The Securities and Exchange Commission has filed an emergency action accusing a California marketing company of operating a massive Ponzi and Pyramid scheme that took in at least $129 million from investors. eAdGear, Inc., along with principals Charles S. Wang and Qian Cathy Zhang, of Warren, New Jersey, and Francis Y. Yuen, of Dublin, California, were charged with multiple violations of federal securities laws in a complaint filed in San Francisco federal court. The Court granted the Commission's request for an emergency asset freeze and temporary injunctive relief, and the Commission is seeking a permanent injunction, disgorgement of ill-gotten gains, and civil monetary penalties
According to the Commission's complaint, eAdGear was formed in December 2011 with Wang and Yuen serving as the company's sole officers and owners. The company claimed to use search engine optimization to help paying "clients" increase their the page rankings of their website on various popular search engines, and claimed to share 70% of the daily revenue generated with investors. Investors would pay between $300 and $6,000 to purchase a "business package" from eAdGear, and many investors purchased multiple membership accounts to increase their returns. Investors were also incentivized to recruit new investors through the payment of commissions valued at approximately 5% - 15% of the new investor's membership package. The original investor could also receive commissions based on the new investor's recruitment of investors.
To convince investors of the scheme's legitimacy, eAdGear also distributed marketing materials purportedly showing members that had generated astronomical returns; for example, an investor named "Cathy" was depicted as turning a $6,000 investment into a regular $180,000 per month return that translated into an annual return of $3.6 million. Based on these representations, eAdGear and the defendants raised more than $129 million from tens of thousands of investors. A 2012 PowerPoint Presentation distributed to potential investors demonstates some of these claims as well as the company's business model:
However, through December 31, 2013, eAdGear had generated approximately $212,000 in sales to non-investors - a figure the Commission also characterizes as false given that the primary "customer" believed that the recorded purchase was actually an investment. Nor was eAdGear's product or service designed to increase an advertiser's page rankings; rather, eAdGear is accused of being in the primary business of raising money from investors. The Commission also accuses the defendants of misappropriating investor funds for their personal use, including the diversion of millions of dollars for real estate purchases and loans. Investor funds were also used to make Ponzi-like payments to existing investors. According to the Commission's complaint, eAdGear was notified via multiple third parties that their business model was not legal, including notification that PayPal was suspending eAdGear's account in 2011 as well as legal advice from an unnamed multi-level marketing attorney who advised that the company's business model was not legal in the United States.
A copy of the Complaint is below: