SEC alleges $129M pyramid scheme in China, US

AP News
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Posted: Sep 26, 2014 6:06 PM

WASHINGTON (AP) — U.S. regulators have charged two companies and three individuals with operating a pyramid scheme that made some $129 million from preying on investors in China, Taiwan and the U.S.

The Securities and Exchange Commission announced the civil fraud charges Friday against eAdGear Holdings Limited, 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 didn't 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 China and Taiwan and in Chinese communities in the U.S., 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 websites 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 CEO was said to have traveled to China and South Korea to recruit investors. The agency charged Jeff Pan and his company, Zhunrize Inc., on Monday with defrauding investors of about $105 million since 2012.

Though portrayed as a marketing company, Zhunrize got most of its revenue from selling memberships, not products, the SEC said. The agency also obtained a court-ordered asset freeze in that case.

David Van Sambeek, an attorney for Zhunrize, said Friday that his law firm is working with the SEC "to resolve this matter as soon as possible." He said Zhunrize is cooperating with the SEC's investigation "and will do what is necessary to be legally compliant and protect (its) store-owner members."