loading . . . The Securities and Exchange Commission alleged this week that Retail Ecommerce Ventures, the company that bought RadioShack out of bankruptcy in 2020, ran a Ponzi scheme that defrauded investors out of $112 million.
REV was founded by Taino Lopez and Alexander Mehr and spent recent years buying up distressed retail ventures including Dress Barn, Franklin Mint, Linens ‘N Things, Modell’s Sporting Goods, Pier 1 Imports, RadioShack, and Stein Mart.
Lopez and Mehr allegedly promised investors in their company annualized returns of 25%, along with equity and a monthly preferential dividend as high as 2.083%. They are also accused of assuring investors that funds raised would be for one specific portfolio company, and REV had never failed to pay a single investor. But that wasn’t true, according to the SEC.
According to the court filing on Monday:
> Contrary to these representations, while some of the REV Retailer Brands generated revenue, none generated any profits. Consequently, in order to pay interest, dividends and maturing note payments, Defendants resorted to using a combination of loans from outside lenders, merchant cash advances, money raised from new and existing investors, and transfers from other portfolio companies to cover obligations. At least $5.9 million of the returns distributed to investors were, in reality, Ponzi-like payments funded by other investors.
The SEC alleges that about $16.1 million in investor funds were diverted for personal use by Lopez and Mehr. The 49-year-old Lopez and 46-year-old Mehr both lived in Puerto Rico, according to the court filing, though their company was registered in Delaware and their primary place of business was Miami, Florida.
The filing includes dollar amounts raised by REV in the name of each company:
* Brahm’s: $12.9 million
* Dress Barn: $11.4 million
* Franklin Mint: $5.9 million
* Linens ‘N Things: $1.2 million
* Modell’s Sporting Goods: $8.7 million
* Pier 1 Imports: $36.7 million
* RadioShack: $21.1 million
* Stein Mart: $14.2 million
Lopez appeared on CNBC in Aug. 2020 to talk about the acquisition of Modell’s Sporting Goods. The focus was on the uncertainty of the pandemic, which had started earlier that year, and what that meant for brick-and-mortar stores. REV was focused on going online-only, but Lopez mentioned that there would be possibilities to open up physical stores in the future.
The SEC says REV raised more than $230 million from at least 660 investors nationwide. The federal agency alleges $112 million was acquired through fraudulent securities offerings in the eight REV retail brands. Most of the money raised was collected online through the company’s website, as well as on social media sites such as Twitter, Facebook, and YouTube, according to the SEC.
The agency also outlines instances where it claims Lopez and Mehr made false statements to investors about the company’s health. In one example from 2021 provided by the SEC, the company founders allegedly misrepresented how well everything was going.
> Following the Zoom calls, Defendant Lopez and Mehr sent email updates to all existing investors recapping the calls. In one email recap Defendant Lopez sent to investors on February 18, 2021, he claimed that Dress Barn and Stein Mart were “on fire” and “cash flow is strong,” that “there are plenty of public companies operating at heavy losses” but that’s “not us,” and that REV had “brands with a positive EBITDA.”
In reality, Dress Barn was not going strong, and the retailer experienced losses of nearly $13.7 million in 2020 and $10.7 million in 2021, according to the court filing.
Aside from Lopez and Mehr, REV’s chief operating officer, Maya Rose Burkenroad, is also named as a defendant in the court filing on fraud charges for soliciting investment in the company.
Lopez, Mehr, and Burkenroad didn’t respond to emailed questions on Wednesday. Lopez, who has quite a presence on YouTube as an influencer and gives advice on everything from investing to dating, posted a new video on Wednesday but didn’t seem to address the SEC charges. Instead, the video just talks about the importance of self-education. It’s possible the video was filmed before the allegations became public.
Gizmodo will update this article when we hear back. https://gizmodo.com/feds-say-company-that-bought-radioshack-was-running-112-million-ponzi-scheme-2000663479
