The Securities and Exchange Commission ("SEC") announced that it had obtained final judgments against a publicly-traded company and its former CFO/President to settle charges that the company committed numerous violations of federal securities law and later received funds derived from a Ponzi scheme operated by several executives. China Voice Holding Corp. ("China Voice"), along with former president David Ronald Allen and several related entities, settled the charges originally brought by the SEC back in April. Allen consented to a permanent injunction enjoining him from future violations of federal securities laws, along with the disgorgement of $225,468 in ill-gotten gains and a civil penalty of $212,821. Additionally, Allen's wife consented to disgorge nearly $150,000 in ill-gotten gains. Under the consent judgment, China Voice must also hire an independent consultant to evaluate the company's internal controls.
Based in Boca Raton, Florida, China Voice trades in over-the-counter stock markets and claims to have a portfolio of telecommunications products and services in both the U.S. and China. Through its subsidiaries, the company claimed to provide VOIP telephone services, office automation, wireless broadband, and prepaid calling card services. Since 2006, numerous press releases touted purported new business and made numerous other false and misleading statements to maintain the outside appearance that the company was prosperous. These efforts included the company's source of capital, business opportunities, and the omission of negative business information. However, when the company began disclosing audited financial statements in 2008, the company maintained these claims even though it was forced to state that a majority of its operations came from domestic sales of calling cards. Additionally, the company paid more than one million dollars for stock promotion campaigns that included blast faxes and the strategic placement of company profiles on stock trading websites. While the company was touted as a successful company, in reality it was bleeding cash and suffered a net loss of $15 million during the fiscal year ended June 30, 2010.
The SEC initiated an investigation of China Voice on October 29, 2008. Two weeks after this disclosure, Allen and several other China Voice executives began soliciting investments in sixteen different entities that Allen controlled directly or indirectly. None of these entities or offerings were registered with the SEC. Investors were solicited by Integrity Driven Network ("IDN"), an Allen-controlled entity, through meetings or internet advertisements guaranteeing an annual rate of return of at least 25% paid in installments throughout the year. Investors were told that nearly all of their investment would be used to make asset-backed loans that carried minimal risk. In total, $8.6 million was raised from investors. However, rather than being used to make asset-based loans, investor funds were used to pay returns to earlier investors in prior limited partnerships. The remainder of funds were either misappropriated by Allen or other principals or used to make high-interest loans to China Voice, some which carried interest rates of up to 30% annually.
A copy of the SEC Complaint is here.