USFIA Ponzi fraud balloons out to $164 million
On July 7th the USFIA Receiver filed his third report and recommendations.
Spanning the first quarter of 2016, the Receiver’s report covers the scope of USFIA’s business operations, the legitimacy of USFIA, seized real-estate, Steve Chen’s lawyer funds, USFIA investor funds spent on Chen’s family and a Mercedes S550 belonging to Chen.
The scope of USFIA’s business operations
Unfortunately the precise scope of the USFIA Ponzi scheme has yet to be determined.
Owing to ‘the volume of electronic data and disorganized manner in which it was kept by‘ USFIA, the Receiver has yet to put together a complete picture of the business.
This includes the total number of investors and funds invested into USFIA.
What we do know is so far is that the Receiver has ‘identified approximately 65,000 unique email addresses‘ in the USFIA investor database.
No doubt many of them belong to the same investor, with the Receiver set to send an email out to each of the addresses to establish ownership of the accounts they are attached to.
The SEC’s initially estimated USFIA to be a $32 million dollar Ponzi scheme back in October 2015. This figure appears to have been vastly understated, with the Receiver now estimating some $164 million was deposited into the scheme.
The accounting is ongoing and the Receiver’s goal for completion is September 30, 2016.
The Receivership had $26.9 million held as of March 31st, 2016.
No legitimate business in USFIA
In his second filed report, the Receiver established that he couldn’t find any legitimate business within USFIA. This included GemCoin and USFIA’s fabled amber mine operations.
Three months later that is still the case.
At this point, there is no indication there was any legitimate Gemcoin or other viable business operated by the Receivership Entities.
Aside from some income generated by the hotel and rental properties, the Receivership Entities had no significant source of income other than money raised from investors.
As to USFIA’s infamous amber mines;
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.
As for the amber mine in the Dominican Republic the Defendant professed to own, no mine has been discovered.
The Receiver has learned that the address of the purported mine is a residential address of a house purchased by Ammine, S.R.L.
The house is located in a residential area and there are no mines adjacent to it.
Moreover, the Receiver has learned that Ammine, S.R.L. is not registered to operate a mine.
What little assets there are to seize in the Dominican Republic, the Receiver is in the process of obtaining through a domesticated preliminary injunction order.
USFIA Ponzi funds spent on Steve Chen’s family
The Receiver’s second report revealed Jennifer Zhao, Steve Chen’s ex-wife and mother of his son, had been financing her “glamorous lifestyle” through USFIA.
Specifically, Steve Chen transferred over $3 million dollars to Zhao through the shell company Ally Investors.
Zhao spent USFIA investor funds on ‘a luxury home, Porsche lease payments, credit card bills, shopping sprees, and casino trips‘.
The Receiver has since frozen USFIA funds Zhao had access to, with the exception of a “custodial account”.
In his last report the Receiver revealed he had issued a document subpoena on Zhao and Ally Investors.
Both Zhao and Ally Investors objected to the subpoenas.
Despite several meet and confers and attempts to resolve the objections, Zhao and Ally did not produce any documents in response to the subpoenas.
The Receiver filed a Motion to Compel on January 20th, 2016.
On February 4th the motion was granted. Zhao and Ally Investors were given until February 25th to product the requested documents.
On February 25, 2016, Zhao produced certain documents.
After further meet and confer discussions between counsel, Zhao produced additional documents on May 2, 2016.
Meanwhile the $2.3 million dollar house Zhao is currently living in has been confirmed to have been ‘paid for entirely by‘ USFIA.
If a resolution of the Gainsborough Property issue is not reached in the short term, the Receiver will take necessary and appropriate steps to recover the property.
To date the USFIA Receiver has seized
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.
Citing newly obtained evidence, the Receiver reports he has identified
several additional pieces of real estate purchased with funds of the Receivership Entities and is further investigating these transfers.
Steve Chen’s lawyer retainers in Singapore
Through USFIA Singapore, a shell entity Steve Chen owned 80% of, Chen paid two law firms in Singapore a retainer.
Bird, Marella, Boxer, Wolpert, Nessim, Drooks, Lincenberg & Rhow PC was paid $574,250 and Wellman and Warren LLP $128,307.
Upon being contacted by the Receiver, Bird Marella returned their retainer in full.
Wellman and Warren LLP claimed USFIA Singapore had nothing to do with USFIA USA. When asked for proof, the law firm didn’t provide any.
Wellman and Warren subsequently refused to return any money until the Receiver obtained a court order directing them to do so.
The Receiver obtained an order on March 7th and Wellman and Warren have since returned their retainer.
Steve Chen’s Mercedes S550
Steve Chen purchased a Mercedes S550 with USFIA investor funds.
Prior to USFIA being shut down by the SEC, the car was towed while it was in Chen’s possession.
The vehicle was being held by the towing company, Jan’s Towing, pending payment of the towing and impound fees.
Jan’s Towing threatened to sell the vehicle if the fees were not paid.
The Receiver sent a letter informing Jan’s Towing of the Receivership Entities’ interest in the vehicle and advising that the Preliminary Injunction Order prohibited a sale.
The Receiver initiated negotiations with Chen to transfer the title of the car to the Receivership. This was required before the Receivership could legally recover the car.
While these negotiations were going on, Jan Towing, despite being served a copy of the preliminary injunction, informed the Receiver that they had sold the car.
Jan’s Towing, however, then notified the Receiver the vehicle had been sold.
The Receiver demanded Jan’s Towing pay the Receiver the fair market value of the vehicle ($80,151), less the towing and impound fees owed.
Jan’s Towing did not respond, so the Receiver prepared a motion for order to show cause re: contempt and sanctions for Jan’s Towing’s knowing violation of the PI Order.
Jan’s Towing then acknowledged it had “sold” the car to itself (or its owner) and agreed to turn the vehicle over once the towing and impound fees were paid.
As is plainly obvious, Jan’s Towing is a wholly reputable business of the highest caliber.
The Receiver finally recovered the vehicle in June 2016 and is currently attempting to sell it through a licensed dealer, as provided in the order approving the stipulation.