SEC file $23.5M Wings Network Ponzi scheme lawsuit
Last we heard the Massachusetts Securities Division had filed a complaint, alleging Wings Network was a $12.5 million dollar pyramid scheme.
Filed in May, the complaint came some twenty four hours after Wings Network announced it was suspending its US operations.
Later in the year, Nevada’s Secretary of State issued a separate securities warning, cautioning Wings Network investors.
Secretary of State Ross Miller warns Nevadans to beware of a possibly fraudulent investment scheme targeting minority communities, specifically Spanish and Portuguese.
Wings Network is a multi-level marketing program that is advertising online, and being sold door-to-door or through friends and relatives.
The Secretary of State’s Securities Division believes Wings Network’s proposed business opportunity is an investment contract and a security that should be, but isn’t, registered with the State of Nevada.
The Massachusetts complaint, aimed at shutting the scheme down, and the Nevada warning both appeared to be paving the way for heavier regulatory action to come.
Today that action finally came, by way of a $23.5 million dollar pyramid scheme lawsuit filed by the SEC.
Althought (it) was represented that Wings Network is in the business of providing digital and mobile solutions to customers through a multi-level marketing distribution network, in actuality Wings Network has operated as a fraudulent Ponzi and pyramid scheme.
From at least November 2013 and continuing through April 2014, TropikGadget and its three principals and twelve promoters raised at least $23.5 million from thousands of investors, including many members of the Brazilian and Dominican immigrant communities in Massachusetts, through a fraudulent and unregistered offering of securities.
Expanding on the complaint filed by Massachusetts Securities Division, the SEC’s complaint names a whole host of defendants related to Wings Network:
- TropikGadget FZE – a foreign entity incorporated in the UAE in November 2013 that holds the rights to the Wings Network brand.
- TropikGadget Unipessoal LDA – a foreign entity incorporated in the Madeira Free Trade Zone in November 2013 used to launder Wings Network investor funds.
- Sergio Henrique Tanaka – based out of Brazil (Sao Paulo) and the US (Florida), Tanaka is President of the Board of Directors at Wings Network. He is also the Founder and President of Sawabona Group, an umbrella corp of some fourteen Wings Network related shell companies in six countries. Tanaka also accepted Wings Network investor funds into his own personal bank account.
- Carlos Luis Da Silveira Barbosa – based out of Portugal (Lisbon), Barbosa was the face of Wings Network and served as CEO of the company.
- Claudio de Oliveira Pereira Campos – based out of Portugal (Lisbon), Campos was the Director of Operations for Wings Network.
- Vinicius Romulo Aguiar – a Wings Network affiliate from Marlborough, Massachusetts who generated around $15 million in investment for the company. Aguiar also earned $1.3 million dollars in recruitment commissions.
- Thais Utino Aguiar – the wife of Vinicius Romula Aguiar, she too was a Wings Network affiliate and assisted him in promoting and perpetuating the fraud.
- Wesley Brandao Rodrigues – a Wings Network affiliate from Marlborough, Massachusetts who generated at least $1.5 million in investment for the company. He also earned $791,745 in recruitment commissions.
- Andrew Elliot Arrambide – a Wings Network affiliate from Sandy, Utah who generated at least $6 million in investment for the company.
- Julio G. Cruz – a Wings Network affiliate from Duluth, Georgia, who generated at least $6 million in investment for the company.
- Dennis Arthur Somaio – a Wings Network affiliate from Marlborough, Massachusetts who worked with Andrew Elliot Arrambide
- Elaine Amaral Somaio – a Wings Network affiliate from Marlborough, Massachusetts who earned $557,240 in recruitment commissions and worked with Andrew Elliot Arrambide
- Pablo Andres Garcia – a Wings Network affiliate from Waco, Texas who earned $550,135 in recruitment commissions.
- Viviane Amaral Rodrigues – a Wings Network affiliate from Clinton, Massachusetts who generated at least $6 million in investment for the company. She also earned $434,150 in recruitment commissions and worked with Andrew Elliot Arrambide.
- Simonia De Cassia Silva – a Wings Network affiliate from Massachusetts who earned $419,900 in recruitment commissions.
- Geovani Nascimento Bento – a Wings Network affiliate from Marlborough, Massachusetts who earned $163,845 in recruitment commissions.
- Priscila Bento – a Wings Network affiliate from Marlborough, Massachusetts who is credited with making ‘Wings Network presentations online and at an Atlanta, Georgia hotel’.
- Univest FInancial Services Corp. – a Florida corporation used to launder $2.45 million dollars of stolen Wings Network investor funds.
- CompassWinner LDA – a Portuguese corporation used to launder approximately $8.7 million of stolen Wings Network investor funds.
- Happy SGPS SA – a Portuguese corporation used to launder approximately $1.18 million in stolen Wings Network investor funds.
- Parkway Real Estate LLC – a Florida corporation used to launder approximately $290,000 in stolen Wings Network investor funds.
- RST5 Investments LLC – a Delaware corporation used to launder approximately $1.7 million in stolen Wings Network investor funds.
- Paulo Hideki Koga – an individual from Campinas, Brazil who received $570,750 in connection with the laundering of stolen Wings Network investor funds.
Defendants have, by false statements and material omissions, fostered the misleading appearance that Wings Network operates as a legitimate business, to conceal the Defendant’s operation of an elaborate Ponzi and Pyramid scheme.
As usual, the critical component missing from Wings Network’s business model was retail sales.
TropikGadget had little or no revenue from product sales, yet collected more than $23 million in revenue from recruitment of investor “members”.
As a result, in classic fashion, TropikGadget paid its earlier investors, not with revenues from selling products or services, but with money received from later investors.
Wings Network’s business model saw its affiliates invest between $299 to $1499, with cloud-services purportedly bundled with each investment. There were no external (retail) sales of the services to speak of.
As with most Ponzi schemes, the services Wings Network was attached to was smoke and mirrors:
TropikGadget never provided most, if any, of (the represented) products to its Wings Network members to sell.
Instead, its members only received tools suited to one use – to recruit new members.
Wings Network, being the Ponzi scheme that it was, required new members to fund new investment to keep the company afloat. Hence that’s where the focus was.
Wings Network’s revenues derived solely from selling Member Packs. Wings Network’s records reflect no revenue from product sales.
The sole apparent source of revenue for the business consists of fees associated with the sales of “membership packs”.
As with any pyramid scheme, such revenues can be sustained only by additional recruitment of new members, in exponentially expanding numbers.
Such growth is ultimately impossible and yields insufficient cash flow to cover obligations to the vast majority of members who invested in Wings Network.
When you’re talking millions of dollars in Ponzi fraud, it should go without saying that those running the scheme are probably lying about more than just the nature of the scam itself.
In Wings Network, this manifested by way of Luis Barbosa (Wing’s CEO) claiming the company had ‘successfully passed through a “pre-analysis” or “pre-screening” process for‘ Direct Selling Association (DSA) membership.
As per the SEC’s complaint,
The DSA does not have a pre-analysis or pre-screening process.
Moreover, the DSA’s records do not reflect any membership, or application for membership, in the name of Wings Network.
There was communication between the DSA and Wings Network by way of an email request for a membership application form. However the DSA ‘never heard back from Wings Network, nor did it receive a completed form‘.
Upon learning its name was being used by Wings Network to promote the scheme, the DSA sent the company a cease and desist in April of 2014.
Another lie told by Wings Network pertains to claims that affiliate investments were insured.
This has been a trend recently with scams originating out of South America and Europe, where Ponzi and pyramid schemes openly claim affiliate investments are guaranteed via insurance.
In Wings Network,
promoters represented to prospective investors that their initial investments in the Member Packs would be 100% guaranteed through insurance issued by Porto Seguro, the fourth-largest insurance company in Brazil.
In making these claims (affiliates) pointed to the existence of Porto Seguro S.A. insurance associated with the Wings Card, a debit card issued to Wings Network members for payment processing.
In a YouTube video that solicited investors to purchase Wings Network memberships, (affiliates) guaranteed that everything purchase by the investors would be insured for a year by Porto Seguro.
The SEC alleges these claims are false, with whatever insurance offered on the cards Wings Network used not extending to investments made with the company itself.
Ergo there was never any agreement, insurance-related or otherwise, between Wings Network and Porto Seguro.
In all Ponzi schemes, there’s a critical point where new investment funds can’t keep up with existing ROI liabilities. Once this threshold is crossed, the Ponzi scheme starts to decline towards an inevitable collapse.
For Wings Network this happened in April 2014. By the end of April, Wings Network had taken in $12.5 million but had to pay out $14.5 million in commissions.
Massachusetts shut the scheme down the following month, but had they not of stepped in it’s unlikely Wings Network would have survived the next few months.
Evidence of this can be seen by way of Wings Network investors reporting issues with refunds and receiving commissions promised by the company.
To encourage investments in Wings Network, Barbosa and Campos represented that investors could receive full refunds if they cancelled their investment within fourteen days of signing up as members.
According to two investors, Campos directly promised them refunds, yet investors did not receive the promised (refund) returns even after repeated requests.
Moreover, although Barbosa, Campos and several Wings Network promoters promised payments to investors for the recruitment of new members … investors never received such payments.
Wings Network members earned points that purportedly could be redeemed for cash commissions pursuant to the various recruitment bonuses outlined in the Wings Network compensation plan.
However, all investors interviewed by SEC staff who attempted to redeem their “points” were unable to withdraw any money.
So where did the funds Wings Network affiliates invested go?
In April of 2014 the Wells Fargo bank closed Wings Network’s account. This effectively froze whatever funds remained in the account.
That unfortunately though wasn’t before Wings Network’s owners withdrew some $16.5 million out of the $23.5 million Wings Network took in.
That money was transferred abroad, deposited in personal bank accounts, used to purchase a hotel and transferred to (Wings Network) related entities.
The exact whereabouts and status of those funds has yet to be publicly disclosed.
In an effort to recoup the funds and return what they can to investors, the SEC’s complaint cites seven claims of relief pertaining to violations of the Securities and Exchange Acts.
The SEC has also requested a temporary restraining order (or permanent injunction) be granted, freezing the assets of Wings Network and those named in their complaint.
The order would also see those who profited from the scheme required to ‘disgorge their ill-gotten gains, plus pre-judgement interest, with said monies to be distributed as ordered by the Court.’
Of particular note in the Wings Network Ponzi case is the multi-national nature of the scheme, along with the top investors named with the company owners and insiders in the SEC’s complaint.
Acknowledging co-operation with authorities in both Portugal in Brazil, the SEC’s press-release regarding the case thanks both the Comissão do Mercado de Valores Mobiliários and the Procuradoria-Geral da República of Portugal.
Meanwhile the suing of top net-winners in Ponzi schemes by the SEC was a trend we first observed in the TelexFree Ponzi case, and would now appears to be standard-procedure.
Not only are those who orchestrate these multi-million dollar Ponzi frauds being held accountable, so too are those who profit the most in their schemes.
The SEC’s complaint was filed on February 25th under seal, with Judge Hillman granting a Temporary Restraining Order against the Defendants the same day.
Following the TRO being granted, the case was unsealed the following day (26th).
Looking forward, a hearing on the TRO Motion has been scheduled for the 6th of March. I imagine the TRO will be converted to a preliminary injunction on this date, as requested by the SEC.