The Securities and Exchange Commission ("SEC") announced that it had obtained an emergency asset freeze and filed civil fraud charges against a consortium of California companies suspected of raising more than $150 million from over 2,000 investors in a massive Ponzi scheme. In a complaint unsealed today, the SEC accused Yin Nan (Michael) Wang and Wendy Ko, through their company Velocity Investment Group ("Velocity Group"), of operating a "Ponzi-like scheme" that violated the anti-fraud provisions of the federal securities laws. The SEC is seeking injunctive relief, the disgorgement of ill-gotten gains, civil monetary penalties, and the appointment of a receiver.
Wang is the owner and manager of Velocity Group, which is a Delaware corporation with a principal place of business in Pasadena, California. Velocity managed at least eight unregistered investment funds known as the Bio Profit Series (the "BPS Funds"), which purported to be in the business of making real-estate loans in California. Beginning in 2005, the BPS Funds sold more than $150 million in unregistered promissory notes, telling potential investors that the funds bought and made secured residential and commercial loans. The various funds contained several tranches of unsecured promissory notes, which contained various repayment options. Some tranches offered promissory notes with repayment terms ranging from 10 years to 30 years that promised a repayment of between 150% - 300% of the original promissory note balance. Other tranches offered unsecured notes paying an annual rate of return ranging from 8% to 12%. In total, more than $150 million was raised from over 2,000 investors.
Despite raising considerable sums of money during the various offerings, a variety of management fees and expense commissions reduced the amount of offering proceeds available for investment by 14% to 18%. Combined with the above-average rates of return promised by the BPS Funds, this meant that the funds' investments had to deliver extremely high returns. However, Wang and Velocity Group failed to use all available offering proceeds for investment. Instead, Wang even admitted to another individual that he was using new investor money to pay old investors - one of the classic hallmarks of a Ponzi scheme. A review of the general ledge of the various BPS Funds confirmed that investor interest payments were being funded with money from other BPS Funds.
Wang is also accused of using another company, Rockwell Realty Management, to enter into sham transactions with the BPS Funds to obfuscate the amount of transfers among the various funds and create the illusion that the transfers were for the purpose of legitimate business activities. In turn, Rockwell transferred millions of dollars for unauthorized purposes, including to Velocity Group, directly to Wang, and to various entities either owned or co-owned by Wang.
The SEC indicated that it moved to halt the scheme based upon the belief that the BPS Funds would be moving forward with a scheduled October 15, 2013 distribution.
A copy of the SEC's complaint is below: