The US Securities and Exchange Commission (SEC) announced last week that it had broken up a suspected $32 million Ponzi scheme that vowed to mine amber and disburse profits in so-called “Gemcoin” digital currency, reported Naked Security.
According to the complaint by the SEC, Alliance Finance Group (AFG), the parent company of Gemcoin, and its subsidiary, United States Fine Investment Arts (USFIA), made false assertions about owning mines in Argentina and Dominican Republic.
In their promotional videos, the companies said they controlled $50 billion in amber mine assets in Latin America.
Investors were told that they could profit not only by directly investing between $1,000 and $30,000, but also by bringing other investors into the program.
The SEC said that in reality, there were no mines, and neither were there any profits: just money coming into, and out of, a pyramid scheme.
The SEC has brought deception charges against Arcadia, California’s Steve Chen and 13 companies associated with him, alleging that he raised $32 million by deceiving investors. Assets of both Chen and the associated companies have also been frozen by the SEC.
The SEC said that Chen tried to wire some of the funds to China when he learned the authorities had begun to catch on to the scheme. The move to freeze assets was initiated after learning about Chen attempting to wire some of the money out of the country.
According to the SEC’s allegations, starting in September 2014, the defendants claimed to have converted holdings of the current investors into “Gemcoins,” which they said was a digital currency secured by the amber holdings of the company.
Despite the assertions that their value would sharply surge, Gemcoins are, in fact, worthless, alleged the SEC’s complaint.
The SEC’s complaint says that when investors had evaluators inspect the pieces of amber sent to them by Gemcoin, they discovered the “gems,” or the fossilized tree sap to be exact, were also valueless.
According to the complaint, the defendants breached SEC antifraud rules and antifraud and registration provisions of the federal securities laws.
The director of the SEC’s Los Angeles Regional Office, Michele Wein Layne, said, “We allege that the defendants’ false claims of riches that investors would realize from USFIA’s amber mining activity never materialized. In reality, as alleged in the complaint, the defendants were operating a fraudulent pyramid scheme that left many investors with nothing. “
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