The Securities and Exchange Commission today charged a San Francisco Bay Area oil-and-gas company and its CEO with running a $68 million Ponzi-like scheme and affinity fraud that targeted the Chinese-American community in California and investors in Asia, including some solicited as part of the EB-5 Immigrant Investor Program.
The SEC alleges that Bingqing Yang knew that Luca International Group was earning no profits and sinking under a mountain of debt, yet she made presentations to investors portraying a successful oil-and-gas operation with millions of barrels of oil reserves and billions of cubic feet in gas reserves. Yang falsely projected outsized investment returns ranging from 20 to 30 percent annually. She allegedly commingled investor funds to prevent the scheme from collapsing, and used money from new investors to make sham profit payments to earlier investors. Yang also allegedly diverted $2.4 million in investor funds through her brother's company in Hong Kong purportedly for the purchase of an oil rig, but instead used it to purchase a 5,600-square-foot home in an exclusive gated community in Fremont, Calif. In addition, Yang allegedly spent investor funds on pool and gardening services, personal taxes, and a family vacation to Hawaii.
According to the SEC's complaint filed in federal court in San Francisco, Luca International conducted seminars for investors at the company's offices and hotel conference rooms in California. Besides targeting investors in the Chinese-American community through advertisements in Chinese-language television, radio, and newspaper outlets, Yang and Luca International allegedly zeroed in on Chinese citizens who sought permanent U.S. residence through the EB-5 program, which provides a way for foreign investors to obtain a green card by meeting certain U.S. investment requirements. Yang is alleged to have raised approximately $8 million from EB-5 investors purportedly to finance, through a loan to another Luca entity, jobs and development costs for eight oil-and-gas drilling projects. Yang allegedly told these investors that loan was fully secured, but the Luca entity the EB-5 investors funded was hopelessly in debt and contrary to the rosy representations Yang made to investors, had no realistic possibility of ever repaying the loan.
Others charged in the SEC's complaint include Luca International's former vice president of business development Lei (Lily) Lei, who allegedly sold securities to investors and helped Yang divert investor funds, and Yong (Michael) Chen, who allegedly raised investor funds for Yang through his company Entholpy EMC, which did business under the name Mastermind College Funding Group. Luca International's former CFO Anthony Pollace agreed to pay a $25,500 penalty to settle charges that he played a small role in the alleged fraud.
As part of a related administrative action instituted today, Hiroshi Fujigami and his company Wisteria Global agreed to settle charges that they acted as brokers to illegally sell securities of two Luca entities. Fujigami and Wisteria must disgorge allegedly ill-gotten gains of more than $1.1 million and Fujigami agreed to be barred from the securities industry and from participating in any penny stock offering.
The SEC's complaint charges Yang, Lei, Luca International, Luca Resources Group, LLC, and Luca Energy Fund, LLC with violating Section 17(a) of the Securities Act of 1933 (Securities Act) and Section 10(b) of the Securities Exchange Act of 1934 (Exchange Act) and Rule 10b-5 thereunder, and charges Pollace with violating Section 17(a)(3) of the Securities Act. The complaint also charges Yang, Lei, and Luca International with violating Sections 5(a) and 5(c) of the Securities Act and charges Pollace with violating Section 5(c) of the Securities Act. The complaint further charges Yang, Luca International, Luca Resources Group, and Luca Energy Fund with violating Sections 206(1), 206(2) and 206(4) of the Investment Advisers Act of 1940 (Advisers Act) and Rule 206(4)-8 thereunder. The complaint charges Lei, Chen, and Entholpy EMC with violating Section 15(a) of the Exchange Act. The SEC's administrative order finds that Fujigami and Wisteria Global violated Section 15(a) of the Exchange Act.
The SEC's investigation was conducted by Alice Liu Jensen and Michael D. Foley of the San Francisco office and supervised by Steven D. Buchholz. The SEC's litigation will be led by Ms. Jensen, Sheila O'Callaghan, and John S. Yun. The SEC appreciates the assistance of the U.S. Citizenship and Immigration Services, the Financial Industry Regulatory Authority, the Hong Kong Securities and Futures Commission, and the China Securities Regulatory Commission.
Read the full SEC complaint here: http://tinyurl.com/pzbzjeo