Another pyramid scheme has proven costly for its operators. Here, according to the SEC, is the rundown from the EAdGear case brought in 2014.
eAdGear Holdings Limited and eAdGear Inc. have been ordered to disgorge $21 million in ill-gotten gains, pay prejudgment interest of $640,000 and pay a civil penalty in the amount of $1,000,000.
Charles S. Wang and Cathy Zhang were ordered to disgorge $2.019 milion in ill-gotten gains and pay prejudgment interest of $61,280; Zhang further was ordered to a civil penalty of $200,000. Francis Y. Yuen and relief defendant Laurata Chan were ordered to disgorge $1.571 million in ill-gotten gains and pay prejudgment interest of $48,000.
U.S. District Judge Richard Seeborg of the Northern District of California entered the final judgments in the SEC’s civil case.
UPDATED 1:10 P.M. EDT U.S.A. Two eAdGear Ponzi- and pyramid-scheme figures have pleaded guilty to federal criminal charges of structuring transactions to evade bank-reporting requirements and conspiracy, according to court filings and records in U.S. District Court for the Northern District of California.
A application for a preliminary order of forfeiture filed by federal prosecutors July 17 says Wang and Yuen pleaded guilty to the structuring charges on May 27. The superseding structuring complaint alleged they made structured deposits — typically in amounts below $10,000 — and caused others to do so.
The cases appear to have been resolved via a plea agreement that led to the guilty pleas.
Structuring is a crime that occurs when individuals make deposits in a way that may dupe banks into not filing Suspicious Activity Reports, thus providing scammers more time to carry out a fraud scheme.
The maximum prison sentence for structuring is 10 years. Conspiracy in the context of structuring carries a maximum penalty of five years in prison. Both crimes can lead to large fines.
Though the plea agreements appear not to be instantly available, the forfeiture application says Wang and Yuen have agreed to pay a money judgment of $731,405.33. This sum represents the alleged amount of structured transactions that passed through banks in California and New Jersey.
UPDATED 9:10 A.M. EDT U.S.A. It’s whack-a-mole via MLM or network marketing — again.
There are reports in Thai media about a major pyramid/Ponzi bust involving a cross-border “program” known as “UFunClub.” (See links below.)
No American suspects appear to have been arrested or named so far, but Americans have promoted UFunClub. One of them, according to BehindMLM.com, is Jamison Palmer.
On Feb. 19, 2015, the PP Blog contacted the Alabama Securities Commission for comment after it observed a promo online for “UFunClub” attributed to Melton McClanahan, an American implicated in the cross-border “Profitable Sunrise” scheme broken up by state regulators and the U.S. Securities and Exchange Commission in 2013.
ASC did not respond to the request for comment on UFunClub and Unison Wealth, and it is unclear whether they are under investigation in the United States. What is clear is that McClanahan was issued a cease-and-desist order by ASC for his alleged role in pushing Profitable Sunrise. He also was subpoenaed by the SEC in the Profitable Sunrise case.
It’s also clear that some network marketers are moving from scheme to scheme to scheme in an ongoing and insidious environment of whack-a-mole. Schemes using a common network of promoters are feeding off each other.
Deputy Prime Minister Prawit Wongsuwon instructed police to investigate the case and quickly hunt down and arrest the suspects.
Police have been working alongside the Consumer Protection Police Division, the Office of The Consumer Protection Board and the Anti-Money Laundering Office in the investigation. The company’s operating licence was revoked.
Like other schemes, UFunClub spread in part on social media, according to a report at Nationmultimedia.com (italics added):
OCPB secretary-general Amphon Wongsiri said the U-Fun group mobilised investments through the website www.u-fun-u-token.com, www.youtube.com and many other avenues including via direct contact by its agents.
Recent whack-a-mole schemes include TelexFree, Wings Network, Zeek Rewards, eAdGear, iFreeX and EmGoldEx.
“The staff also has recently seen what appears to be an increase in pyramid schemes . . . under the guise of ‘multi-level marketing’ and ‘network marketing’ opportunities . . . These schemes often target the most vulnerable investors, and social media has expanded their reach. The Division is deploying resources to disrupt these schemes through a coordinated effort of timely, aggressive enforcement actions along with community outreach and investor education. We are also using new analytic techniques to identify patterns and common threads, thereby permitting earlier detection of potential fraudulent schemes.” — Andrew Ceresney, SEC Enforcement Division director, March 19, 2015
3RD UPDATE 6:09 P.M. EDT U.S.A. Bad news for “program” scammers and their willfully blind enablers: Andrew Ceresney, the director of the SEC’s Divison of Enforcement, told lawmakers on Capitol Hill today that scams using an MLM or network-marketing business model are on the radar.
In fact, according to written testimony Ceresney delivered to the House Capital Markets and Government Sponsored Enterprises subcommittee, they are enforcement “priorities” — right up there with insider trading, microcap fraud and other forms of securities fraud.
“The Division is deploying resources to disrupt these schemes through a coordinated effort of timely, aggressive enforcement actions along with community outreach and investor education,” Ceresney told the panel.
New Jersey Republican Rep. Scott Garrett chairs the panel. Rep. Carolyn B. Maloney, a New York Democrat, is ranking member.
Ceresney didn’t reference the task force in his prepared remarks today. However, the agency already has filed two actions against MLM or network-marketing schemes this year. In February, the agency sued the “Achieve Community,” alleging it was a Ponzi- and pyramid scheme that had gathered about $3.8 million and had spread on social media. One or more criminal probes related to the SEC’s Achieve investigation are believed to be under way, amid concerns Achieve was funneling scam proceeds offshore.
Also in February, the SEC sued a “program” known as Wings Network, alleging it was targeting Latino communities and that its promoters “used Facebook to publicize ‘business meetings’ that took place at hotels and other locations in Connecticut, California, Florida, Massachusetts, Pennsylvania, Texas, Georgia, and Utah.
“The promoters also set up storefronts or ‘training centers’ to lure investors into attending Wings Network presentations,” the agency charged. “For example, one promoter used a storefront in downtown Philadelphia to make presentations to prospective investors, and another promoter rented office space in Pompano Beach, Fla., and spread the word in the local Latino community to attract prospective investors to come in and hear presentations.”
Wings appears to have gathered at least $23.5 million.
In addition to targeting vulnerable population groups, Wings Network tried to sanitize itself by falsely trading on the name of the Direct Selling Association, the SEC said in court filings. Wings has been tied to two companies that used the name Tropikgadget.
Both ostensibly operated from Portugal through business entities set up in Madeira, a Portuguese island in the North Atlantic, and through Sharjah, a city in the United Arab Emirates, the SEC alleged.
Court records suggest Wings had a strong presence in Marlborough, Mass., the town from which the TelexFree MLM scheme was based. In April 2014, the SEC described TelexFree as a massive Ponzi- and pyramid scheme largely targeting immigrant populations. A court-appointed trustee says TelexFree may have gathered $1.8 billion through its pyramid scheme in about two years.
Participants hailed from dozen of countries. A partial list of U.S. participants shows many names that appear to be Latino. Trustee Stephen B. Darr said in court filings that the full list of worldwide participants “contains 1,894,940” names and spans “35,110 pages.”
A list of alleged “winners” in the 2012 Zeek Rewards scheme broken up the SEC and the U.S. Secret Service also appears to include a disproportionate share of Latino names or names from other vulnerable population groups. Zeek is estimated to have rounded up $897 million in less than two years and to have affected on the order of 800,000 victims.
Zeek’s name (through parent Rex Venture Group LLC) was referenced in a footnote and related link in today’s written testimony by Ceresney.
So was the name of CKB168, a “program” that allegedly targeted members of Asian-American communities in New York and California and was taken down by the SEC in 2013. The alleged haul was pegged at at least $20 million.
The footnote pointed to an SEC investor alert dated Oct. 1, 2013, and titled, “Beware of Pyramid Schemes Posing as Multi-Level Marketing Programs.” The alert, which has been translated into Chinese, Spanish, Portuguese, Vietnamese and Creole, has been updated to include information on “programs” such as TelexFree and Wings Network.
Though not referenced specifically in the October 2013 alert, “programs” such as eAdGear, Zhunrize and WCM777 also have encountered SEC actions. All three appear to have affected Asian population groups. WCM777 also clearly affected Latino groups and has emerged as one of the strangest MLM schemes of all time.
Some WCM777 promoters had claimed that $14,000 sent to the California-based “program” returned $500,000 in 52 weeks. WCM777 appears to have gathered more than $80 million in about a year, with the proceeds from the MLM “program” diverted to purchase golf courses, real estate and more. Tens of millions of dollars appear to have been diverted to Hong Kong.
Today’s Congressional testimony took place against the backdrop of continuing clashes between Herbalife and activist investor Bill Ackman, an Herbalife short-seller who has accused the MLM program of being a pyramid scheme that targets Latinos.
Herbalife, which was not referenced in today’s testimony, denies it is a pyramid scheme and says it is proud of its appeal to Latinos and serves the community honorably. (Ackman also isn’t mentioned in the testimony.)
Responding on web forums such as Seeking Alpha, fans of Herbalife have accused Ackman of pandering to enforcement agencies, members of Congress and Latino groups as part of a scheme to inspire investigations that would line his pockets by driving down Herbalife’s stock price.
In media accounts, Ackman has said he won’t keep personal profits if his Herbalife short pays off. At the same time, he asserts he is pursuing profit for his hedge-fund investors through a strategy that also delivers social justice.
Perhaps the only thing clear right now is that MLM, no stranger to controversy, never before has been under a light this intense.
The Capital Markets and Government Sponsored Enterprises subcommittee is under the House Financial Services Committee. The committee is chaired by Rep. Jeb Hensarling, a Texas Republican. Rep. Maxine Waters, a California Democrat, is ranking member.
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: The screen shots below show that Rodney Blackburn ends his “Unison Wealth” promo at the 8:29 mark of a 14:27 video. At the 8:30 mark, the website of the SEC becomes the feature and remains so for nearly the next six minutes as Blackburn touts Achieve Community, Unison Wealth and Trinity Lines, Ponzi-board “programs” one and all. It is Saturday. The PP Blog did not immediately hear back from the SEC on a request for comment.
1. From ‘Unison Wealth’ . . .
2. . . . To The SEC
“We’re leaving the markets of these crazy MLM companies, and there are people like the Achieve Community, Trinity Lines, Unison Wealth, many of these other companies are coming out. And they are making programs that are very simplistic, they’re passive, they’re residual incomes. They’re just so simple you just kind of put your money down.” — Rodney Blackburn, Jan. 9, 2015.
A 14:27 YouTube video from an “Achieve Community” member now promoting at least two other Ponzi-board schemes includes nearly six minutes of continuous footage from the website of the U.S. Securities and Exchange Commission.
The latest promo by Rodney Blackburn focuses on “Unison Wealth” and has a publication date of Jan. 9, 2015. It is titled “Network Marketing & MLM Programs Are Getting Better!!!” The promo suggests that ordinary MLM creates an environment in which 97 percent of participants lose and that new, smarter, better schemes are emerging to replace them.
“You don’t have to do any marketing, for the most part,” he says of the purported new way of network marketing. “You don’t have to jump through any hoops and recruit people. You don’t have to go through any of these things.”
In short, Blackburn says, in the new way of network marketing, participants “just kind of put [their] money down” and payouts flow back to them. What’s more, he implies, the SEC doesn’t have jurisdiction, despite mountains of evidence to the contrary, including several concurrent active prosecutions involving network-marketing or MLM schemes with passive components.
Blackburn even dares individuals to complain to the SEC about the “programs” he’s promoting.
“There’s people on here who think that the SEC can shut companies down,” Blackburn says as part of his narration. “Guys, [the] SEC is designed for, again, Securities and Exchange Commission, what they do — it shows it right here in back and white.”
Blackburn proceeds to click on an “ABOUT” tab and a “What We Do” subtab at the SEC website. He then cherry-picks a quote from the agency’s site, wholly ignoring sections on SEC enforcement that detail various cases brought against network-marketing or MLM schemes.
“The mission of the U.S. Securities and Exchange Commission is to protect investors, maintain fair, orderly, and efficient markets,” Blackburn says, reading from the SEC site.
That’s true, of course — but the cherry-picking ignores the much larger whole.
Had Blackburn simply typed “MLM” into the search box in the upper-right corner of the SEC site, he’d have gained instant access to information that undermines his jurisdiction theory.
Without perusing the enforcement section that has information on recent schemes such as Zeek Rewards, TelexFree, WCM777, eAdGear, Zhunrize, CKB168 and others, Blackburn switches back to his personal narrative.
“Guys, it’s about investors,” Blackburn continues, apparently concluding that the SEC would have no interest in the schemes he’s promoting. “It’s about efficient markets. If others of you who want to complain to your governments about these companies that are out there — you know what, go right ahead. It’s not going to do any good, unless they’re doing illegal activity. Unless you have substantial, proven evidence that any of these companies — any of them, OK — are doing anything illegal, it’s futile. You’re just blowing fear out there to the rest of us, OK, because it’s not going to do any good. Come up with something better. Come up with a fact.”
It is a fact that the SEC, on Oct. 1, 2013, issued an “Investor Alert” titled “Beware of Pyramid Schemes Posing as Multi-Level Marketing Programs.” As part of its outreach, the SEC warned about schemes with “Promises of high returns in a short time period” and “Easy money or passive income.”
Meanwhile, it is a fact that Achieve Community has been positioned as a “passive” program with an 800 percent ROI in as few as 55 days. It’s also a fact that a Dec. 27, 2014, promo for Unison Wealth published on YouTube by Blackburn is titled, “Unison Wealth – Review 100% Passive Automated Play for just $40!”
Blackburn’s Jan. 9 video appears to be a compendium of two, with the first 8:29 focused on Unison Wealth. When Blackburn’s Unison pitch ends, the scene shifts abruptly to the SEC website. SEC visuals appear continuously for nearly the next six full minutes as Blackburn discuses his “programs.”
Even as Blackburn tries to make the case that the “programs” are outside the purview of the SEC, he tells his audience that he prefers “passive” programs.” Somehow lost by Blackburn in all of this is that the passivity of a scheme and how it behaves in practice are what confer jurisdiction on the SEC.
This has been the law in the United States since at least 1946.
Kenneth D. Bell, the receiver, is suing thousands of individuals for the return of hundreds of millions of dollars, saying their “winnings” came from hundreds of thousands of victims defrauded by Zeek.
4TH UPDATE 3:44 P.M. ET U.S.A. Before the SEC announced its civil pyramid- and Ponzi-scheme case on Sept. 26 against eAdGear figures Charles Wang and Francis Yuen, the pair had been indicted on a criminal charge in U.S. District Court for the Northern District of California, the PP Blog has learned.
Docket records show the indictment was filed under seal Sept. 18. On Sept. 23, prosecutors in the office of U.S. Attorney Melinda Haag requested the seal be lifted. The SEC announced its civil case three days later.
The specific criminal charge is conspiracy to structure transactions to evade bank-reporting requirements. A grand jury alleged that the eAdGear duo directed two employees to open bank accounts in the employees’ names “for the purpose of using those accounts as nominee accounts in which to conduct structured cash transactions.”
The FBI is leading the criminal investigation, according to papers filed in the case.
News of an eAdGear criminal investigation first was reported yesterday by the Wall Street Journal under a headline of “SEC on Lookout for Web-Based Pyramid Schemes.” The PP Blog learned that an indictment had been returned by locating a criminal case number in a Nov. 12 order issued by U.S. District Judge Yvonne Gonzalez Rogers that also referenced the SEC’s civil case. The ASD Updates Blog then located the indictment, which lays out a structuring plot dating back to 2011 involving accounts at multiple banks.
Separately, the PP Blog learned that police in Taiwan carried out eAdGear-related raids in October. News of the raids first was reported in Taiwanese media, including reports in Chinese.
Accounts at JPMorgan Chase, Bank of America and Bank of the West allegedly were used in the Wang/Yuen structuring conspiracy, with Wang further accused of using accounts in his name and in the name of a relative to advance the plot.
Transaction sums were kept below $10,000 “such that they would not cause the relevant financial institutions to generate a currency transaction report,” according to the indictment.
“It was also a part of the conspiracy that, after these accounts were opened, [Wang], using funds for eAdGear memberships, made numerous structured cash deposits into these accounts and other accounts,” according to the indictment.
Yuen, according to the indictment, “caused to be transferred tens of thousands of dollars of the structured cash deposits into a separate consumer loan account at [Bank of the West],” according to the indictment.
Wang and Yuen both posted bond of $100,000, according to court records. Wang, 52, of Warren, N.J., may need a Mandarin interpreter, according to the docket of the case.
Yuen, 53, resides in Dublin, Calif., according to the SEC.
The Wall Street Journal article includes a statement from HYIP huckster T. LeMont Silver.
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.
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.”
From an SEC exhibit filed last week in the SEC’s case against eAdGear, an alleged international pyramid- and Ponzi scheme that gathered $129 million. Redactions by PP Blog.
EDITOR’S NOTE: eAdGear, which had entities in California and Hong Kong, “primarily” targeted “investors in the U.S., China, and Taiwan” and gathered $129 million in a combined pyramid- and Ponzi scheme that engaged in brand-leeching, the SEC alleged last week. An MLM scam known as WCM777, which allegedly gathered more than $80 million, also engaged in brand-leeching while targeting Asian communities, according to court filings. The SEC sued WCM777 in March 2014. Among the SEC’s alarming allegations against WCM777 was that it planted a false seed that it had partnerships “with more than 700 major companies such as Siemens, Denny’s, and Goldman Sachs.”
“This new approach to Internet advertising has businesses of all sizes, from small home based businesses to large corporations such as Google, Starbucks, Kodak, etc., joining ASD,” a 2008 promo for ASD read. “Not only are there over 75,000 small businesses advertising with ASD, but now major corporations are as well. Remember, a part of the daily rebate comes from the revenue corporations pay to advertise with ASD.”
It was all a crock. The U.S. Secret Service, which opened an undercover probe in July 2008, went on describe ASD as a “criminal enterprise.” ASD President Andy Bowdoin was convicted of wire fraud in the ASD Ponzi case. He is serving a lengthy term in federal prison.
Even while it was operating, ASD talked about a nascent “Chinese” arm known as Golden Panda Ad Builder. In retrospect, it now appears that plans to involve Asian populations in HYIP schemes were well under way at least by 2008 and since have evolved into frauds that were even larger than ASD. (ASD gathered $119 million and has been eclipsed in dollar volume by at least three Internet-based investment scams since then: TelexFree (possibly $1.2 billion); Zeek Rewards (c. $850 million); and eAdGear ($129 million). Falling just short of making this list were Zhunrize (allegedly $105 million) and WCM777 (allegedly $80 million). It is clear from court filings that Zeek also had a presence in Asian communities.)
There also was a tertiary scam inside the ASD scam. Indeed, promos for an entity known as ASD Offer Universe encouraged members to click on Google ads so ASD would earn fees of up to $5 a click. Here’s now that promo began (italics added):
“ASD ENTERS INTO AGREEMENT WITH GOOGLE FOR NEW CONSUMER SITE. Months ahead of schedule, Google and ASD Offer Universe are now teaming up to show Google ads on the site. Google, after seeing all of the major advertisers already being shown on ASD Offer Universe agreed to enter into a relationship with ASD.”
Did the eAdGear “program” channel long-ago events at ASD to help its massive pyramid scheme grow?
ASD was a purported “advertising” firm that operated a “rotator.”
Let’s compare what happened at ASD in 2008 to what the SEC now says happened at eAdGear, accused by the agency last week of operating a $129 million pyramid- and Ponzi scheme and positioning itself as an advertising company and an SEO firm.
By at least March 2014, the SEC says in court filings, investigators learned of a promo for eAdGear that read, “Google and Yahoo are partnering up with eAdGear for SEO services!!”
In the land of serial promoters of MLM or direct-sales HYIP scams, it’s as though the ASD case never happened.
The name-dropping and toxic disingenuousness associated with eAdGear hardly were limited to the abuse of the names of Google and Yahoo, according to SEC exhibits filed in the eAdGear case. It appears there were at least 253 incidents of brand-leeching associated with eAdGear. Indeed, eAdGear appears to have planned its ascent to the upper echelon of the fraud sphere by deliberately placing bogus ads for famous companies into its ad “rotator” to create a false sense that its “program” was legitimate.
Target Corp., the famous retailer, had its brand leeched, the SEC alleged. So did Lbrands, the Columbus, Ohio-based company that owns Victoria’s Secret
Now, let’s look at some of the behind-the-scenes investigative work performed by the SEC. Court filings by the agency show that, on July 1, 2014, the SEC issued a subpoena to Yahoo to check on the eAdGear-associated claims.
Yahoo responded on July 10 by advising the SEC that it had “identified no contracts or agreements with eAdGear[].”
Meanwhile, according to court filings, the SEC made an inquiry at Google on June 30. Google responded on July 22, advising the agency that it “is not aware of any commercial relationship between [eAdGear] and Google.”
Because ads for famous companies, including Target, Gap Inc. and Victoria’s Secret, had appeared in the eAdGear “rotator,” the SEC contacted those companies. (The response by L Brands Inc., owners of Victoria’s Secret, is shown above.)
Target responded by searching its database of vendors to which it had issued payments. No records surfaced for eAdGear, according to the SEC. Gap, similarly, informed the SEC that it had no record of doing business with eAdGear.
What else does the SEC have? Well, according to court records, it has internal eAdGear email correspondence that shows an employee was instructed to place 253 links to famous companies in its rotator.
These companies included 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 more.
These are among BCSC’s assertions — under a subheading titled “False impression of paid advertisements and advertising revenue”:
Bossteam described itself on its websites, in documents and in presentations as an online advertising business having huge growth potential and ready to become a leading global online advertising company. It referred to well-known online businesses such as Google, Amazon and eBay, and to the fast-growing advertising revenues of these businesses.
Although hundreds of “ads” appeared on the advertising platforms, the majority of the ads posted on Bossteam’s websites were associated with Bossteam’s own administrative accounts (accounts accessible by those controlling its systems) and not to accounts for advertisers or members who had paid to post links to their websites on Bossteam’s websites.
Ads associated with Bossteam’s administrative accounts included webpages for well-known local and international businesses.
Local businesses whose webpages appeared on Bossteam’s websites included a restaurant, a security systems company, a heating company and a private career college. Websites of well-known businesses and personalities included World Wrestling Entertainment, Miriam Webster and Britney Spears.
Posting the websites of local and international businesses on Bossteam’s websites without payment created a false impression that such businesses were advertising on Bossteam’s websites and paying Bossteam to do so.
Because Bossteam and eAdgear were similar businesses and appear largely to have targeted members of the Asian community, one has to wonder whether the schemes had promoters in common. For now, at least, the answer is unclear. What is clear is that some promoters simply move from one fraud scheme to an another when the “program” of the moment craters or encounters regulatory scrutiny.
Serial HYIP huckster and Zeek figure T. LeMont Silver currently is in name-dropping overdrive for BitClub Network, one of his latest “programs.” Silver’s name has surfaced in private lawsuits involving eAdGear and an interconnected enterprise known as Go Fun Places, which is referenced in the SEC’s eAdGear case. (For one instance, see the reference to Go Fun Places within the letter from L Brands to the SEC in the graphic above.)
URGENT >> BULLETIN >> MOVING: (12th Update 1:28 p.m. EDT U.S.A.) The SEC has gone to federal court in San Francisco, alleging that the eAdGear “program” was a pyramid- and Ponzi scheme that gathered $129 million. The action against eAdGear is the second major pyramid-scheme prosecution announced by the SEC this week.
The SEC has identified eAdGear’s operators as Charles S. Wang, 52, and Qian Cathy Zhang, 52, of Warren, N.J., and Francis Y. Yuen, 53, of Dublin, Calif. They have been charged with fraud and an asset freeze has been imposed, the SEC said.
Zhang is Wang’s wife, the SEC said, alleging the couple was part of a “ruse” that positioned Zhang as an ordinary “member” who “became hugely successful.”
“During sworn testimony before the staff of the Commission in the investigation preceding the filing of this case, Zhang asserted her privilege against self-incrimination rather than answer questions about her role at eAdGear,” the SEC said in its complaint.
The eAdGear “opportunity” itself, according to the SEC, was a “fiction.”
“eAdGear and its operators falsely claimed that they were running a profitable Internet marketing company when in reality, they were operating a Ponzi and pyramid scheme that preyed on Chinese communities and caused investors to lose millions of dollars,” said Jina L. Choi, director of the SEC’s San Francisco Regional Office.
Though not named a defendant in the eAdGear complaint, Zeek Rewards figure and alleged Zeek “winner” T. LeMont Silver may find himself at the center of yet another Ponzi- and pyramid storm. That’s because eAdGear once tried to sue ZeekRewards.com, amid claims of cyberpiracy, unfair competition and benefiting from copyright infringement.
And it’s also because Silver’s name surfaced in fraud lawsuits between and among eAdGear Inc., GoFunPlaces Inc., Randal Williams and JubiMax LLC.
. . . even though eAdGear claimed to be a successful Internet marketing company, nearly all of its revenue was generated by investors, not its products or services.
The complaint alleges that eAdGear’s operators used money from new investors to pay earlier investors as well as to repay a personal loan and purchase million-dollar homes for themselves. It alleges the operators concealed and perpetuated the scheme by displaying sham websites on eAdGear’s own site to make it appear as if it had real, paying customers and manipulated revenue distributions to investors to appear profitable.
eAdGear began operating in December 2010 and grew to include 66,000 accounts held by “tens of thousands of investors” mostly of Chinese descent, the SEC said.
Corporate defendants include eAdGear Inc of Pleasanton, Calif., and eAdGear Holdings Limited of Hong Kong. The “program” sold “so-called ‘memberships’ or ‘business packages,’” the SEC said.
From the SEC complaint (italics added):
Defendants market eAdGear as a successful internet marketing and advertising company that uses search engine optimization (“SEO”) technology they claimed to have developed to help paying clients increase the page rankings of their websites on various search engines. Defendants claim to share 70% of the revenue generated daily by this business with investors.
In reality, eAdGear’s purported business is a ruse. Instead, well over 99% of the funds eAdGear has received have come from its investors, and eAdGear simply uses new investor money to make payments to — or to credit the accounts of — existing members in classic Ponzi scheme fashion.
Wang, Yuen, and Zhang have perpetrated this fraud by, among other things: installing Wang as chief executive officer, and Yuen as chief financial officer and chief operating officer of eAdGear, Inc., while portraying Wang’s wife, Zhang, as an ordinary “member” who became hugely successful; creating a fiction of a business that has paying customers when it does not; and manipulating daily revenue distributions to credit investors’ accounts, to make it appear as though eAdGear is operating profitably.
Earlier this week, the SEC announced charges against a “program” known as Zhunrize, describing it as pyramid scheme that had gathered $105 million.
Zhunrize presented itself as a “Plan B,” a core fraud signature in the HYIP world. T. LeMont Silver, among others, is a “Plan B” pitchman.
Another pyramid scheme has proven costly for its operators. Here, according to the SEC, is the rundown from the EAdGear case brought in 2014.
