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.