CKB/CKB168, WCM777 And TelexFree Prosecutions Make SEC’s 2014 Highlight Reel; Agency Says Its Job In MLM Sphere Isn’t Done

The prosecutions of the CKB/CKB168, WCM777 and TelexFree “programs” made the SEC’s highlight reel for fiscal year 2014, which began on Oct. 1, 2013 and ended on Sept. 30 of this year.

In a statement today, the SEC said “new investigative approaches and the innovative use of data and analytical tools contributed to a very strong year for enforcement marked by cases that spanned the securities industry.”

Noting the FY 2014 pyramid-scheme actions against the MLM or direct-sales firms included allegations that the “programs” used social media and targeted immigrant communities, the SEC said its work wasn’t done.

“The Enforcement Division will continue to root out pyramid and Ponzi schemes that prey on vulnerable investors,” the agency said.

Not specifically noted in the agency’s statement today were the actions against the eAdGear and Zhunrize “programs” announced just prior to the close of the 2014 fiscal year. The eAdGear case was announced on Sept. 26; the Zhunrize case was announced on Sept. 23.

Since the Zeek Rewards action in 2012, it has become clear that MLM HYIP schemes have tapped participants for spectacular sums. The Zeek scheme alone gathered on the order of $850 million. Filings suggest TelexFree may have gathered on the order of $1.2 billion.

CKB/CKB168 appears to have gathered at least $20 million. WCM777 gathered on the order of $80 million. Zhunrize gathered on the order of $105 million, and eAdGear gathered on the order of $129 million, according to court filings.

Zeek receiver Kenneth D. Bell, who is managing Zeek-related cases that involve hundreds of thousands of victims across the world, described Zeek this week as an attempt to put lipstick on a pig.

It’s a description that could apply across the MLM HYIP sphere. The cross-border, murky nature of the “programs” raise concerns about both economic security and national security.

On Sept. 21, the PP Blog reported that a small sampling of data from 95-self-identified victims of TelexFree shows they lost an average of $27,578 each. TelexFree potentially created 1 million victims or more.

The SEC has broad responsibilities across the securities industry and its sectors — from Wall Street to Main Street.

From the SEC’s statement today (italics added):

The Securities and Exchange Commission today announced that in fiscal year 2014, new investigative approaches and the innovative use of data and analytical tools contributed to a very strong year for enforcement marked by cases that spanned the securities industry.

In the fiscal year that ended in September, the SEC filed a record 755 enforcement actions covering a wide range of misconduct, and obtained orders totaling $4.16 billion in disgorgement and penalties, according to preliminary figures. In FY 2013, the Commission filed 686 enforcement actions and obtained orders totaling $3.4 billion in disgorgement and penalties. In FY 2012, the Commission filed 734 enforcement actions and obtained orders totaling $3.1 billion in disgorgement and penalties.

The agency’s enforcement actions also included a number of first-ever cases, including actions involving the market access rule, the “pay-to-play” rule for investment advisers, an emergency action to halt a municipal bond offering, and an action for whistleblower retaliation.

“Aggressive enforcement against wrongdoers who harm investors and threaten our financial markets remains a top priority, and we brought and will continue to bring creative and important enforcement actions across a broad range of the securities markets,” said SEC Chair Mary Jo White. “The innovative use of technology – enhanced use of data and quantitative analysis – was instrumental in detecting misconduct and contributed to the Enforcement Division’s success in bringing quality actions that resulted in stiff monetary sanctions.”

“Time and again this past year, the Division’s staff applied its tremendous energy and talent, uncovered misconduct, and held accountable those who were responsible for wrongdoing,” said Andrew J. Ceresney, Director of the SEC’s Division of Enforcement. “I am proud of our excellent record of success and look forward to another year filled with high-impact enforcement actions.”