earlier investors their payments would be cut to 10 percent, according to court filings.

“I believe Doris E. Nelson has engaged in a ponzi scheme by borrowing funds … promising high rates of return on those ‘investments’; and then secreting the funds collected without paying the debts incurred,” Joseph Nelson wrote in the court filing.

Attorney Nancy Isserlis has asked the Spokane Bankruptcy Court to appoint a trustee to take control of LLS-A “to prevent further dissipation of estate assets.” A hearing on the motion is set for Monday.

Isserlis said Wednesday that the Las Vegas filing will force a decision on which court will sort out the complicated affairs of Little Loan Shoppe and its intertwined affiliates.

Although the Las Vegas filing gives a range of potential liabilities in excess of $100 million, it enumerates the claims of only the 25 largest creditors, which total $24 million. Assets, mostly accounts receivable, total $2.7 million.

The full list of creditors runs to more than 1,300 names, many of them living in Canada, where Little Loan Shoppe is also active.

In a July 2 letter to the Washington Department of Financial Institutions, Little Loan Shoppe Chief Executive Officer Ralph Gamble said the company is not making loans in the state.

A Utah office was given an “F” rating earlier this month by the Better Business Bureau Serving Utah because of an excessive number of unresolved complaints.

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