SEC BRINGS CHARGES AGAINST ALLEGED INTERNATIONAL PYRAMID SCHEME OPERATORS

FROM:  U.S. SECURITIES AND EXCHANGE COMMISSION 

SEC Announces Cases Targeting International Pyramid Scheme Operators

09/26/2014 11:30 AM EDT

The Securities and Exchange Commission today announced charges against the operators of an international pyramid scheme that raised more than $129 million from investors worldwide, primarily in the U.S., China, and Taiwan.  The case follows another against a separate pyramid scheme that lured investors in the U.S., China, and Korea with seminars, webinars, and YouTube videos.

The newest case, filed in federal court in San Francisco, charges Hong Kong-based eAdGear Holdings Limited and California-based eAdGear, Inc., along with operators Charles S. Wang and Qian Cathy Zhang, of Warren, N.J., and Francis Y. Yuen, of Dublin, Calif.  According to the SEC complaint, 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 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.

The eAdGear case follows one filed Monday in federal court in Georgia against Zhunrize Inc. and CEO Jeff Pan for allegedly defrauding investors of more than $105 million since 2012.  Despite its claims to be a legitimate multi-level marketing company, Zhunrize derived most of its funds from selling memberships, not products, according to the SEC complaint.

“Zhunrize claimed to offer investors the opportunity to be an ‘e-commerce Business Owner’ selling products to customers through a website.  In fact, it was a pyramid and ‘profits’ came from fees paid by later investors,” said William Hicks, associate regional director of the SEC’s Atlanta Regional Office.

In both cases, the courts granted the SEC’s request for an asset freeze and issued a temporary restraining order.  In the case of eAdGear, that order bars the defendants from soliciting investors, including through websites they have used until now – www.eadgear.com, www.eadgear.net, www.winteam777.com, and www.winteam168.com.  A court hearing has been scheduled for October 10.

Jessica W. Chan, John A. Roscigno, and Jason M. Habermeyer of the SEC’s San Francisco Regional Office conducted the eAdGear investigation.  Erin E. Schneider and Cary S. Robnett supervised the investigation.  Ms. Chan and Susan F. LaMarca will lead the SEC’s litigation.  The SEC appreciates the assistance of the United States Attorney’s Office for the Northern District of California and the Federal Bureau of Investigation.  It also appreciates the assistance of the Hong Kong Securities and Futures Commission, the China Securities Regulatory Commission, the Ontario Securities Commission, and the Financial Conduct Authority in the United Kingdom.

Michael E. Mashburn and Kristin Wilhelm of the SEC’s Atlanta Regional Office conducted the Zhunrize investigation, supervised by Peter J. Diskin.  Ms. Wilhelm is leading the SEC’s litigation.