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March 06, 2014 at 10:13 AM
Among recent enforcement actions, the SEC charged five executives and financial professionals involved in a fraudulent bond offering by an international law firm and froze the funds of an international pyramid scheme being promoted through social media.
FINRA also took action against one firm for failing to deliver prospectuses and another for questionable sales.
International Pyramid Scheme Using Facebook, Twitter Derailed
An international pyramid scheme being promoted on Facebook and Twitter, as well as on its own website, found its funds targeted by an emergency freeze obtained by the SEC.
Fleet Mutual Wealth Limited and MWF Financial, collectively known as Mutual Wealth, were targeting investors via a website, Facebook and Twitter accounts and a team of “recruiters” by promising returns of 2%–3% per week to those who opened accounts with the fake company.
Mutual Wealth, which passed itself off as a legitimate international investment firm, has been claiming to invest customer funds using an “innovative” high-frequency trading strategy that allows “capital to be invested into securities for no more than a few minutes.” This “speed investing” scam worked in classic pyramid scheme fashion, with Mutual Wealth encouraging existing investors to become “accredited advisors” and recruit new investors in exchange for a referral fee or commission.
What investors don’t know is that Mutual Wealth is none of things it says, and does none of the things it claims to do with their money. Instead, the fake firm, which has no Hong Kong headquarters or New York data center as it claims, funnels the funds to offshore bank accounts held by shell companies. The company also lies about being “registered” or “duly registered” with the SEC and lists a group of fictitious executives on its site.
The company has a twisted trail that leads from its U.S. efforts to entities in Panama and the U.K., through which it operates. It uses offshore bank accounts in Cyprus and Latvia and offshore “payment processors” to divert money from investors. Mutual Wealth’s sole director and shareholder presented forged and stolen passports and a bogus address to foreign government authorities and payment processors.
Mutual Wealth, through Facebook and Twitter accounts that link to its website and serve as platforms through which it lures new investors, regularly posts bogus information, such as “HFT portfolios with ROI of up to 250% per annum. Income yield up to 8% per week” or “$1000 investment into the Growth and Income Portfolio made on April 8th, 2013 is now worth $2,112.77.”
Savvy in the ways of social networks, some of Mutual Wealth’s “accredited advisors” then use social media channels ranging from Facebook and Twitter to YouTube and Skype to recruit additional investors and earn referral fees and commissions. Mutual Wealth also regularly updates its status on its Facebook page, and often fills the comment sections under its posts with solicitations by the accredited advisors. It also tweets announcements posted on its Facebook page.
About 150 U.S. investors were duped into “investing” at least $300,000 with the scammers, and the SEC obtained the emergency freeze to keep the scammers from running off with the funds that remain in the company’s accounts. The fake website was also ordered shut down.
The SEC’s complaint also lists several relief defendants for the purpose of recovering investor money. These defendants are linked to the offshore accounts to which investor funds were sent: Risort Partners Inc., Hullstar Capital LLP, Camber Alliance LLP, Kimrod Estate LLP, and Midlcorp Trade LTD.
The SEC requested, and received from the Honorable Dolly M. Gee, a court order deactivating Mutual Wealth’s website and freezing assets in all accounts at any bank, financial institution, brokerage firm, or third-party payment processor (including those commercially known as SolidTrust Pay, EgoPay and Perfect Money) maintained for the benefit of Mutual Wealth.
The agency’s investigation is continuing.
Five at Dewey & LeBoeuf Charged by SEC on Fraudulent Bond Sales
The SEC has charged five executives and financial professionals who were behind a $150 million fraudulent bond offering by Dewey & LeBoeuf, the international law firm where they worked.
The firm was suffering from financial woes thanks to the recession and heavy merger costs, according to the SEC. The financial professionals at the firm, afraid the firm’s credit lines would be cut off by its bank lenders, first resorted to accounting fraud, combing through its financial statements line by line and devising ways to artificially inflate income and distort financial performance. Then the firm, which is no longer in business, used those phony numbers as a basis for a bond scheme to raise funds.
