Receiver: No indication USFIA’s GemCoin was legitimate
We last reported on USFIA late last year, covering the recovery of over $20 million dollars by the Receiver.
The behind-the-scenes work of the Receiver continues, with the latest updates provided in the Receiver’s Second Report.
The filing is over forty pages long, with the interesting parts headlined and covered below.
The number of USFIA victims scammed
As of yet the exact number of USFIA victims remains unknown.
due to the volume of electronic data and disorganized manner in which it was kept by the Receivership Entities, the Receiver has not yet been able to identify the entire scope of the USFIA enterprise, the number of investors, or specific amounts invested by investors and distributed to them.
Forensic computer specialists are working to establish the entire scope of USFIA, but for now it’s an ongoing process.
Funds recovered to date
Mostly sourced via bank accounts seized by the Receiver, to date the USFIA Receivership has secured $21.9 million in stolen investor funds.
$692,802 has thus far covered the operating expenses of the Receiver, with $21.2 million currently available for eventual distribution to victims.
“Large payments” to offshore companies in China, Vietnam, Mexico and the Dominican Republic have also been identified, with the Receiver still investigating.
One of the cornerstones of the USFIA Ponzi scheme was the acquisition of real-estate, with most of it now under control of the Receiver.
The Receiver has identified and taken control of the USFIA office building in Arcadia, a hotel in Rancho Cucamonga, an apartment building in Alhambra, a warehouse, several single family homes, and parcels of undeveloped land, including a proposed golf course site in Moreno Valley.
“Several additional pieces of real estate” are still under investigation, with the Receiver expected to take control of them too if it can be proved they were purchased with USFIA funds.
Of the properties already seized, the Receiver claims none were ‘used for any viable business purpose’.
The Receiver is preparing a motion for approval of procedures for the sale of the real property and personal property assets of (USFIA).
USFIA Singapore shenanigans
Prior to USFIA being shut down, Steve Chen organized two law firms to represent both himself and the company.
These law firm were paid “large retainers” upfront from USFIA Singapore.
Under contention is whether the funds transferred by USFIA Singapore belong to the Receiver.
As per the Receiver, Steve Chen owns 80% of USFIA Singapore. Logically USFIA Singapore and USFIA everywhere else are the same entity, however a lawyer in Singapore seems reluctant to give up the stolen Ponzi funds they were paid.
When the Receiver contacted the lawyer, he was told
USFIA Singapore was unrelated to USFIA, Inc. and that the transfers to the two law firms were loans made to Chen at his request in violation of Singapore law.
Huh? Steve Chen’s retainer payments to the law firms were loans made to himself in violation of Singapore law?
That doesn’t quite make sense (Steve Chen laundered USFIA funds to himself through the law firms?), but regardless the money was clearly sourced from USFIA investors and should be returned.
When asked for documents to support the claim that USFIA Singapore is unrelated to USFIA, Inc., the Singapore attorney provided none.
Yeah, I’m not surprised.
Not interested in their shenanigans, the Receiver demanded the law firms return the stolen Ponzi funds.
Bird, Marella, Boxer, Wolpert, Nessim, Drooks, Lincenberg & Rhow PC complied, with $574,250 recovered.
Pending a court order, the other firm are still holding out.
Wellman and Warren LLP (“Wellman”) stated it will not turn over the balance of $128,307.77 in unused retainer funds until there is a Court order directing it to do so.
The Receiver has since filed a motion directing Wellman to turn over the funds, with a hearing scheduled for March 7th.
Wellman have filed a notice of non-opposition on February 11th, with it pretty much guaranteed they’ll be ordered to hand over the funds on the 7th.
Initially I figured they might be desperate to hang on to the funds, but the non-opposition filing instead suggests they just wanted to cover themselves legally (“we didn’t do anything the court didn’t order us to!”).
Steve Chen’s ex-wife stripped of glamorous lifestyle
Jennifer Zhao aka Li Zhao, the mother of Steve Chen’s son, has been all but stripped of the USFIA gravy train she purportedly lived off.
Zhao’s USFIA slush fund was just over $3 million, which the Receiver seized in a Bank of America account under the name “Ally Investors”.
Ally Investors was basically a shell company set up for Chen to launder funds to his ex-wife through.
This saw Zhao live the high-life at the expense of USFIA investors, with laundered funds spent on a luxury home, Porsche lease payments, credit card bills, shopping sprees, and casino trips.
Zhao was furious upon learning the Receiver had frozen her slush fund account, and filed a motion demanding the Receiver return the seized funds.
The motion was denied but Zhao was granted access to a frozen custodial account (the Receiver’s report doesn’t state how much was in it).
As the second-highest paid employee of USFIA, Zhao’s personal relationship with Steve Chen is likely instrumental to further dissecting the scheme’s Ponzi operations.
To that end the Receiver filed a subpoena demanding she turn over documents of interest.
Zhao objected, with the court overruling the objection last month.
The Court gave Zhao until February 25, 2016, to produce the subpoenaed documents.
On February 25, 2016, Zhao produced documents, which the Receiver and his counsel are in the process of reviewing.
For the moment Zhao resides in a $2.3 million dollar house purchased with stolen USFIA Ponzi funds.
The Receiver has demanded that Zhao turn over the Gainsborough Property.
For the time being, Zhao and the Receiver have agreed to try and reach a global resolution of issues and have agreed to defer such discussions until the Receiver has performed additional accounting work and completed discovery.
If a resolution of the Gainsborough Property issue is not reached during those discussions, the Receiver will take necessary and appropriate steps to recover the Gainsborough Property.
My guess is “global resolution of issues” is Zhao buying more time, with the property likely to be sold off later in the year.
Conclusion: GemCoin was undoubtedly a Ponzi scam
At this point, there is no indication there was any legitimate Gemcoin or other viable business operated by (USFIA).
Aside from some income generated by the hotel and rental properties, (USFIA) had no significant source of income other than money raised from investors.
BehindMLM concluded as much in our own USFIA review, published in June, 2015.
The Receiver has verified that virtually none of the assets described in online and written marketing materials actually exist.
Instead of mines located around the world, millions of dollars in precious gems, and houses and cars available to be awarded to investors, the Receiver has found only costume jewelry, boxes of rocks, and bins filled with tens of thousands of little rings of nominal value.
The USFIA Receiver’s “Second Report And Recommendations” was filed on February 26th and can be viewed on the Receivership website.
Typo, Oz. “Ex-Wife”, not “Ex-wide”.
Whoops, thanks for catching that.
OK, it’s now confirmed that Steve Chen as we suspected, is under criminal investigation. According to minutes of an April 8 hearing in chambers of Judge Klausner,
Chen had asked for a temporary stay of the civil case because of the criminal investigation. However the judge refused to grant this.
Thanks for keeping an eye out Fred. I was watching the Receivership website, looks like I’m going to have to keep tabs on the case docket too.
Will have a new article up later today.