Risk & Compliance

Lender AGF Accused of Lying About Audits

The SEC also alleges American Growth Funding concealed from investors that many of its loans were non-performing.
Matthew HellerFebruary 3, 2016

Business lender American Growth Funding and its owner have been charged with falsely claiming its financial statements had been audited and concealing the weakness of its financial condition from investors.

The U.S. Securities and Exchange Commission said AGF and owner Ralph Johnson told prospective investors in a private placement memorandum for its AGF II fund that in return for a $50,000 investment, they would receive a 12% annual return. The offering raised approximately $8.6 million from March 2011 to December 2013.

But AGF’s representations that the fund’s financial statements had been audited were false since, as Johnson was aware, no audit occurred until 2014, the SEC said in a civil complaint.

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In addition, according to the SEC, AGF sent out monthly account statements to investors that concealed the precariousness of its business.

“We allege that AGF II misled investors and overstated the true value of these investments, which are worth far less than presented because many of the company’s loans are non-performing,” said Andrew M. Calamari, director of the SEC’s New York regional office.

Johnson began operating American Growth Funding LLC in 2008 to provide high-risk, high-interest loans to businesses that had difficulty obtaining credit from conventional lenders. They raised capital using three vehicles including AGF II.

The SEC alleges that none of the account statements provided to investors disclosed that the majority of loans made by AFG were, at the time, greater than 90 days overdue or otherwise unlikely to be collectible, “and thus, that each investor’s account was worth significantly less than the purported account balances listed in his or her statement.”

As of Dec. 31, 2011, 2012 and 2013, approximately 77%, 87% and 89%, respectively, of AGF LLC’s outstanding loans receivable were over 90 days past due or of unknown collectability, the SEC said.

The agency has also charged AGF’s placement agent Portfolio Advisors Alliance with using AGF II offering documents to solicit sales while knowing they were inaccurate.