SEC Halts Pyramid Scheme Targeting Asian-American Community
The Securities and Exchange Commission today announced charges and asset freezes against the operators and promoters of a worldwide pyramid scheme that falsely promises exponential, risk-free returns to investors in a venture that purportedly sells Internet-based children’s educational courses.
The SEC alleges that five entities based in Hong Kong, Canada, and the British Virgin Islands that collectively operate under business names “CKB” and “CKB168” are at the center of the scheme. Through the efforts of three CKB executives who live overseas and several promoters living in the U.S., the scheme has ensnared at least 400 investors in New York, California, and other areas with large Asian-American communities. These promoters have raised more than $20 million from U.S. investors, and millions of dollars more from investors in Canada, Taiwan, Hong Kong, and other countries in Asia.
According to the SEC’s complaint unsealed late yesterday in U.S. District Court for the Eastern District of New York, the scheme’s promotional efforts seek to exploit close connections among members of the Asian-American community. The scheme’s operators and promoters use Internet videos, promotional materials, and seminars to create the appearance of a legitimate enterprise. But in reality, CKB has little or no real-world retail consumer sales to generate the extraordinary returns promised to investors. 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.
The court has granted the SEC’s request for an asset freeze against the CKB entities and the operators and promoters charged in the SEC’s complaint.
“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.”
The SEC issued an investor alert today warning investors about the dangers of potential investment scams involving pyramid schemes posing as multi-level marketing programs.
The SEC’s complaint charges three CKB executives:
- Rayla Melchor Santos is a Philippines national who is featured on the CKB website as its founder. Nicknamed “Teacher Sam,” Santos 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 is a Canadian citizen and resident of Hong Kong who is featured on the CKB website as the director of CKB168 International Marketing. 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 is a Hong Kong national who is described on the CKB website as its chief financial officer. 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.
The SEC’s complaint charges eight CKB promoters in the U.S.:
- 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.
According to the SEC’s complaint, after David Guo and Yao Lin began recruiting investors in the New York area in mid-2011, the CKB scheme quickly expanded to California and other areas with large Asian-American communities. David Guo, Yao Lin, Rayla Santos, and Howard Shern appear in presentations recorded in San Francisco and Los Angeles, where they recruited energetic and highly visible promoters who have organized seminars and meetings nationwide. They maintained a robust Internet presence, recorded and posted numerous promotional videos, and organized and executed the transfer of CKB investor funds.
The SEC alleges that CKB represents that potential purchasers of its educational products must invest in CKB to get one of its courses. In addition to the course, they receive “Profit Reward Points” upon their initial investment and are told they can earn money once those points increase in value or pay dividends. They are promised even larger returns by converting their points into shares of CKB stock when the company conducts a promised IPO on the Hong Kong Stock Exchange in 2014.
According to the SEC’s complaint, however, Profit Rewards Points are not the only incentive for investors, who are told that they will be able to make even more money through commissions and bonuses by recruiting new investors. The scheme’s ultimate goal is to turn investors into recruiters. In fact, active recruitment is the only real way for investors to make actual money in the scheme. For instance, Kiki Lin 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 complaint alleges that the investments in CKB constitute securities, and the securities offerings were not registered with the SEC as required under the federal securities laws. The SEC’s complaint charges the CKB entities, three executives, and eight promoters with violations of the antifraud and securities registrations provisions of the federal securities laws. Nine of the individuals are charged with violating the broker-dealer registration provisions. The SEC seeks disgorgement of ill-gotten gains, financial penalties, permanent injunctions, and other relief.
The Honorable Roslynn Mauskopf granted the SEC’s request for a temporary restraining order, asset freeze, and other emergency relief against the 16 defendants as well as seven entities controlled by the U.S. promoters that are named as relief defendants in the SEC’s complaint for the purpose of recovering ill-gotten proceeds from the alleged fraud.
The SEC’s investigation was conducted by Devon Staren, Kam Lee, Pamela Nolan, and Stacy Bogert. The case was supervised by Alexander Koch. The SEC’s litigation will be led by Daniel Maher. The SEC appreciates the assistance of the Hong Kong Securities and Futures Commission, Ontario Securities Commission, British Columbia Securities Commission, and Malaysia Securities Commission.
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The SEC’s investor alert, also available in Chinese, describes telltale signs of a pyramid scheme. “Investors should be suspicious of any investment opportunity pitched as a way to ‘get rich quick’ or to earn ‘easy money.’ Guaranteed sky-high returns in a short time frame are the hallmark of investment fraud,” said Lori J. Schock, director of the SEC’s Office of Investor Education and Advocacy.