A California woman was charged with masterminding a $68 million Ponzi scheme that touted lucrative oil-and-gas interests to primarily Chinese-Americans both in the United States and abroad. The Securities and Exchange Commission filed an enforcement action accusing Bingqing Yang, her management companies Luca International Group, LLC, Luca Resource Group, LLC, and Luca Energy Fund, LLC, (collectively, the "Luca Managers"), Lei (Lily) Lei, Anthony V. Pollace, and Yong (Michael) Chen of violating multiple federal securities laws. Pollace has agreed to pay a $25,500 penalty to settle charges that he played a small role in the alleged fraud. The Commission is seeking injunctive relief, disgorgement of ill-gotten gains plus prejudgment interest, and civil monetary penalties from the remaining defendants.
According to the Commission, Yang and others began targeting Chinese-American investors in September 2007 through Chinese-language television, radio and newspaper advertisements, and investment seminars. Potential investors were promised annual returns ranging from 20% to 30% through an investment in several investment funds (the "Luca Funds") that purportedly were able to achieve highly lucrative returns by developing and operating oil and natural gas wells in Texas, Montana, North Dakota, Louisiana, and the Gulf of Mexico. In brochures and powerpoint presentations, potential investors were told there was "zero risk of losing entire principal." At least one potential investor expressed their confidence and trust in the investment based on Yang's Chinese heritage.
Yang also targeted Chinese citizens who sought to obtain permanent residence in the United States through the EB-5 Visa program, which provides foreign nationals with a method for obtaining a green card by making an investment in the United States. Chinese citizens were solicited at investment seminars that took place in China, and Yang ultimately raised over $8 million alone from investors who thought they were investing in an opportunity to acquire EB-5 visas. In total, Yang and the Luca Managers raised at least $68 million from investors.
However, the Commission alleges that Yang made numerous misrepresentations in touting the investment opportunity, incuding that the Luca Funds were profitable when in reality they were losing millions of dollars in their oil and gas investments. Investors were not told that Yang paid herself approximately $1 million in a "trademark licensing fee" in March 2012 despite the company not having any trademark logos on record and later backdating a trademark licensing agreement in March 2013. Nor did Yang disclose that investor funds would be used use to support a lavish lifestyle that included the purchase of a 5,600 square foot house in California (which Yang disguised as a letter of intent to make a deposit on a Chinese oil drilling rig), to pay her personal taxes, to pay for family travel to China and Hawaii, to pay private school tuition, and to pay for martial arts and choir lessons for her children. Yang is also accused of using over $500,000 in investor funds to take potential Chinese investors on a 10-day expenses-paid trip to Pebble Beach, California that included a speech by a former U.S. President.
Yang is also accused of misrepresenting the true nature of the various oil and gas ventures to potential investors. While distributing projections that assumed a 100% success rate for each well, Yang failed to disclose that the true success rate of the wells was less than 60% and that the returns were based on a flawed assumption that the wells would be drilled in the first year.
A copy of the Commission's complaint is below: