Five Indicted on Federal Fraud Charges Related to Multi-Million-Dollar Pyramid Scheme That Targeted Chinese-American Victims
LOS ANGELES—A federal grand jury returned a 14-count indictment late yesterday that charges five defendants with participating in a fraud scheme that generated tens of millions of dollars by soliciting investments in a company that purportedly offered children’s educational courses, but in reality was a pyramid scheme designed to generate revenue by adding new investors.
Members of the conspiracy allegedly made false promises about the company, including claims that it generated substantial revenues from the sale of courses, that investments could be quickly liquidated for significant returns, and that they planned to take the company public through an IPO. In fact, according to the indictment, “the only way for investors to earn any meaningful returns was for them to actively recruit new investors.” The defendants promoted the company through YouTube videos and other postings on the Internet, as well as through meetings with prospective investors and live presentations about the purported investment opportunity.
The indictment alleges that the defendants solicited investments primarily from members of the Chinese-American communities in Los Angeles, San Francisco and New York City.
The five defendants charged in the indictment are:
Cheong Wha “Heywood” Chang, 47, formerly of Hacienda Heights and most recently a resident of Taiwan;
Chang’s wife, Toni Chen, 46;
Wen Chen “Wendy” Lee, 53, of Roland Heights;
Daliang “David” Guo, 53, of Hyde Park, New York; and
Chih Hsuan “Kiki” Lin, 50, of Los Angeles and Las Vegas.
Kiki Lin will be arraigned on September 4, and the other four are scheduled to be arraigned on different dates the following week.
The five defendants were arrested earlier this month pursuant to a sealed criminal complaint. Lin was ordered detained (held without bond), and the other four were released after posting bonds ranging from $250,000 to $500,000.
During the course of the scheme, which ran from spring 2011 until about a year ago, the defendants were involved in a series of Hong Kong-based companies collectively known as CKB. With other names that included WIN168 Biz Solutions, Ltd.; CKB168 Ltd.; and Cyber Kids Best Education Limited, these companies purportedly generated substantial profits from the sale of web-based children’s educational courses.
The defendants solicited investments in increments of $1,380, which gave investors “Profit Reward Points” they claimed were worth $750 in cash, would increase in value, and were analogous to per-IPO shares of CKB, according to the indictment.
The indictment alleges that the claims made about these investments were fraudulent because:
CKB earned little, if any, money from the sale of the children’s educational courses and the overwhelming majority of revenues came from new investors;
there was no real way for investors to profit from holding the “Profit Reward Points,” and the only way for investors to obtain any significant returns was to recruit new investors;
the CKB entities and their securities were not registered with the U.S. Securities and Exchange Commission; and
the CKB entities could not have gone public because they did not have sufficient legitimate revenue to support an IPO.
The indictment alleges that, after the SEC filed a civil enforcement action against them, the defendants attempted to conceal their fraud by preventing the SEC from obtaining relevant documents and information. The indictment also alleges that Kiki Lin made threats to victims she had solicited in order to collect funds from those victims and to dissuade them from making reports to authorities.
The indictment alleges that the defendants collected approximately $30 million from CKB investors. The indictment alleges that the defendants collectively kept approximately $6.5 million of these funds and transferred the rest to others involved in the scheme.
The indictment charges each of the five defendants with one count of conspiracy and 13 counts of wire fraud.
An indictment contains allegations that a defendant has committed a crime. Every defendant is presumed to be innocent until and unless proven guilty in court.
If convicted of the charges in the indictment, each defendant would face a statutory maximum sentence of five years in federal prison for the conspiracy count and up to 20 years in prison for each of the wire fraud charges.
This case is the result of an investigation by the Federal Bureau of Investigation.
The Securities and Exchange Commission provided valuable assistance. The SEC previously filed a civil action against the CKB entities and several individual defendants in the United States District Court for the Eastern District of New York (see: https://www.sec.gov/litigation/litreleases/2013/lr22846.htm).