From a filing by the receiver in the Steve Chen/USFIA case.
“Initially, Defendant Steve Chen aka Li Chen (“Chen”) was not present at the Company Offices. Shortly after the Receiver arrived and the U.S. Marshals secured the Company Offices, Chen arrived. He was wearing a security guard uniform and carried a loaded gun, which was not concealed. The U.S. Marshals seized the weapon and also found $46,150 in cash in Chen’s car. The funds are being held by the Receiver.” — Thomas Seaman, receiver in the USFIA pyramid-scheme case filed by the SEC, Nov. 13, 2015
UPDATED 1:24 P.M. ET NOV. 21 U.S.A. Back in September, the SEC civilly charged Steve Chen, USFIA Inc. and other entities with operating a “worldwide pyramid scheme” from Arcadia in Greater Los Angeles. Chen since has invoked his Fifth Amendment right not to incriminate himself, hinting at an underlying criminal probe.
The amber-themed USFIA scheme pushed a purported cryptocurrency known as “gemcoins” and was alleged to have gathered on the order of $32 million. Thomas Seaman was appointed receiver.
Seaman now alleges in court filings that he entered with the U.S. Marshals Service the two-story office USFIA was using at 135 E. Live Oak [Ave.] in Arcadia to take “control and possession of the premises.” The Arcadia Police Department also assisted.
Chen was not initially present at the office when the takeover began, but up to 50 other individuals were, including 32 Chen employees, according to a Nov. 1 report by Seaman. The alleged scammer showed up “shortly” thereafter.
In this setting involving dozens of employees and office subtenants, federal agents, police officers, the receiver and presumably receivership staff, two very strange things happened.
Chen, according to the receiver, arrived “wearing a security guard uniform and carried a loaded gun, which was not concealed.”
And, according to Seaman, “The U.S. Marshals seized the weapon and also found $46,150 in cash in Chen’s car. The funds are being held by the Receiver.”
Ponzi and pyramid narratives often are strange to the point of being unnerving. With USFIA so far, we have the alleged presence of a purported financial titan hauling around a large wad of cash during an active investigation and, yes, allegedly appearing at headquarters with a “loaded gun” with dozens of people in the area.
Why Chen allegedly was wearing the uniform of a security guard was not explained in the report, but Seaman did note he also discovered “a weapons safe with ammunition, and owner’s manuals for two rifles (but not the [rifles] themselves)” in the company offices.
BehindMLM.com reported in September that some USFIA investors were worried about threats involving firearms.
Like Krista L. Freitag, the receiver in the WCM777 Ponzi- and pyramid scheme also operating from Greater Los Angeles and also targeting Asian population groups and other peoples who may lack command of English, Seaman suddenly finds himself in the real-estate business.
From the receiver’s report (italics added/formatting not precise/light editing performed):
2. Hills Garden Hotel
In the days following his appointment, the Receiver also took possession of the Hills Garden Hotel located on Ostrem Boulevard in Rancho Cucamonga. The 112 unit hotel was formerly a Days Inn, but had recently lost its flag with Days Inn. The Receiver is in financial control of the hotel and manages the hotel with the assistance of the on-site employees, many of whom had been employed by the hotel for many years prior to its purchase by the Receivership Entities on August 1, 2015. The Receiver confirmed that adequate insurance for the hotel is in place. It appears the hotel was going to be used by Defendants to conduct fundraising activities.
3. Other Real Properties
The Receiver also took possession of the following real properties:
A 36-unit apartment building located in Alhambra . . . A mansion located in Bradbury that was not used as a residence and appears to have been used for fundraising and investor relations. The home is apparently called the “Clubhouse.” . . . A single family home and a condominium, both located in Arcadia. Finally, the Receiver has also identified several other single family homes purchased with funds from the Receivership Entities and vested in other individuals or entities. The Receiver is further investigating and evaluating potential claims to recover these assets.
Meanwhile, the receiver says he has found two new large Mercedes vans, five diamonds located in Chen’s desk, a “bag of 1,160 Chinese New Year cards each containing a $5 bill” and “several designer (Chanel, Louis Vuitton, etc.) women’s bags, some of which appear to have authentic receipts. There is also an inventory of ornamental jewelry, none of which is characterized as either precious or semi-precious in nature.”
And what about gemcoins and claims of fabulous mineral wealth?
“Although the Receiver’s investigation is ongoing, at this point there is no indication of any legitimate Gemcoin or other viable business,” Seaman advised U.S. District Judge R. Gary Klausner. “There is also no indication the Receivership Entities had any significant sources of income other than monies raised from investors. Rather, based on documents located at the company headquarters and gathered from other sources, it does not appear that the assets described in online and written marketing materials actually exist. Instead of mines located around the world, millions of dollars in precious gems, and houses and cars available to be awarded to investors, the Receiver has found only costume jewelry and bins filled with rings of nominal value.”
Like alleged Ponzi-schemer Ming Xu at WCM777, Chen appears to have been involved in one way or another with dozens of business entities foreign and domestic.
Seaman has identified these to date, with his investigation ongoing:
Aborell Realty Advisors LLC
Aborell Realty Corporation
AFG Holding Company
Ahome Real Estate USA LLC
Alhambra Gardens LLC
Ally Investors LLC
Ameritra Inc.
Amkey Global
Ammine Inc.
Apollo Investors LP
Chenne Corporation
China-US Consultation Association
First Investment Holding Company
Great Wall Mountain LLC
Hills Garden Hotel Inc.
Hills Garden Hotel LLC
International Gemstone Mining Association
L’BE Group
LH Investment LLC
One World Currency Fund
Quail Ranch Golf Club LLC
Steamfont Capital Investment Group LLC
Steamfont Investment Group LLC
The New World Currency Fund
To Quang Duan
US Fovictor Jewel Investment LLC
US-China Consultation Association Liaison/Consulting Services
Weimar International Group Inc.
In California these days, Ponzi- and pyramid-schemers running offering frauds in which cash is siphoned and used to prop up a network of interrelated businesses may be targeting you if you have money or the dream of having money. And you may be particular target if you’re of Asian or Hispanic descent and if English is not your first language, making such schemes a form of affinity fraud.
The schemes may use shell companies and create a thicket of entities through which money may be laundered.
EDITOR’S NOTE: The MLM “program” known as Wings Network is alleged to have operated through two business entities that used the name “Tropikgadget.” The SEC’s case, announced Friday, is filed in U.S. District Court for the District of Massachusetts. That’s the same venue in which the agency’s epic TelexFree case was filed last year.
There can be no doubt — zero, none — that vulnerable immigrant populations in Massachusetts are being targeted in one MLM scheme after another. Speakers of Spanish or Portuguese may be particularly at risk. It’s also apparent that Asian, Haitian and African population groups are being targeted and that the risk is not unique to Massachusetts residents. The WCM777 “program,” for example, brushed through Massachusetts, where it was aimed at speakers of Portuguese and was stopped by the Massachusetts Securities Division in late 2013.
MSD also has squared off against a “program” known as EmGoldEx. In this scam, investors were promised returns of up to 1,105% and photos of children “getting paid” were used as lures to drive dollars.
One of the Tropikgadget entities — Tropikgadget Unipessoal LDA — allegedly was set up in the Madeira Free Trade Zone in November 2013 and later abandoned. Madeira, whose largest city is Funchal, is a North Atlantic Portuguese archipelago slightly closer to continental Africa than continental Europe. It is worth pointing out that the SEC publicly thanked both Portugal’s securities regulator (Comissão do Mercado de Valores Mobiliários) and the office of Portugal’s Attorney General (Procuradoria-Geral da República of Portugal) for assistance in the American probe.
The other Tropikgadget entity — Tropikgadget FZE — appears to have been set up in Sharjah, United Arab Emirates, also in November 2013. Sharjah, on the Persian Gulf, is the UAE’s third most populous city, behind Dubai and Abu Dhabi, according to WikiPedia. The paper presence of these companies at geographic points on the North Atlantic and the Persian Gulf more than 4,300 miles away from each other and how they enlisted Massachusetts residents to do their bidding probably is a story unto itself, but it is a story for another day. What’s news today is that Wings Network was operating in Massachusetts at Ground Zero for TelexFree after the TelexFree action and, like TelexFree, is accused of fleecing vulnerable immigrant populations.
At least seven of the 12 charged Wings Network promoters had addresses in Marlborough, Mass. This is potentially important because TelexFree’s U.S. operations were based in Marlborough. TelexFree operated through various U.S. entities and a Brazilian entity known as Ympactus. Brazil-based TelexFree/Ympactus figure Carlos Costa has TelexFree business partners in Massachusetts, waved the flags of Madeira and Portugal in a 2013 TelexFree promo and invoked God in appeals to support TelexFree. Sann Rodrigues, a charged TelexFree promoter associated with an MLM entity known as iFreeX that also operated in Massachusetts and has come under scrutiny, has claimed “God” invented MLM and “binary.” Rodrigues, according to the SEC, is a recidivist pyramid-schemer.
There’s also evidence that the Zeek Rewards “program” taken down by the SEC in 2012 targeted vulnerable people.
**____________________**
Funchal, Madeira, to Sharjah, UAE. Source: Google Maps.
UPDATED 11:32 A.M. ET U.S.A. The SEC’s “Wings Network” case announced Friday is the latest example of the MLM world’s intolerable capacity to deceive. Though the facts alleged by the SEC are alarming, the action against two companies, three officers and 12 promoters is not an indictment of the trade. Indeed, the agency worked with the Direct Selling Association to expose one of the most mind-numbing lies.
But you still have to wonder if MLM and network marketing in general are on the road to perdition. This is because the horrifying abuses and thematic lies that propped up Wings Network are so common across the larger MLM trade that one can be forgiven for wondering if targeting vulnerable population groups and institutionalizing prevarication is Rule No. 1.
How DSA Got Involved In The Wings Network Case
Adolfo Franco, the trade association’s executive vice president and chief operating officer, sits at the intersection of commerce and government affairs. He’s an old political hand and has worked as a Republican strategist and assistant administrator for Latin America and the Caribbean for the U.S. Agency for International Development (USAID). Franco wants the MLM industry to prosper, and he wants to make sure he has a wholesome story to tell in government corridors.
Wings Network didn’t give him one, to be sure.
You see, Wings Network is accused by the SEC of using the DSA’s name to sugarcoat a creeping, cross-border fraud scheme that ultimately gathered at least $23.5 million. What actually happened, according to the SEC and an affidavit prepared by Franco, is that DSA received an “e-mailed request” for a DSA membership “application.” It then sent out the application, which was never returned. Not only was the application not returned, according to the affidavit, DSA never even heard back from Wings Network.
What allegedly happened next will surprise no one who follows the bizarre dramas MLM has been serving up for the past several years. This simple request for a membership application was conflated by Wings Network and affiliates as an endorsement by DSA of Wings Network.
By April 2014, according to the SEC, DSA became aware of this ribald deception. The association reacted by sending Wings Network a cease-and-desist letter, directing Wings Network and affiliates to stop claiming membership in DSA and stating point-blank that “any indication that Wings Network is a member of the DSA is fraudulent.”
Multiple Layers Of Deception
Could it get worse? Sure. Wings Network hucksters also are accused of duping participants into believing the “program,” which advertised guaranteed income, had the additional benefit of insuring them against loss.
Anyone who’s been following the unbelievably noxious example of TelexFree can tell you that the same thing allegedly happened there. The same thing currently is happening in a “program” known as “MooreFund,” and it previously happened in the AdSurfDaily Ponzi scheme in 2008 broken up by the U.S. Secret Service.
The MLM scammers look for a tiny kernel of truth and then wrap a lie around it: A “program” may have a bank account, for example. Money in the account may be insured by the FDIC in the event of a bank collapse.
From this, the “programs” themselves and affiliates conflate a fantastically malignant construction by which no one can lose money because of the “insurance.” It is just a contemptible lie. It’s also one that has been bettered by new versions of the lie. These versions — as is the case with Wings Network, TelexFree and MooreFund — hold that private insurers or even software companies such as Symantec have the companies’ backs and that these private insurers never would do business with a fraud scheme.
Supplementing this lie are companion lies — advanced by Wings Network, TelexFree and others — that a business registration with a Secretary of State or equivalent agency domestically or overseas is proof that there is no underlying scam. (One need only to look at Bernard L. Madoff Investment Securities LLC to understand just how preposterous this type of lie is.)
Here’s the thing: The type of lies advanced by Wings Network are not unusual for “opportunities” using an MLM or network-marketing business model. DSA happened to be the victim of brand-leeching and runaway disingenuousness in this case, but other cases show it’s hardly alone. Even the names of the U.S. government and various U.S. agencies have been dropped in this fashion.
Not even the “brands” of God and Jesus Christ are off-limits in the MLM sphere. Sometimes an asserted endorsement by a deity is supplemented by suggestions that living legends of entertainment and business have piled aboard a “program” train.
This is a short summary of these tactics as employed by recent MLM or network-marketing schemes that either cratered on their own or collapsed after regulatory intervention. (Note: Some background information also appears in the summary):
WCM777. Operated by Ming Xu. Targeted people who spoke Spanish, Portuguese, English and Asian languages. Dropped names of God, “Yahweh,” Jesus Christ, Al Gore, Steve Wozniak, Sylvester Stallone, “Rocky,” Eric Garcetti, Siemens, Goldman Sachs, the Denny’s restaurant chain and many, many more famous companies. (As many as 700.) Basic sales message: Send us money. Get rich. Estimated haul: $80 million in less than a year. Estimated number of victims: tens to hundreds of thousands.
TelexFree. Operated by James Merrill, Carlos Wanzeler and Carlos Costa. Largely targeted people in the United States and internationally who spoke Spanish, Portuguese and English. Global penetration at an almost unfathomable level. Appears to have created black market and back-alley economy in Massachusetts. Became subject of undercover investigation by the U.S. Department of Homeland Security. Dropped names of God, Jesus Christ, MLM Attorney Gerald Nehra, President Obama, Massachusetts Commonwealth Secretary William Galvin, the SEC, the U.S. Attorney General. Basic sales message: Send us money. Get rich. Estimated haul: $1.82 billion in about two years. Estimated number of victims: hundreds of thousands to more than 1.8 million.
Zeek Rewards. Operated by Paul R. Burks. Targeted people who spoke Spanish, Portuguese, English and Asian languages. Global penetration at an almost unfathomable level. Affiliates targeted Christians. Dropped names of the Association of Network Marketing Professionals, MLM attorneys Gerald Nehra and Kevin Grimes, plus MLM consultants Keith Laggos and Troy Dooly. Basic sales message: Send us money. Get rich. Estimated haul: $897 million in less than two years. Estimated number of victims: hundreds of thousands. “Clawback” cases to return alleged ill-gotten gains may affect 10,000 or more affiliates.
eAdGear. Operated by Charles Wang and Francis Yuen. “Primarily” targeted “investors in the U.S., China, and Taiwan,” according to the SEC. Dropped names of Google, Yahoo, Target Corp., Lbrands (Victoria’s Secret), Avon, Sears, Nordstrom, eBay, QVC, HSN, J.C. Penney, Banana Republic, Dillard’s, Kohl’s, Macy’s, Amazon.com, Men’s Wearhouse, Kmart, New York magazine and many, many more. (As many as 253 brands were abused.) Basic sales message: Send us money. Get rich. Estimated haul: $129 million. Estimated number of victims: tens of thousands.)
Wings Network now stands accused of targeting “many members of the Brazilian and Dominican immigrant communities in Massachusetts” in a combined pyramid- and Ponzi scheme that raised at least $23.5 million.
If that sounds familiar, perhaps it is because the TelexFree “program” was accused last year by the SEC of doing the same thing in the same place. Like Wings Network, TelexFree reached across national borders to plunder investors. Recent filings by the court-appointed trustee in the TelexFree bankruptcy case — and these filings are subject to amendment in part because there are more than 1 trillion disparate data points involved in the reverse-engineering of TelexFree — list the “nature” of the company’s business as “pyramid scheme.”
Other filings by Stephen B. Darr, the trustee, suggest that TelexFree gathered more than $1.8 billion in about two years of operation through a series of entities in the United States and an affiliate in Brazil known as Ympactus. The dollar volume alone is simply mind-boggling, more so when one considers the records so far denote “1,894,940 Participant names, spanning 35,110 pages.”
Some readers who sift through the TelexFree material will need a name-pronunciation guide and a world atlas. TelexFree didn’t just mow down Americans. The records suggest, for example, that the “Embassy Of Nigeria P O Box 1019 Addis Ababa Ethiopia” has contacted Darr. One document lists “Baker Island,” which WikiPedia says is an uninhabited Pacific atoll tended to by the U.S. Fish and Wildlife Service, as the “country” of an investor.
It is clear that TelexFree had investors (at least) in Argentina, Australia, Belarus, Belgium, Bolivia, Cambodia, Canada, Chile, China, Colombia, Croatia, Cyprus, Dominican Republic, Ecuador, Egypt, El Salvador, France, French Polynesia, Germany, Ghana, Guatemala, Honduras, Hong Kong, Hungary, India, Indonesia, Ireland, Italy, Japan, Jordan, Kenya, Lebanon, Luxembourg, Malaysia, Mexico, Moldova, Netherlands, New Zealand, Nigeria, Norway, Paraguay, Peru, Philippines, Poland, Portugal, Puerto Rico, Qatar, Romania, Russia, Rwanda, San Marino, Serbia, Singapore, South Africa, Spain, Sweden, Switzerland, Taiwan, Tanzania, Thailand, Togo, Turks and Caicos, U.S. Virgin Islands, Uganda, Ukraine, United Arab Emirates, United Kingdom, United States, “Unknown” country, Uruguay, Uzbekistan and Venezuela.
MLM in this form is “fraud creep” running wild. It is posing dangers to individual participants, including those who can ill afford to take a financial hit. Beyond that, it is posing a danger to the U.S. financial infrastructure.
Economic security is national security, friends. These MLM HYIP “programs” pose an untenable security threat. Many of them are shrouded in multiple layers of mystery.
DSA Needs To Do More
It is good to see that the DSA worked with the SEC on the Wings Network case. It would be better yet if the organization studied why so many MLM HYIPers appear to move from fraud scheme to fraud scheme to fraud scheme.
Where did these people start their “MLM journeys?” Did they start at, say, Herbalife or Amway after buying into the dream and the attendant hype? And did they get churned by those “traditional” MLMs, only to become shark bait for the HYIPs?
With so many of the scams selling the message that it’s nearly impossible to make money in “traditional” MLMs and that 97 percent of people who latch onto the MLM dream of riches emerge as losers or highly vulnerable treaders of water in rough seas, isn’t it time for those traditional MLMs to question whether they are creating the refugees and providing the training for the targeting?
Herbalife is not an HYIP. But it sells a dream and has a high burn rate. The most recent scheme to sell against traditional MLM is “Achieve Community,” taken down by the SEC last month.
Whether or not “the 97 percent” claim is precisely true is immaterial. What’s material is the ready availability of vulnerable population groups and refugees from “traditional” MLMs.
TelexFree even may have channeled Herbalife, calling its cheerleading sessions “extravaganzas” and latching onto the sport of soccer.
Stemming this hurtful tide should be a top priority at DSA. The wave of scams is not docile. It very well might be eroding protective shores in violent fashion and creeping up on the road to perdition.
EDITOR’S NOTE: This post originally was published at 12:40 a.m. ET on Nov. 3. It will continue to appear at the top of the PP Blog for a while, but new stories will appear below it . . .
Dear Readers,
What a long, strange, occasionally exhilarating and sometimes frightening ride it has been. This letter celebrates the PP Blog’s 2,500th post with WordPress. Our first was 2,152 days ago, excluding today’s date. Some of you have been with us every step of the way since December 2008.
Many of you have shared your knowledge in our Comments sections and helped shape our thinking. This has helped us create a better publication, one that frames issues in context and provides analysis. Readers get breaking news, situational news and opinion.
One thing became evident early on: the serial scammers and willfully blind hucksters hate the coverage and hold the analysis in particular contempt. As our story total increased from dozens to hundreds and, now, to 2,500, we’ve been able to point readers to more and more content that helps them see patterns and understand things in a fuller context, a context that is more meaningful to them.
We often use both the current story and the Comments thread below the story to point readers to internal and external sources of information that create “lightbulb” moments. For example, lots of readers probably didn’t understand how similar Zeek Rewards was to AdSurfDaily until we helped them understand.
There have been days in which so much news was breaking that we couldn’t get to it all or had to present capsules. On days we do not publish, we’re typically researching and reporting on a story that will be published later. Our deep editorial well remains available 24/7/365, even on days we do not add new content.
The PP Blog started by covering the AdSurfDaily Ponzi scheme. It seemed for a while that it could never get stranger than ASD, but of course it has. The strangeness alone is worrisome. It is one of the reasons we’ve kept our nose to the grindstone. This amount of disconnect and the serial nature of the schemes speak to a growing menace.
These schemes rob people of freedom, shatter dreams, create friction between nations and lead to situations in which the dark forces of criminality gain economic power.
Because “sovereign citizens” made their presence known in in ASD and other unqualified debacles, we worked coverage of national-security issues into our coverage of securities fraud.
Affinity fraud often accompanies Ponzi schemes and pyramid schemes. People of faith are constant targets. So are people whose first language may be one other than English. People frequently are targeted by race or ethnicity, often by magnetic personalities within the specific groups. It has become clear to us that people also are being targeted based on their political views.
If you’re inclined to believe that being a traditional Republican or Democrat very well might be a sign of mental illness or that the antichrist or closeted Nazis and Communists are running things in the corridors of power, rest assured that a Ponzi schemer or securities fraudster has fashioned an offer designed to appeal to your prejudices.
The PP Blog always has been free. It helps educate, inform and enlighten readers, including victims of Ponzi and pyramid schemes who’ve been reduced to ruin and spend their lives consumed by worry.
It should not be that way in America – or any nation.
We received a note the other day from a person who lives in an African nation that knows poverty. Some individuals in this country thankfully see themselves as up-and-coming entrepreneurs who not only will improve their own lives, but the lives of their family members and fellow citizens.
This individual thanked us for our coverage of TelexFree, but reminded us that the fallout went way beyond the Latino and Portuguese communities. We’ve known for some time that we’re building a small audience in Africa. Our audiences in South America also are building. The first time we noticed this was when we became the first publication in the world to confirm through a government official that TelexFree, which had a presence in Brazil, was under investigation in its home state of Massachusetts.
These hideous schemes are affecting people globally. The security situation they create is untenable. The local danger is that they turn family and friends against each other while at once harming local economies. Because murky forces are at work and marriages between organized crime and political extremists can occur, the schemes pose a threat to international security.
Today, to mark our 2,500th post, we’re asking readers who believe in what this Blog is doing to take out a one-year subscription for either $25, $50, $75 or $100.
At the same time, we’re trying to have a little fun with this. You see, the $25 fee constitutes a penny a post for our current editorial well of 2,500 articles. There’s a pull-down menu in case you decide you’d like personally to value the editorial well at 2 cents a post ($50), 3 cents a post ($75) or 4 cents a post ($100).
The subscription will renew in a year.
Friends, it hasn’t been easy. You’ll be helping me personally. And you’ll be helping a Blog that publishes an average of 416 stories a year and keeps matters important to readers a bookmark away remain free for other readers.
My best to my longtime readers of goodwill, whether you become a yearly subscriber in any category or not. No one who is experiencing financial pain should sign up for a year’s subscription, even if you have the money right now.
Some readers have inquired about subscriptions. I have thought about it for a long time, but always have been concerned that subscriptions could lead to lower readership. Lower readership is not a good thing, especially when scams are spreading virally on the Internet.
This “penny-a-post” idea to commemorate our 2,500th post has helped me scotch the very real concern about affecting readership. There will be no paywall. The readers who subscribe will be helping keep the Blog free for those who cannot afford to subscribe and for those who simply choose not to.
My sincere thank you for your continued interest in the PP Blog.
UPDATED 8 A.M. EDT U.S.A. New England Public Radio has a minute-long audio report on TelexFree, iFreeX and Sann Rodrigues, including comments from Massachusetts Commonwealth Secretary William Galvin.
Rodrigues, accused in April 2014 by the U.S. Securities and Exchange Commission of fraud over his alleged role in TelexFree, earlier (in 2006) was accused of fraud by the SEC in a separate alleged pyramid scheme involving phone products. iFreeX may constitute at least his third dance in securities- and affinity-fraud schemes involving communications products.
Galvin reportedly told the station that the “current whereabouts” of Rodrigues is unknown. The charged pitchman hails from Brazil, once resided in Massachusetts and also has lived in Florida.
On Dec. 19, 2013, the PP Blog reported that TelexFree puff pieces were appearing in a publication that featured a columnist who asserted Jesus Christ was the person who inspired modern network marketers through his recruitment of 12 disciples.
Ads for an apparent cash-gifting scheme appeared in the same publication.
SEC case filings alleged that, on March 15, Rodrigues’ co-defendant Faith Sloan claimed on her website that the TelexFree compensation plan was changing and was not in final form — “[b]ut is Getting BETTER as Jesus said.”
Regulators have described TelexFree as a billion-dollar pyramid- and Ponzi scheme that operated across national borders.
Claims of divine authority or inspiration are not unusual in MLM HYIP frauds. In the 2008 AdSurfDaily case, for instance, accused operator Andy Bowdoin claimed God was on his side and compared the U.S. Secret Service to “Satan” and the 9/11 terrorists. Bowoin later was sentenced to federal prison for his $119 million Ponzi scheme.
Affinity fraud may occur in many contexts: appeals to religious faith, appeals to common interests, appeals to common heritage, appeals to common political interests and more.
TelexFree pitchman Sann Rodrigues, one of four promoters accused by the SEC of fraud. Rodrigues, a defendant in an earlier SEC case that alleged pyramid-scheming and affinity fraud, has ties to Massachusetts, Florida and Brazil.
UPDATED 3:33 P.M. EDT SEPT. 22 U.S.A. A small subset of data from 95 self-identified “net losers” in the TelexFree MLM scheme shows that they lost a whopping average of $27,578 each, according to an analysis by the PP Blog of court filings in the TelexFree bankruptcy case.
The average could be higher because investment sums for four of the 95 were not immediately available. Particularly concerning is a claim from the 95 losers that there may be “1,000,000 or more victims” of TelexFree’s fraud.
Viewed in microcosm, the data from the 95 losers paint a picture of an incredible loss of purchasing power across U.S. states and across the Atlantic Ocean into Italy — all from an association with TelexFree. At a minimum, the data suggest that TelexFree could cause certain U.S. investors to lose their nest eggs or even slip deeper into poverty.
When compared to the U.S. poverty guidelines as published by the U.S. Department of Health & Human Services earlier this year, TelexFree eviscerated wealth among the TelexFree group of 95 at better than two times the U.S. poverty wage of $11,600 for one-person households in 2014. With average TelexFree losses among the group of 95 at $27,578, the 2014 poverty-wage of $27,910 for a five-member household nearly was matched. (The poverty guidelines referenced in this story are for the 48 contiguous U.S. states and the District of Columbia.)
What this means, in essence, is that certain TelexFree members who perhaps were living in poverty or had a meager standard of living before they encountered TelexFree have lost capital at a rate that further tightens their economic shackles. Lost purchasing power means a lower standard of living for many Americans already living on tight budgets and may translate into things such as automobile repossessions and mortgage foreclosures.
The bitter irony is that TelexFree — like many HYIP schemes — was positioned as the remedy for economic ills, perhaps particularly the ills of people already at the edge of individual and family disaster. In a bizarre sales strategy, TelexFree appears to have targeted the impoverished people of Haiti to sell a purported credit-repair program to impoverished people in the United States and elsewhere.
In many cases, according to the group of 95, the losses eroded or eviscerated the “life savings” of TelexFree members.
Some TelexFree members were lured into the scheme by promises that $289 would return $1,040 in a year, $1,375 would return $5,200 and $15,125 would return $57,200. (Investors at the $1,375 level appear later to have been pitched to buy in at $1,425. Investors at the $289 level appear later to haven been pitched to buy in at $299. See story below for a reference to buy-ins at the $1,375 and $1,425 levels among the group of 95. Many TelexFree members bought in at much higher levels.)
“Everybody gets paid” was a common theme. The “program” even reached into other nations with severe economic challenges such as Peru and Rwanda.
Of the group of 95, about 38 listed addresses in Massachusetts, TelexFree’s U.S. base. One individual in Everett, Mass., listed a loss of $427,500. Another person in Saugus, Mass., listed a loss of $345,000. Two other individuals with the same address in Revere, Mass., listed combined losses of $350,000 — $175,000 each. A person in Woburn, Mass., listed a loss of $72,800. Another person in Chelmsford, Mass., listed a loss of more than $58,777.
In nearby Connecticut, a person in Stratford listed a loss of $42,000. A person in Monroe listed a loss of $35,625. At the same time, a person in Trumbull listed a loss of $19,950. Also in the New England region, a person in Nashua, N.H., listed a loss of $16,000.
To the south of Massachusetts, an individual in Waleska, Ga., listed a loss of more than $109,465. A person in Raleigh, N.C. listed a loss of more than $81,889. To the west, two persons with different addresses in Las Vegas listed losses of $50,000 — $25,000 each. Another person with a Las Vegas address listed a loss of $26,800. Yet another person in Las Vegas listed a loss of $17,175.
In April 2014 — after bringing an emergency action against TelexFree and alleging it was conducting a massive Ponzi- and pyramid scheme — the U.S. Securities and Exchange Commission alleged that the “program” mainly was targeted at “Dominican and Brazilian immigrants in the U.S.”
The SEC’s action occurred after authorities in Brazil — a Portuguese-speaking country — alleged that a TelexFree arm known as Ympactus was targeting investors there in a pyramid scheme.
The group of 95 now says that TelexFree also targeted the “Nigerian and Russian” communities, in addition to the Spanish- or Portuguese-speaking communities.
“. . . many Promoters do not speak English fluently,” the group of 95 says, adding that “creditor victims here are also undocumented immigrants residing in the United States, and may be thus extremely reluctant to directly participate in any formal proceedings, and also extremely reluctant to deal with a bankruptcy trustee or other official representative with duties other than solely to creditors. The bulk of the Debtors’ unsecured creditors cannot engage with these Chapter 11 Cases in any meaningful way.”
Court filings by the group of 95 now show that TelexFree also had a presence among people who speak Italian and have addresses in Italy. Several addresses in Italy proper appear in a document filed by the group of 95, including the address of a person said to have lost $21,375, a person said to have lost $11,400 and another person said to have lost more than $8,699.
Many others across the spectrum of the group of 95 suffered smaller losses that may be equally painful. The smallest sum lost by member of the group appears to be $900 — by a person in Deltona, Fla. Another person in Deltona is said to have lost $1,645.
Other “small” sums lost by members of the group of 95 include $1,375 by a person in Bologna, Italy; $1,425 by a person in Las Vegas; another $1,425 lost by a different person in Las Vegas; $1,425 by a person in New Bedford, Mass; and $1,425 by a person in Weymouth, Mass.
Buy-in dollar sums from the low thousands to the multiple tens of thousands were common among the group of 95, which is seeking to form an official committee of unsecured creditors in the TelexFree bankruptcy case.
BULLETIN: What happens if it is alleged by law enforcement that you’re a Ponzi schemer/affinity fraudster, a business associate of a Ponzi schemer/affinity fraudster or a vendor of a Ponzi schemer/affinity fraudster?
A federal judge has frozen at least 54 bank or financial accounts the SEC has linked to WCM777, an alleged $65 million Ponzi- and pyramid scheme with domestic and offshore conduits.
Accused operator Ming Xu had “authority” over at least 16 of the accounts, according to court filings. Who controlled the others was not immediately clear.
WCM777 was accused of targeting the Asian and Latino communities in a ribald HYIP scam that in part traded on the names of famous businesses, perhaps particularly companies in the hospitality industry. Many immigrants work in the hospitality trades.
The order has a provision that covers “all accounts at any bank, financial institution or brokerage firm, or third-payment payment processor, all certificates of deposit, and other funds or assets.”
Banks/vendors expressly covered by the order include Bank of America, Wells Fargo, Merrill Lynch, Comerica, HSBC, E*Trade, JPMorgan Chase, Citibank, East West Bank and American Continental.
It also became known today that Krista L. Freitag of E3 Realty Advisors of Los Angeles has been appointed receiver. The receiver already has taken control of at least two websites linked to WCM777, including WCM777.com.
U.S. District Judge Christina A. Snyder of the Central District of California has approved the asset freeze and the appointment of Freitag, a forensic accountant.
Snyder has authorized the SEC to conduct depositions “on two days’ notice” and cleared the agency to perform depositions even on Saturdays.
“Depositions may be taken Monday through Saturday,” according to the order.
And Snyder also authorized the SEC to bypass subpoenas and serve “a deposition notice by facsimile, hand or overnight courier” upon “agents, servants, promoters, employees, brokers, associates, and any person who transferred money to or received money from the bank accounts . . .”
Meanwhile, Snyder ordered Freitag “to conduct such investigation and discovery as may be necessary to locate and account for all of the assets of or managed by Defendants World Capital Market Inc., WCM777 Inc., WCM777 Ltd. d/b/a WCM777 Enterprises, Inc., and Relief Defendants Kingdom Capital Market, LLC; Manna Holding Group, LLC; Manna Source International, Inc.; WCM Resources, Inc., and their subsidiaries and affiliates, and to engage and employ attorneys, accountants and other persons to assist in such investigation and discovery.”
The judge also ordered the defendants and relief defendants not to destroy records and to repatriate assets.
California-based WCM777, an MLM “program,” got booted out of Massachusetts in November 2013, amid allegations of securities fraud and affinity fraud targeted at the Brazilian community through hotel pitchfests. WCM777, purportedly operated by Ming Xu and recruiting affiliates to conduct business over the Internet, later got booted out of California. In addition to the Brazilian community, WCM777 targeted people who speak Spanish and people who speak Chinese, perhaps Christians in particular.
Massachusetts launched a probe into TelexFree, another MLM “program” associated with hotel pitchfests and affiliate recruitment over the Internet, at least by Feb. 28 of this year — probably sooner, given the nature of WCM777. TelexFree largely is targeting speakers of Portuguese and Spanish, perhaps Christians in particular. It also has an affiliate presence in India and Africa (at least).
Although the schemes do not appear to have common ownership, both WCM777 and TelexFree offered plans that encouraged recruits to buy in at higher levels to get higher “earnings.” Affiliates of each scheme appear to have engineered subschemes in which their recruits could buy in at higher levels than the “programs” themselves advertised, potentially introducing a second layer of fraud.
What this means, in essence, is that neither TelexFree nor WCM777 may know their real bottom lines and that the firms created an environment that encouraged back-alley, illegal sales of securities and secret deal-making among individual promoters. Individuals ostensibly acting as brokers for TelexFree and WCM777 could be cherry-picking cash and not even sending it to the “program” operators. In short, certain people could be creating personal and organizational underground economies and fleecing TelexFree and WCM777 even as they fleece their own marks and recruits.
Hidden members of both “programs” may be getting paid in cash by their upline sponsors or ostensible brokers, with no record of their participation — even if they supplied cash or an equivalent to join the “programs.”
The only safe assumption in HYIP Ponzi Land is that any system that can be abused will be abused. That’s why these “programs” necessarily must be viewed through the lens of national security.
Presented below are some screen shots that demonstrate promotional ties between TelexFree and WCM777. In certain instances, the websites pictured below are promoting not only TelexFree and WCM777, but also other “programs.” One of them, for instance, is promoting the almost indescribably insidious and bizarre Banners Broker “program.”
As always is the case in HYIP investigations, the concern is that banks locally, regionally, nationally and internationally are being used by corporate scammers first as warehouses to store illicit proceeds — and later, by individual promoters at potentially thousands and thousands of locations, as virtual ATMs that provide the service of offloading the “earnings” of the promoters.
The interconnectivity of these schemes endangers local, regional, state, provincial and national economies. In many cases, promoters engage in willful blindness and simply move to another MLM HYIP scam when the current “hot” one encounters regulatory intervention or craters on its own.
It’s often the case that promoters plant the seed that a scheme has been endorsed by a government or that a corporate registration is surefire “proof” that no scam exists. Social media invariably is used to help a scheme proliferate or achieve Internet virality.
One of the shots below is from a YouTube video in which a TelexFree promoter seeks to plant the seed that TelexFree is backed by the Better Business Bureau. The narrator’s words in the video suggest he sought to plant the same seed about WCM777 but had to backtrack when he discovered a BBB listing that referred to WCM777 as a Ponzi scheme.
“Today we’re going to compare two of the most dynamic companies out there taking over right now,” the narrator said.
After recording a search of the BBB site for a TelexFree listing and finding one, the narrator suggested that the listing alone was proof that TelexFree was not a scam. He thereafter performed a search for WCM777 and found a Ponzi reference, thus triggering what appeared to be backtracking from his earlier claims that TelexFree and WCM777 were “dynamic companies.”
It also could be the case, we suppose, that he already knew about the WCM777 Ponzi listing before performing the search and that the design all along was to get people to go with TelexFree because WCM777 was a scam. Even under that interpretation, however, the video still demonstrates the underhandedness within the HYIP sphere.
The HYIP sphere always screams incongruity. Keeping that in mind, we’ll point out that one of the screen shots below shows TelexFree executive James Merrill in the same affiliate-manufactured frame as Massachusetts Commonwealth Secretary William Galvin. It was a clear bid to suggest that because TelexFree was registered as a corporation in Massachusetts, the “program” couldn’t possibly be a scam.
That is hogwash, of course. Galvin did not endorse TelexFree when his office approved a corporate registration. Besides, Galvin — as Commonwealth Secretary — oversees both the Massachusetts Corporations Division and the Securities Division. The Securities Division is probing TelexFree and possibly can rely on various documents in the Corporations Division to help investigators connect dots.
Beyond that, the website from which the screen shot promoting TelexFree by marrying images of Merrill and Galvin was taken also is promoting WCM777. Also shown below is an image from the same site in which Merrill is shown posing beside a giant SUV. Contrast that image against the image of Merrill posing in front of a large Massachusetts building as though TelexFree were its only occupant. TelexFree promoters have used the same approach, planting that seed that TelexFree owns the building and has a large physical presence in the United States.
That’s hogwash, too. TelexFree was an occupant of Suite 200 at a Regus center in Marlborough, along with dozens of other companies.
Finally, before observing the shots below, recognize that MLM itself — never a stranger to scandal — may be on the verge of experiencing a PR and legal crisis of unprecedented proportions.
People have harshly criticized hedge-fund manager Bill Ackman for attacking Herbalife. Among his contentions is that Herbalife is a pyramid scheme that targets vulnerable populations. Say what you will about Ackman’s Herbalife claims, but it is crystal clear that affinity fraud and the viral looting of impoverished/disadvantaged people have existed in the MLM realm for a long time and continues to be seen. One might even be inclined to say a market-making fraud blueprint exists within MLM: mow down one affinity cluster or population group and then move to another.
At a minimum, “programs” such as TelexFree and WCM777, which clearly have positioned themselves as wealth recipes for immigrants and vulnerable populations, can help Ackman shape and inform his Herbalife hypothesis.
James Merrill is TelexFree’s president and thus an MLM executive. TelexFree and Merrill, to date, have played into virtually every MLM stereotype that exists — everything from private jets, monster SUVs and stretch limos to business registrations and mail drops in Nevada.
Most disturbingly, though, Merrill represents an American MLM company that has been banned in Rwanda, an African nation that is trying to reverse poverty and receives aid from the World Bank. It’s hard to conceive that MLM — particularly American MLM — could card a worse PR disaster. Regardless, one could be in the offing.
Picture Story
1.
A TelexFree promoter who also promoted WCM777 extends the myth that TelexFree has a large physical presence in the United States and plants the seed that Massachusetts Commonwealth Secretary William Galvin endorsed TelexFree. Galvin’s office is investigating TelexFree after previously booting WCM777 from the state.
2.
A promoter simultaneously pitches TelexFree and WCM777. This shot is from the same site described in the photo above. The site may be based in Ecuador.
3.
This shot is from the same two sites described in the captions above — and features TelexFree President James Merrill posing with a giant SUV.
4.
This shot was taken on the same site described in the three preceding captions above. In this fourth shot, a person promoting both TelexFree and WCM777 claims that the purported parent company of WCM777 provided a loan of $20 million to a restaurant chain that sells Mexican food. The PP Blog has deleted an image of the chain’s logo that appears in the WCM777 promo. The same site plants the seed that WCM has provided hundreds of millions of dollars in loans to jewels of American business.
5.
This site features promos for various purported “opportunities,” including TelexFree and WCM777. Though not shown in the photo, the site also is promoting the uber-bizarre Banners Broker “program.” The site may be based in Italy.
6.
This site also is simultaneously promoting TelexFree and WCM777.
7.
This YouTube site describes TelexFree and WCM777 as “dynamic companies” and plants the seed that TelexFree is endorsed by the Better Business Bureau.
Some TelexFree members may be unhappy if the “program” changes its compensation plan. Source: Screen shot of Blog at Blogspot.com.
Updated 8:36 a.m. ET (Feb. 26, U.S.A.) Some TelexFree promoters may be lobbying the company and Brazil-based executive Carlos Costa to keep its original Ponzi scheme intact, according to a Blog post (in Portuguese) observed by the PP Blog this morning.
BehindMLM.com reported on Feb. 19 that TelexFree may be in the process of changing its compensation plan. Details remain murky. It is common for fraud schemes that either know they are under scrutiny or sense they soon will be to change rules or make cosmetic tweaks to keep money coming in.
After-the-fact changes, however, cannot unring bells of HYIP fraud that already have been rung. And the changes sometimes introduce new disguises designed to sustain a Ponzi deception.
TelexFree, alleged in Brazil to be a pyramid scheme, has been under investigation in that country since at least June 2013. In the AdSurfDaily and Zeek Rewards Ponzi/pyramid cases in the United States, prosecutors said that both firms made cosmetic tweaks in bids to stay under the radar.
Here is a Google translation from Portuguese to English of the Blog post that may signal that some TelexFree reps want the firm to cling to a Ponzi business model (italics added):
Campaign advisers on social networks asking an unchanged Marketing Plan International Telexfree.
And you, what do you think? Want to try the new plan Telexfree or would you change anything, because this plan is already excellent?
Share if you do not want changes in Telexfree.
Affiliates of online Ponzi schemes often claim their “program” is legal and excellent because it pays. But all successful Ponzi schemes pay. Bernard Madoff’s epic scheme “paid” — until it didn’t. And the Ponzi scheme of George Theodule aimed at Haitian immigrants also “paid” — until it didn’t.
“George Louis Theodule defrauded his victims out of millions of their hard-earned dollars,” said U.S. Attorney Wifredo A. Ferrer of the Southern District of Florida.
“[Theodule] did so by taking advantage of people who trusted him because of their cultural affinity,” Ferrer said. “Such tactics are intolerable, especially given that some of his victims lost their entire life savings. This sentence should send a strong message to those who prey on the trust of others: you will get caught and justice will be served.”
Also on the Blog reporting potential dissatisfaction with TelexFree changes was a post on something called CicloFAST, possibly an emerging “opportunity” of some sort. The CicloFAST website prominently displays a photo of a MasterCard.
Like TelexFree, CicloFast styles the last four letters of its name in uppercase — i.e. FREE and FAST. It was not immediately clear if the firms had a business relationship.
Some U.S.-based promoters of TelexFree claim that $15,125 sent to the company effectively will triple or quadruple in a year. Among the firm’s key pitchman is Sann Rodrigues, a former SEC defendant in a pyramid-scheme and affinity-fraud case.
Rodrigues, a purported TelexFree millionaire, has been billed by the firm as a headliner at a planned TelexFree convention March 1 and 2 in Spain.
Any change in the TelexFree compensation plan could lead to questions about why Rodrigues was permitted to make large sums of money under a plan that now needs to be changed and whether less-successful affiliates now will be hamstrung even tighter.
Some TelexFree promoters have demonized the Brazilian prosecutors who brought the pyramid case in the state of Acre. It is common for HYIP scams to pander to the rank-and-file and to marry the processes of demonization and envy.
URGENT >> BULLETIN >> MOVING: 3RD UPDATE 5:46 P.M. EDT (U.S.A.) The SEC says it has gained an asset freeze and charged three executives and eight promoters of a worldwide pyramid scheme operating through five entities from Hong Kong, Canada and the British Virgin Islands.
Promoters of the scheme, which “purportedly” sells Internet-based children’s educational courses, gathered at least $20 million “from U.S. investors, and millions of dollars more from investors in Canada, Taiwan, Hong Kong, and other countries in Asia, the agency charged.
Entities known as CKB and CKB168 are “at the center of the scheme,” the SEC said. The complaint, which was brought on an emergency basis and initially filed under seal, is filed in U.S. District Court for the Eastern District of New York. U.S. District Judge Roslynn Mauskopf has granted an asset freeze. The seal has been lifted in the case.
“CKB has little or no real-world retail consumer sales to generate the extraordinary returns promised to investors,” the SEC said. “In fact, CKB has no apparent source of revenue other than money received from new investors. Bank records show that the bulk of the money raised has been paid out to accounts controlled by CKB executives and as commissions to promoters of the pyramid scheme.”
Various investment schemes with apparent footprints in Hong Kong have been pushed by online hucksters since the SEC moved against U.S. based Zeek Rewards in 2012. On Oct. 14, BehindMLM.com reported that a scheme known as WCM777 operating from Hong Kong through an entity in the British Virgin Islands suddenly announced it was closing its U.S. operations.
Whether WCM777 had promoters in common with the CKB entities was not immediately clear. What is clear is that the SEC has taken action against three MLM or MLM-like “programs” that promised outsize returns since August of last year, amid allegations that were selling unregistered securities as investment contracts. (These are Zeek Rewards in August 2012; Profitable Sunrise in April 2013; and the “CKB” entities through an emergency action filed Oct. 9 and announced today, after the seal was lifted yesterday.)
Accompanying the CKB actions was the issuance today by the SEC of an Investor Alert “about the dangers of potential investment scams involving pyramid schemes posing as multi-level marketing programs,” the SEC said. The Zeek and CKB cases are referenced in the Alert.
“CKB’s operators and promoters profited by abusing relationships of trust within the Asian-American community and promising investors they can earn more money by recruiting other investors instead of selling actual products,” said Antonia Chion, an associate director in the SEC’s Division of Enforcement. “What CKB really sells is the false promise of easy wealth.”
Here is how the SEC described the eight U.S. promoters charged:
Daliang (David) Guo is a China native and a resident of Coram, N.Y., who was among CKB’s first U.S. promoters. He currently sits atop an investment pyramid, and claims in a testimonial on the CKB website to have earned more than $1 million within eight months.
Yao Lin is a resident of Fresh Meadows, N.Y., who was among CKB’s first U.S. promoters. He currently sits atop an investment pyramid, and claims in a CKB website testimonial to have earned more than $300,000. The SEC’s complaint alleges that bank and credit card accounts he controls have received approximately $450,000 from CKB investors.
Chih Hsuan (“Kiki”) Lin is a Taiwanese native and resident of Las Vegas who claims in a CKB website testimonial to have earned “one million USD” in her first two months of investing. She operates a website through which “CKB members” can log in to a password-protected area. She is within David Guo’s pyramid. The SEC’s complaint alleges that bank accounts she controls have received approximately $1.8 million from CKB investors.
Wen Chen Hwang (“Wendy Lee”) is a Taiwanese native and resident of Rowland Heights, Calif., who claims in a CKB website testimonial to have made $53,000 within four months. She is within Yao Lin’s pyramid. The SEC’s complaint alleges that bank accounts she controls have received approximately $2.2 million from CKB investors.
Toni Tong Chen is a resident of Hacienda Heights, Calif., and a certified public accountant who was formerly associated with a registered broker-dealer and held securities licenses. She and her husband claim to have earned six-digit commissions and in excess of a 100 percent return on their investment. They are connected to Wendy Lee and have made presentations at her weekly seminars in Los Angeles.
Cheongwha (“Heywood”) Chang is a Chinese native and the husband of Toni Tong Chen. He was formerly associated with a registered broker-dealer and held securities licenses. The SEC’s complaint alleges that bank accounts that he and his wife control have received approximately $2.1 million from CKB investors.
Joan Congyi Ma is a resident of Arcadia, Calif., who was formerly associated with a broker-dealer and held securities licenses. She is connected to Wendy Lee and has helped her organize seminars and other events in Los Angeles. In her CKB website testimonial, she references the day she met Yao Lin as her “lucky day.” The SEC’s complaint alleges that bank accounts she controls have received approximately $200,000 from CKB investors.
Heidi Mao Liu is a resident of Diamond Bar, Calif., who was formerly associated with a broker-dealer and held securities licenses. She is connected to Wendy Lee and has provided testimonials at her seminars in Los Angeles. She also operates her own website that promotes the CKB scheme. The SEC’s complaint alleges that bank accounts she controls have received approximately $1.2 million from CKB investors.
YouTube video pitches and a claim that at least one promoter had acquired five properties in Las Vegas through the scheme were used to dupe the masses, the SEC said.
“Kiki Lin,” the SEC said, “exemplified the pitch in a videotaped recording posted to the Internet, telling potential investors that in the ‘pyramid triangle system, we spread it from one to ten, and ten to hundred, and hundred to thousand, thousand to ten thousand.’ Kiki Lin later added, ‘And for those who really want to make money, who are really hard working, in a short time you would all be like John,’ who she claimed ‘made money to buy five houses in Las Vegas.'”
The charged executives include:
Rayla Melchor Santos, whom the SEC said is a Philippines national “who is featured on the CKB website as its founder. Santos is known as “Teacher Sam” and “has traveled to New York and other areas of the U.S. to participate in meetings and seminars to promote CKB.”
Hung Wai (“Howard”) Shern, whom the SEC said is a Canadian citizen and resident of Hong Kong “who is featured on the CKB website as the director of CKB168 International Marketing.” And Shern “is one of the signatories to bank accounts used to receive and transfer funds from CKB investors, and has traveled to New York and other areas of the U.S. to participate in meetings and seminars to promote CKB.”
Rui Ling (“Florence”) Leung, whom the SEC said is a Hong Kong national “who is described on the CKB website as its chief financial officer. And Leung “is one of the signatories to bank accounts used to receive and transfer funds from CKB investors, and approximately $4.6 million has been transferred from CKB bank accounts to bank accounts in her name and the names of entities she controls. Leung portrays herself as a professional investment adviser who will assist CKB in its supposed future public offering.”
From the SEC complaint (italics added):
2. Through publicly available websites, promotional materials, seminars, and videos posted to the internet, as well as through other efforts intended to create the appearance of a legitimate enterprise, Defendants have falsely portrayed CKB as a profitable multi-level marketing company that sells web-based children’s educational courses.
3. What CKB really sells, however, is the false promise of easy wealth. Potential purchasers of CKB products must invest in CKB to get one of its courses. Defendants promise that those investors will earn exponential, risk-free returns. In addition to the course, each purchaser/investor receives “Profit Reward Points” (“Prpts”) with a purported value of $750.
Investors are told that they will eam “passive” returns in the form of Prpt dividends and 2-for-1 splits, and that they will be able to buy and sell their Prpts in an online exchange accessible through the CKB website. Investors also are promised that they will earn massive retums by converting their Prpts into shares of CKB stock when the company conducts an initial public offering (“IPO”) on the Hong Kong Stock Exchange sometime during 2014. Some Defendants allege that these returns can be achieved without any risk of loss.
4. Despite Defendants’ representations to the contrary, the Prpts are worthless and cannot be meaningfully traded, sold or exchanged. Nor has CKB taken required steps to prepare for the promised IPO and, in fact, does not meet the Hong Kong Exchange’s current listing requirements. Even if the IPO were to occur, CKB would have to go public as one of the world’s largest companies in order to honor conversions of the ever-expanding universe of Prpts.
Still, while essential to the scheme, Prpts are not its only incentive. The scheme’s ultimate goal is to tum investors into recruiters. CKB lures investors with the promise of even greater “active” returns, in the form of commissions and bonuses, for recruiting new, “downline” participants into the program. In contrast to Prpts, active recruitment is the only way to make actual significant money.
The CKB defendant entities include:
WIN168 Biz Solutions Limited (WIN168), which the SEC described as a “private Hong Kong company” that “maintained bank accounts at HSBC in Hong Kong that were used to receive and transfer funds from CKB investors located in the United States and elsewhere. Those accounts received wire transfers from banks located in New York.”
CKB168 Biz Solution Inc., which the SEC described as a Canadian company in Toronto that “has maintained bank accounts at TD Bank in Canada that have been used to receive and transfer funds from CKB investors.”
CKB 168 Limited, which the SEC said shares a business address with WIN168 and operated from Hong Kong. Its alleged “sole director is CKB168 Biz Solution Limited (“CKB168 Biz Ltd.”), a British Virgin Islands corporation with its office in Tortola,” the SEC said, further alleging that “CKB168 Ltd. maintained a bank account at HSBC in Hong Kong that was used to receive and transfer funds from CKB investors, including wires coming from New York.”
CKB 168 Holdings Limited, which the SEC described as sharing a business address with WIN168 and CKB168 Ltd. “Sample stock certificates shown to prospective investors indicate that CKB 168 Holdings is the entity whose shares have been offered to the public,” the SEC said.
Cyber Kids Best Education Limited, which the SEC described as the controller of “five bank accounts at Shanghai Commercial Bank Ltd. in Hong Kong, at least two of which were used to receive and transfer funds from CKB investors located in the United States.”
“WIN168, CKB168 Biz, CKB168 Holdings, CKB168 Ltd., and CyberKids Best have never been registered with the Commission in any capacity and have never registered any offering of securities under the Securities Act or any class of securities under the Exchange Act,” the SEC charged.
BULLETIN: The SEC has sued a Florida woman, amid allegations she swindled Colombian-Americans and other Colombians in a $4 million Ponzi scheme that duped investors into believing her purported “immigration bail bonds” program was backed by the FDIC and an “investment broker” later blamed for payout delays.
The woman — Jenny E. Coplan of Tamarac — also has been charged criminally by federal prosecutors in the Southern District of Florida, the SEC said.
Coplan’s age is listed as 54.
“Coplan deliberately misled investors into believing their investments were safe and secure when in reality she was lining her own pockets,” said Eric I. Bustillo, director of the SEC’s Miami Regional Office. “Her predatory scheme exploited the trust and friendship of members of her own community by using empty promises to convince them to trust her with their hard-earned savings.”
All in all, the SEC said, Coplan “raised approximately $4 million from more than 90 investors in Florida, California, Georgia, Texas, Canada, and Colombia.”
Records cited by the SEC show that Coplan controlled at least four Florida LLCs, all of which used the word “Immigration” in their names. All of the entities have been dissolved.
Elements of the case are similar to elements of the $119 million AdSurfDaily Ponzi scheme case brought by the U.S. Secret Service in 2008. Like Coplan, ASD operator Andy Bowdoin was associated with various dissolved business entities in Florida. And as is the case in the allegations against Coplan, some ASD promoters claimed ASD was backed by the FDIC, suggesting money sent to the enterprise by insured.
Some promoters of TelexFree — a current HYIP scheme operating in Brazil and the United States — also have claimed that money sent to their “program” was insured, purportedly making it impossible for participants to lose money. TelexFree may be an affinity-fraud scheme initially targeted at Brazilian-Americans and Brazilians in general. The scheme now has entered many countries.
From the SEC’s complaint against Coplan (italics added):
16. Coplan, who is herself a member of the Colombian-American community, developed relationships with other Colombian-Americans and Colombian immigrants through a business she operated providing immigration services. Coplan then offered individuals the opportunity to invest in Immigration Services and the bail bond program.
17. In about June 2009, Coplan told at least one investor that this was an investment opportunity she offered to her friends and family initially, and then later opened it to everyone. Coplan also told prospective investors she wanted to help them achieve financial stability. To cultivate potential investors, Coplan sometimes mingled with investors’ friends and family members at their social gatherings. A large number of at least one investor’s friends and family members invested.
“Coplan never placed investor funds with any investment broker, and their money was never FDIC insured,” the SEC alleged. “Instead, she paid supposed profits to earlier investors using funds from newer investors in classic Ponzi fashion, and she stole approximately $878,000 of investor money for her own personal use.”
From a statement by the SEC (italics added):
The SEC alleges that Coplan created fictitious investor statements that she disseminated to hide her misuse of the money and lead investors to believe their investments were growing. Furthermore, Coplan e-mailed one investor two purported FDIC statements reflecting insured balances of $107,000 and $250,000, lulling the investor to think the investment was particularly safe. When her scheme began to unravel in 2011, Coplan blamed the purported investment broker for the delay in interest payments to investors, telling them the broker held the investors’ funds to cover deficiencies because Coplan had failed to meet certain monthly investment quotas. Even though Immigration General Services had virtually no funds in its bank accounts and was unable to honor investors’ increasing redemption requests, Coplan tried in late 2011 to create a false appearance that the company was back to business as usual. She issued non-sufficient fund checks to investors purporting to be their monthly profits. Through her continued misstatements, Coplan was able to raise another $578,000 from new investors before the scheme collapsed entirely.
Coplan’s investors were told they’d fetch returns of between “60 to 108 percent annually,” the SEC charged.
The Castlegar Source, a publication in British Columbia, is reporting that the Nelson Police Department has issued a warning on a purported “women’s circle” gifting “program” making its way around the area.
“State and federal law prohibit all pyramid schemes because each one is a house of cards doomed to collapse,” Blumenthal said in 2009, noting that the “The Women’s Gifting Table” scheme in Connecticut positioned itself as a “sisterhood.”
It seems Blumenthal’s early assessment of the perniciousness of the Connecticut scheme was correct. It later was revealed that even members of Alcoholics Anonymous had been targeted in the scheme. In 2009, the Better Business Bureau warned that frauds associated with gifting programs and gifting clubs were flourishing on the Internet.
The schemes, according to the BBB, may use social-media to gain a head of steam and ultimately take advantage of families struggling to make ends meet during challenging economic times.
Flash forward to 2013. From yesterday’s edition of the Castlegar Source (italics added):
Police said because there is no new money created in the circle, the scheme is simply a fraud that allows the original recruiters to take money from the new members.
Eventually, when no new recruits come into the circle, the gifters will have lost their money.
Pyramid schemes are illegal under section 206 (1) (e) of the Criminal Code and Competition’s Act.
