SEC has filed fraud charges and obtained asset freezes against a worldwide pyramid scheme that falsely promised investors would profit from a venture backed by the company’s massive amber holdings.
California resident Steve Chen and 13 California-based entities, including USFIA Inc., are at the center of the alleged scheme, the SEC alleges in a complaint filed in federal court in Los Angeles. According to the SEC’s complaint, USFIA and Chen’s other entities have raised more than US$32 million from investors in and outside the U.S. since at least April 2013.
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According to the SEC’s complaint, Chen falsely promoted USFIA as a legitimate multi-level marketing company that owns several large and valuable amber mines in Argentina and the Dominican Republic. Investors were told that they could profit by investing in amounts ranging from $1,000 to $30,000, and earn larger returns based on the number of investors they brought into the program. The SEC further alleges that beginning in September 2014, the defendants claimed to have converted existing investors’ holdings into “Gemcoins,” which they said was a virtual currency secured by the company’s amber holdings. In reality, the SEC complaint alleges that Gemcoins are worthless.
The SEC alleges that Chen and his companies also misled investors about a lucrative initial public offering for USFIA that never happened.
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In addition to the asset freeze and the appointment of a temporary receiver, the SEC is seeking preliminary and permanent injunctions, disgorgement of allegedly ill-gotten gains with prejudgment interest, and civil penalties. The complaint, which had been filed under seal, alleges that the defendants violated the registration and antifraud provisions of the federal securities laws and SEC antifraud rules.
“We allege that the defendants’ false claims of riches that investors would realize from USFIA’s amber mining activity never materialized,” said Michele Wein Layne, director of the SEC’s Los Angeles Regional Office. “In reality, as alleged in the complaint, the defendants were operating a fraudulent pyramid scheme that left many investors with nothing.”