SEC file charges against WCM777 & Ming Xu
That Phil Ming Xu would go down for his part in running the WCM777 Ponzi scheme was certain, and for the last few months or so it’s simply been a matter of when.
Last I heard Phil Ming Xu was had fired his previous legal team after they failed to negotiate a fine penalty with the SEC on Xu’s behalf. Having hired a new legal team, as I understand it the negotiations and investigation into Xu’s criminal activities had been ongoing.
Over the past few weeks bits and pieces of information filtered down the grapevine, culminating yesterday with the SEC filing a civil lawsuit, summons and proposed temporary restraining order against Xu and his WCM777 Ponzi empire.
The civil lawsuit, filed in a Californian District Court, lists World Capital Market Inc., WCM777 Inc., WCM777 LTD. dba WCM777 Enterprises Inc., Ming Xu aka Phil Ming Xu, Kingdom Capital Market LLC, Manna Holdings Group LLC, Manna Source International INC., WCM Resources INC., Aeon Operating INC. and PMX Jewels LTD as defendants, with the SEC alleging Xu
collected over $65 million from investors in the United States and abroad. Of that amount, over $28 million was deposited into bank accounts in the United States between March and October 2013.
After October 2013, Defendants deposited investor funds into a bank account in Hong Kong.
The problem is of course that WCM777, through which the money was sourced, is a Ponzi scheme:
This matter involves an ongoing pyramid scheme, Ponzi scheme, and misappropriation of investor funds through an unregistered securities offering that targets members of the Asian-American and Hispanic-American communities, as well as foreign investors.
Beginning around March 2013 and continuing to the present, operating under the offering name “WCM777,” Defendants have collected over $65 million from investors in the United States and abroad.
Defendants portray WCM777 as a profitable multi-level marketing venture that sells packages of “cloud media” or cloud services.
In the WCM777 offering, Defendants promise investors that they will earn 100% or more returns in 100 days.
Defendants represent that the “points” investors receive for their investments will be convertible into equity in initial public offerings (“IPOs”) of “high tech” companies Defendants are purportedly incubating.
Defendants have facilitated a “secondary market” in the points they award to investors, and Defendants estimate that $890 million of the points have traded on this market.
From March 2013 through September 2013, Defendants deposited investor funds from the WCM777 offering into two bank accounts in the United States.
One account held in the name “WCM777” received approximately $20 million of investor proceeds during this period. The other account held in the name “WCM777 Inc.” received approximately $8 million of investor funds.
The investor funds deposited into Defendants’ United States bank accounts originated from persons in the United States and from abroad.
And here’s where Phil Ming Xu’s delicious, delicious Ponzi lies come undone:
In fact, Defendants do not realize any appreciable revenue other than from the sale of “packages” of cloud services to investors.
WCM777 is not profitable, and is a pyramid scheme. Defendants use some of the investor funds to make Ponzi payments of returns to investors.
The packages and the points are also securities in the form of investment contracts. They represent an investment of money, in a common enterprise, with the expectation of profits to be derived from the efforts of a third party.
The investments purportedly gain in value depending on the success of the WCM777 enterprise, and returns are based on, among other things, its growth and profitability.
Bank accounts in the name of “WCM777” and “WCM777 Inc.” in the United States show that almost all of its revenue came from
sales of packages of cloud services to investors. These bank accounts do not show any substantial source of deposits from any other source.
WCM777 sells its products exclusively to investors and has no apparent source of revenues other than money received from new investors.
The WCM777 offering and operation depends almost entirely on the recruitment of new investors and purchases by existing investors to provide funds to pay any returns to investors.
Because there is no source of money other than from new and existing investors, the scheme is destined to collapse and leave investors with substantial losses.
Defendants falsely represented that WCM777 is and was a profitable enterprise, when in fact it is a pyramid scheme with no source of revenue other than sales to investors, and it is not and was not deriving a profit from sale of goods and
services to third parties.
Defendants failed to disclose material information that WCM777 was not profitable and did not have any source of revenue other than sales to investors.
We of course called it nine months ago in our WCM777 review, proving yet again there’s no substitute for basic common-sense due-diligence.
To the investors of WCM777, those who weren’t at the top of the Ponzi pyramid scheme, here’s what Xu did with your money:
The bulk of the investor funds have been used to pay cash for real property purchased in the United States, purchased in many cases with funds transferred through Defendant World Capital Market Inc.
(“WCM”), and held in the names of Relief Defendants Manna Holding Group LLC and Kingdom Capital Market LLC, which are affiliated with Defendant Xu.
The properties include two golf courses, a warehouse, vacant land, and several single family homes. Defendants have also used investor funds to play the stock market and to make investments, through intermediary companies, in an oil and gas offering of Relief Defendant Aeon Operating, Inc.
Defendants have also sent investor funds to Relief Defendant PMX Jewels, Limited, which is a rough diamond jewel merchant in Hong Kong, and to Relief Defendant Manna Source International, Inc., which is affiliated with Defendant Xu.
Defendants disbursed a total of $7.5 million of investor proceeds to bank accounts held in the name of Relief Defendant Kingdom Capital. A total of approximately $1.96 million of these funds were disbursed to buy real property.
Approximately $4.1 million was transferred from Kingdom Capital to Relief Defendant WCM Resources, which in turn transferred approximately $2.667 million to Relief Defendant Aeon.
Defendants disbursed approximately $2 million of investor proceeds to bank accounts held in the name of Relief Defendant Manna Source International, which transferred, directly or indirectly, approximately $1 million to bank accounts held in the name of WCM.
Defendants disbursed approximately $550,000 of investor proceeds to Relief Defendant PMX Jewels, and another $200,000 was disbursed to a principal or officer of PMX Jewels.
Defendants disbursed approximately $3.38 million of investor proceeds for the benefit of Relief Defendant Manna Holding.
In 2013, Manna Holding purportedly executed two non-recourse “agreements” to pay WCM the amount of $2.5 million plus interest in 2019, and to pay Kingdom Capital the amount of $1 million plus interest in 2019.
Defendants also disbursed investor proceeds to the following companies associated or otherwise affiliated with Defendant Xu:
a. $200,000 was disbursed to ToPacific Inc.,
b. $210,000 was disbursed to Agape Technology,
c. $230,000 was disbursed to Media for Christ
And after having conducted a thorough investigation into Xu (right), here’s what the SEC have to say about the mastermind behind it all:
Defendant Ming Xu is involved in all aspects of the fraud: He is chief executive officer of Defendant WCM, and chairman of Defendants WCM, WCM777 Inc. and WCM777 Ltd.
Defendant Xu is also a signatory on the bank accounts of Relief Defendants Kingdom Capital Market LLC and WCM Resources, Inc., and was a signatory on the bank accounts of Manna Source International Inc.
Defendant Xu’s spouse is the managing member of Relief Defendant Manna Holding Group LLC.
Despite all the Twitter bravado, when Xu became aware the regulators were homing in on his operations, he tried to pull a fast one and deposit the money coming in offshore:
Around October 2013, at the same time that state regulators began investigating the WCM777 offering, Defendants stopped depositing investor funds into their United States bank accounts, although the WCM777 offering continued.
Since October 2013, Defendants have raised more than $37 million from investors which has been deposited into their Hong Kong bank account.
Since October 2013, approximately 38% of the investor funds raised came from persons residing in the United States.
Additional lies Ming Xu has told the public over the months include:
Defendants claim on WCM777’s website that it is in partnership with Siemens. This claim is false, and no form of cooperation exists between Siemens and Defendants.
Defendants claim on WCM777’s website to have a partnership with Denny’s and use Denny’s corporate logo. This claim is false, and Denny’s does not have and has not had any business relationship with Defendants, and Defendants do not have permission to use Denny’s name or logo.
Defendants claim on WCM777’s website to have a relationship with Goldman Sachs. This claim is false, and Goldman Sachs does not have any relationship to Defendants.
Defendants claim that WCM acted as a financial advisor to Stouffer Hotels and Resorts in a $45 million refinancing. This statement is false.
In fact, Stouffer Hotels has not been in business since 1996 when it sold its real estate portfolio to another company, and that was then purchased by Marriot in 1997.
Marriott does not have any relationship with Defendants.
Defendants’ statements about their corporate relationships were materially false and misleading, and omitted material information that Defendants did not have business relationships with these entities.
The SEC’s 24 page filing culminates with the following charges being laid out against Xu:
- Fraud in Connection With the Sale of Securities
- Fraud in the Offer and Sale of Securities
- (the) Sale of Unregistered Securities
- Controlling Person Liability
In addition to seeking Xu pay “civil penalties”, the SEC are also requesting the court order him to ‘disgorge all ill-gotten gains they received, together with prejudgment interest thereon‘.
I’m led to believe this morning that the SEC sent agents to one of Xu’s offices to officially seize control of his companies. All of Xu’s corporate and personal bank accounts have been frozen, with the company’s lawyers advising employees to “stay at home”.
This is inline with a temporary restraining order against Xu and WCM777 that was filed by and granted to the SEC yesterday.
Interestingly enough there’s no mention of Ming Xu’s partner in crime, Zhi “Tiger” Liu, or the $30 million Xu claimed he “stole” earlier this month.
Whether or not a separate complaint will be filed against Liu or whether Xu was telling porky pies in an attempt to cover his own ass is unclear. Either way, Liu’s name is completely absent from all SEC filings against Xu and WCM777 to date.
Also unclear is the status of WCM777’s offshoot Ponzis, Global Unity and ViziNova (both run by top WCM777 affiliate investors). With those running both schemes no doubt already on the SEC’s radar, whether or not they press ahead with their respective plans to resurrect the WCM777 Ponzi scheme in light of SEC filings against Xu remains to be seen.
Look out for an article tomorrow comparing TelexFree’s business model to the finer points of the SEC complaint against WCM777.
Update 29th March 2014 – The above article has now been published under the title “Would TelexFree survive the SEC WCM777 shutdown?” /end update
With TelexFree currently under an SEC investigation that has already been linked to WCM777, it’s likely that TelexFree management will be hitting their panic buttons after reading about the WCM777 Ponzi bust this morning.
As always, stay tuned…