US regulators have charged two companies and three individuals with operating a pyramid scheme that made about US$129 million from preying on investors in Taiwan, China and the US.
The US Securities and Exchange Commission (SEC) announced the civil fraud charges on Friday against eAdGear Holdings Ltd (優極網), based in Hong Kong; California-based eAdGear Inc; and Charles Wang, Qian Cathy Zhang and Francis Yuen. A federal court in San Francisco authorized the SEC’s request to freeze the defendants’ assets and bar them from soliciting investors.
An attorney representing Wang, Zhang and Yuen did not immediately respond to a request for comment.
The SEC said eAdGear claimed to be a successful online marketing company, but nearly all its 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 in Taiwan and China, and in Chinese communities in the US, according to the SEC.
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 Web sites on eAdGear’s site to make it appear that the company had genuine paying customers.
The company is on the verge of collapse, according to the regulators.
In a separate SEC case against an alleged pyramid scheme, an Atlanta-based chief executive officer was said to have traveled to China and South Korea to recruit investors.
The agency on Monday charged Jeff Pan and his company, Zhunrize Inc, with defrauding investors of about US$105 million since 2012.
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