Massachusetts securities regulators have filed civil fraud charges against a Massachusetts company that touted annual returns exceeding 1,000% through trading in "investment gold bars," alleging that the company was nothing more than a recruitment arm for a massive pyramid scheme. Emgoldex Team USA, Inc. ("EmGoldex USA"), as well as officers Matthew Michael D'Agati, James Vincent Piemonte, Jonathan Herman Siegler, and Joseph Zingales, were accused of promoting multi-level marketing investments in EmGoldex, a company located off the coast of Africa. The action seeks the imposition of sanctions, injunctive relief, disgorgement and remuneration of ill-gotten gains, and civil fines.
EmGoldex represents itself as an internet-based store offering investors the ability to profit through purported investments in gold bars. Through various recruiting efforts concentrated in social media and word of mouth, potential investors are enticed with the prospect of massive fast, easy, and risk-free profits. Emgoldex USA, the company named in the complaint by the Massachusetts Securities Division, purportedly operated as one of the recruiting arms of EmGoldex, using websites, social media, and live functions to recruit investors to join their recruiting downline. Because EmGoldex offered significant incentives for the recruitment of additional investors, the efforts by EmGoldex USA to recruit new investors resulted in significant recruitment commissions.
According to the MSD, Respondents and EmGoldex USA focused exclusively on recruiting new investors to join the EmGoldex Marketing Program (the "Marketing Program"), which was advertised as a prerequisite to purchase gold bars from EmGoldex. Investors joining the Marketing Program were required to submit a "prepayment" for a set of investment gold bars valued at approximately 7,000 euros but which was typically significantly offset through "credit bonuses" payable later for the recruitment of new investors. After submitting the prepayment, an investor would receive a coupon for a personalized website and an activation code allowing entry into the Marketing Program. According to the MSD, an investor must then only recruit two new investors to become eligible for gold that can be exchanged with EmGoldex for a significant profit over their initial prepayment. These profits ranged from 520% to 1,105% annually. Additionally incentives programs were also offered that allowed even higher rates of return. In total, EmGoldex USA raised nearly $500,000 from hundreds of investors.
At least one of the accused was apparently skeptical of this business model. In late April 2014 - shortly after the Massachusetts Securities Division filed civil fraud charges against another Massachusetts company accusing it of being a massive $300 million Pyramid and Ponzi scheme - D'Agati emailed EmGoldex support services seeking advice on how to address questions surrounding EmGoldex's business model and whether it was a pyramid or Ponzi scheme. The complaint indicated that EmGoldex's response made little sense, instead containing "legal jargon" and citing various European internet commerce laws governing enforceability of electronic contracts. Despite this failure to address the issue, D'Agati and the remaining respondents continued to solicit investors.
However, according to the MSD, EmGoldex USA was nothing more than an illegal scheme that ensnared hundreds of Massachusetts residents in a massive Ponzi scheme. These efforts allowed Respondents to earn significant "downline" commissions, and did not disclose to investors that (1) there were no gold bars or other product, and (2) their returns were entirely based on efforts to recruit new investors.
The MSD's Complaint is below: