BULLETIN: California Calls WCM777 A ‘Scam,’ Issues Desist And Refrain Order That Names Executives And YouTube Pitchman

BULLETIN: (Updated 10:36 a.m. ET U.S.A.) The state of California has called the WCM777 MLM “program” a “scam” and issued a Desist and Refrain Order that bans the enterprise in the state. The Department of Business Oversight (DBO) has issued a companion Consumer Alert and is “strongly” encouraging California investors to file a formal complaint.

Named in the Jan. 8 order announced late last week on the state’s website are WCM777 executives Ming Xu and Zhi Liu. Harold Zapata, an alleged WCM777 YouTube pitchman with an address in Hanford, Calif., also is named in the order. Corporate entities named in the order include World Capital Market Inc., WCM777 Inc. and WCM777 Limited, all of Pasadena.

Zapata, California alleged, identified himself as “CEO at WCM777 Global Stars,” something that suggests he was the leader of an upline group. On July 15, 2010, the PP Blog reported that FINRA warned the investing public about scams that spread on social-media sites such as YouTube,  Facebook and Twitter.

WCM777 was targeted at people of faith and members of minority communities. California investors can file a complaint by dialing 866-275-2677, the state said.

In November, the state of Massachusetts accused WCM777 of selling unregistered securities.

California now has done the same thing.

“The WCM777 membership units offered and sold by Respondents constitute securities,” the state charged.

And, it alleged, “Respondents offered and sold securities by means of written and oral communications which included untrue statements of material fact and which omitted to state material facts necessary in order to make the statements made, in light of the circumstances under which they were made, not misleading.”

WCM777 now is operating as Kingdom777, and has been associated with a series of bizarre events. On Jan. 17 via Twitter, the “program” issued a declaration of love to the people of Peru after a police raid on a WCM777 outlet there. The announcement was attributed to “Dr. Phil Ming Xu” and claimed the enterprise now “has a promotion plan with a payout ratio of 130%.”

In issuing the announcement, WCM777 appeared to be ignoring the securities issues altogether. California publicly announced the order six days later, on Jan. 23. The California order is dated Jan. 8. A day earlier, on Jan. 7, WCM777 published an announcement of the name change to Kingdom777, claiming “Kingdom777 has acquired the assets of WCM777.”

As is typical in HYIP scams, the announcement blamed affiliates for WCM777’s woes.

“Some members failed to represent WCM777 correctly and distorted our vision and mission to be a social capital company whose goal is to build a global community of trust and love,” the new company said.

But California’s order, which in part echoes suggestions in Massachusetts that WCM777 was steering recruits to avoid lower levels of buy-in in favor of the highest level of $1,999, makes it clear that the state viewed WCM777 itself as a fraud.

From the California order (italics/bolding added):

9. The most expensive and, by far, the most popular WCM777 membership unit costs $1,999. The $1,999 membership unit provides the purchaser five years of access to WCM777’s alleged online cloud services. In addition, WCM777 claims that a purchaser of the $1,999 membership unit will receive up to $32 per day over a 100-day period in the form of profit-sharing payments, bonuses and commissions. Thus, over a 100-day period, a purchaser of the $1,999 membership unit would allegedly earn $1,200 more than the original cost of the unit—an alleged 60% return in only 100 days.

10. The vast majority of purchasers buy the five year unit, rather than the less expensive units that generate lesser returns. In fact, over 95% of purchasers in the United States bought the $1,999 membership unit.

11. There is no limit to how manyWCM777 membership units an individual may purchase at one time. In fact, a significant number of purchasers buy multiple WCM777 membership units at the same time.

12. After the purchaser’s 100-day daily returns cycle expires, the purchaser may “re-up” by purchasing another membership unit at a 50% discount, which then restarts the 100-day cycle. A purchaser can “re-up” indefinitely. Therefore, over a 300-day span, a purchaser of a single $1,999 WCM777 membership unit who “re-ups” at the end of each 100-day cycle would allegedly earn up to $5,600 more than the cost of buying the membership units—an alleged 140% return in about 10 months.

Precisely how California learned that 95 percent of U.S. purchasers allegedly bought in at the maximum level of $1,999 is unclear. What is clear is that the state has accused WCM777 of engaging in a rank deception and gathering at least $20 million between March 2013 and September 2013.

Among WCM777’s fraudulent claims was that the “Respondents’ activities were not subject to the jurisdiction of the United States Securities & Exchange Commission or the United States Federal Trade Commission,” California alleged.

Moreover, the state claimed that the respondents failed “to disclose that WCM777 had no other significant sources of income but for its sale of membership units.” Meanwhile, they failed to disclose “that WCM777 did not have an enforceable contract with Siemens under which Siemens would provide the alleged online cloud services that WCM777 advertised.” (See Oct. 30, 2013, PP Blog story, which reports on the issue with Siemens and notes that WCM777 was being targeted at a Latino church in Rialto, Calif.)

Siemens, the state said in its order, “has publicly disavowed any relationship or contract with WCM777. In a press release, Siemens stated that it disavowed a relationship with WCM777 “[i]n order to help . . . investors avoid making any investments based on false assumptions[.]”

And despite claims by the respondents that “WCM777’s alleged daily returns are backed by the global banking business of its parent company, WCM,” the state charged, “WCM777 and WCM had no significant income outside of sales of WCM777 membership units.

“From March 2013 to the end of September 2013, WCM777 and WCM generated over $20 million in sales of WCM777 membership units,” the state alleged. “During the same period, over 99% of the income of WCM777 and WCM came from sales of WCM777 membership units, while less than 1% of their income came from WCM’s alleged global ‘merchant banking’ or any other business.”

Some WCM777 promoters have claimed that the WCM enterprise had handed out more than $1 billion in loans. In a bizarre example of MLM hucksterism, the promoters identified several companies that allegedly had borrowed great sums from WCM — and even how much the firms purportedly had borrowed.

News of the California order first was reported today by BehindMLM.com.

Visit California’s website. Read the Desist and Refrain Order.