Online firm charged for running pyramid scheme in China and US
PUBLISHED : Sunday, 28 September, 2014, 5:20am
UPDATED : Sunday, 28 September, 2014, 5:20am
Associated Press in Washington
The SEC said the three operators hid the scheme by showing phony websites on eAdGear's site to make it appear like the company had genuine paying customers. Photo: AFP
US regulators have charged two companies and three individuals with operating a pyramid scheme that made some US$129 million from preying on investors in China and the US.
The Securities and Exchange Commission announced the civil fraud charges on Friday against Hong Kong-based eAdGear Holdings Limited, California-based eAdGear Inc.; and Charles Wang, Qian Cathy Zhang and Francis Yuen. A federal court in San Francisco authorised the SEC's request to freeze the defendants' assets and bar them from soliciting investors.
The SEC said eAdGear claimed to be a successful online marketing company, but nearly all revenue came from investors, not products or services. Starting in December 2010, the company sold "memberships" and "business packages," opening accounts with tens of thousands of mostly Chinese investors.
The scheme targeted investors on the mainland and Taiwan and in Chinese communities in the United States, the SEC said.
The regulators alleged that the three individuals ran a pyramid scheme, using money from new investors to pay earlier investors - and to buy million-dollar homes for themselves. Investors recruited family members and friends, who then recruited their relatives and friends, and so on.
The SEC said the three operators hid the scheme by showing phony websites on eAdGear's site to make it appear like the company had genuine paying customers. The company was on the verge of collapse, regulators said.
In a separate SEC case against an alleged pyramid scheme, an Atlanta-based CEO was said to have travelled to China and South Korea to recruit investors. Jeff Pan and his company, Zhunrize Inc. were charged on Monday with defrauding investors of about US$105 million since 2012.
Although portrayed as a marketing company, Zhunrize got most of its revenue from selling memberships, not products, the SEC said.
Zhunrize's attorney David Van Sambeek said on Friday that his law firm is working with the SEC "to resolve this matter".
