SEC Busts Massive Global Ponzi Scheme

The Securities and Exchange Commission has filed fraud charges and obtained asset freezes against California resident Steve Chen and 13 California-based entities, including USFIA Inc., for operating a worldwide pyramid scheme.

The Ponzi scheme falsely promised investors that they would profit from a venture purportedly backed by massive amber holdings. 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 said that USFIA and Chen’s other entities have raised more than $32 million from investors in and outside the US since at least April 2013.  The SEC’s complaint alleges that Chen and his companies misled investors about a lucrative initial public offering for USFIA that never happened and about claims to own or control amber deposits worth billions of dollars.

The Hon. R. Gary Klausner of the US District Court for the Central District of California on Monday granted the SEC’s request for an asset freeze and the appointment of Thomas Seaman as the temporary receiver over USFIA and the other entities. In addition to the temporary relief, 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.” 

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