The Securities and Exchange Commission announced it had obtained an asset freeze and filed civil fraud charges against the operators and promoters of a worldwide pyramid scheme that targeted Asian-Americans through the allure of risk-free returns based on the sale of internet-based youth educational courses. According to the Commission, a consortium of entities based in Hong Kong, Canada, and the British Virgin Islands that operated under the trade names "CKB" and "CKB168" (collectively, "CKB") raised more than $20 million from U.S. investors alone, and millions more from investors around the world. The Complaint named three CKB executives, Rayla Melchor Santos, Hung Wai Shern, and Rui Ling Leung, as well as eight CKB promoters located in the U.S.: Daliang Guo, Yao Lin, Chih Hsuan Lin, Wen Chen Hwang, Toni Tong Chen, Cheongwha Chang, Joan Congyi Ma, and Heidi Mao Liu. The Commission was granted a temporary restraining order, and is seeking injunctive relief, disgorgement of ill-gotten gains, and civil monetary penalties.
According to the Commission, CKB began in mid-2011 and was portrayed as a profitable multi-level marketing company engaged in the business of distributing web-based children's educational courses. Potential investors were told that, by investing in CKB, they would earn exponential and risk-free returns in the form of Profit Reward Points ("Profit Points"). Investors received these Profit Points in the form of dividends and 2-for-1 splits, and were told that an online exchange was also available as an easy way to buy and sell Profit Points. CKB also told investors that the Profit Points would be convertible into shares of CKB stock when the company went public on the Hong Kong Stock Exchange sometime in 2014. Investors were solicited through promotional materials, seminars, and videos posted to the internet. Over $20 million was raised from approximately 400 U.S. investors, with millions more raised from other investors worldwide.
However, contrary to these representations, CKB had little to no retail consumer sales needed in order to support the returns promised to investors. Instead, CKB operated as a classic pyramid scheme by using incoming funds from new investors to pay purported interest and principal redemptions to existing investors. The Commission cited CKB bank records that purportedly showed that the majority of funds were used to pay commissions, and that the bulk of these commissions were paid to the named defendants. According to the Commission, the CKB investments constituted securities, and did not comply with registration and antifraud provisions of the federal securities laws.
The Commission also issued investor alerts highlighting the telltale signs of pyramid schemes.
The Commission's complaint is available here.
For more news and analysis of Ponzi schemes, visit Ponzitracker, a blog by Jordan Maglich, an attorney at Wiand Guerra King P.L.
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