WCM777 Receiver’s Fourth Interim Report
Recovering efforts by the WCM777 Receiver continue, with a fourth interim report filed on April 20th.
In it there’s not so much new information, but rather developments on existing efforts to recover funds.
Krista Freitag’s report clocks in at twenty pages of length, with the most relevant parts in summary format below.
Over the last quarter $3.35 million USD was further collected by the Receiver.
These funds came in by way of $2.3 million from the sale of a property, $301,000 from the sale of personal assets (Mana Fashion garments) and $750,000 from a settlement with Daniel John Lazarus.
Lazarus was paid the funds from Ming Xu, as part of his attempt to launder funds out of WCM777.
Funds still missing
Xu’s money laundering efforts saw a further $17 million dollars transferred to “at least 20 different third parties”.
Xu transferred $1.3 million to PMX Jewels, which was put towards the acquisition of diamonds.
One diamond has been located and is currently being held in a vault belonging to Diamex Diamonds in New York.
Diamex Diamonds contend they are owed for sawing and polishing services, with settlement between the company and Receiver ongoing.
The Receiver has not been able to confirm the existence of or whereabouts of an alleged second batch of diamonds (purportedly exported from Sierra Leone to PMX Jewels in Hong Kong) and notes that the Statement of Assets filed by PMX Jewels on June 12, 2014, lists as its only asset cash in an HSBC account in Hong Kong of $5,106.29.
A third batch of diamonds was to be sourced by Ruvanni Inc.
PMX Jewels purportedly paid Ruvanni for the diamonds, who then sourced and purchased them. The purchased diamonds however were never delivered to PMX Jewels.
PMX Jewels filed a lawsuit against Ruvanni (prior to a Receiver being appointed), which voluntarily dismissed under murky circumstances late last year.
Without any prior notification to the Receiver, PMX Jewels’ former counsel stipulated to a voluntary dismissal of this lawsuit without prejudice on September 15, 2014.
Following the dismissal, the Receiver’s counsel immediately contacted Ruvanni’s counsel to demand a return of the diamonds or payment of the purchase price.
Ruvanni’s counsel refused the demand and further claimed that Ruvanni is the victim of purported fraud perpetrated by PMX Jewels and Du Toit.
As it stands, Ruvanni have both the diamonds and the funds paid for them, whilst simultaneously claiming they are the victims of fraud.
The reason Ming Xu’s counsel dismissed the lawsuit is currently unclear (what’s the best some shifty-shifty backhand deal took place?).
The Receiver is reviewing these allegations and will seek further orders of this Court to pursue claims against Ruvanni, if appropriate.
A court ordered PMX Jewels to pay $1.3 million to the Receiver on February 17th 2015, but ‘no funds have been received to date.‘
WCM Resources and Aeon Operating
Xu laundered $4.3 million through WCM Resources, who in turn invested the money in oil and gas leases through Aeon Operating.
$1.2 million has thus far been recovered, with
the remainder of the funds apparently been used to acquire and operate the oil and gas leases.
The Receiver and her counsel have been in communication with Aeon and its counsel to gather information about the leases and operations.
The information Aeon has provided is particularly lacking on the Davis-Callahan investment status and the revenue side of the Cameron Parish operations.
As such, the Receiver engaged a seasoned oil and gas professional to help investigate and evaluate WCMR’s interests.
The Receiver is now close to completing her investigation on the underlying oil and gas investments and, based upon her findings, anticipates a significant loss.
In the meantime, no further funding has been provided.
Sounds to me like there’s a common pattern here among Xu’s money laundering efforts. He invests funds, the parties chosen to launder funds through are uncooperative and the money disappears.
Vincent J. Messina, International Market Ventures
Earlier this year a court ordered Vincent Messina to pay $5.2 million in stolen Ponzi funds back to the Receiver.
To date, $2.133 million has been transferred to the Receiver from the trust account of Messina and IMV’s counsel.
No other amounts have been received.
Sensi was hired by Xu to address regulatory issues in Peru and Taiwan.
He was paid $403,000 but upon questioning by the Receiver, was unable to ‘show what specific services were provided‘.
The Receiver had demanded Sensi return the funds and offered to settle the receivership estate’s claims (then believed to be $385,000) for $335,000, subject to Court approval. Sensi rejected the offer.
Accordingly, on October 31, 2014, the Receiver filed a motion seeking authority to proceed with an action against Sensi to
recover the full $385,000. The Court granted the motion on November 20, 2014.
The Receiver originally reported a total of $385,000; however, while completing the forensic accounting, she discovered an additional $15,000 payment via check to Mr. Sensi as well as a wire amount which had been understated by $3,000.
On March 11, 2015, the Court issued the Order on Joint Stipulation for Leave to File First Amended Complaint.
The Receiver filed her First Amended Complaint on March 12, 2015, increasing the amount demanded to $403,000.
There is no acknowledgement in the report suggesting Sensi has replied to the lawsuit filed against him.
Governmental Impact and James Dantona
These guys were purportedly used by Xu to “buy access to US politicians“, with Xu sending them $40,000.
On August 19, 2014, the Receiver filed her motion for authority to pursue claims against Governmental Impact, Inc. (“GII”), James Dantona, Zayda Aberin and ZHB International Corp.
The motion was granted on September 22, 2014.
The Receiver filed her complaint on September 26, 2014.
On Friday, March 6, 2015, GII, Dantona and the Receiver participated in a mediation.
On March 10, 2014, the Receiver filed a Joint Report to provide this Court with an update on the results of the mediation, indicating the parties agreed to continue settlement discussions and will meet again if necessary.
Settlement discussions have continued; however, due to Court deadlines, the Receiver has filed a motion for summary judgment.
Aberin and ZHB have failed to respond to the Receiver’s complaint and failed to appear to defend this action.
Their defaults were entered by the clerk of this Court on February 24, 2015, and the Receiver will be filing an application for entry of judgment against Aberin and ZHB.
If the parties reach settlement, the Receiver will seek Court approval thereof.
Sounds like another party dragging their feet and hoping to get away with it.
BBPride, LLC, Jonathan Pollon and Stephen J. Huntsman
As previously reported, WCM loaned approximately $203,500 to Jonathan Pollon, his company BBPride, LLC (“BBPride”), and Stephen J. Huntsman for the purpose of purchasing “Alluvial Gold Dore Nuggets” from sources in Kenya.
That of course never happened, with the $203,000 remaining unaccounted for.
On December 15, 2014, the Receiver, Mr. Pollon and Mr. Huntsman entered into a Forbearance and Loan Modification Agreement whereby Mr. Pollon, BBPride and Mr. Huntsman agreed to repay $125,000 over a period of twelve (12) months.
In the event of default, the Forbearance Agreement included a Confession of Judgment, which the Receiver can file with the Superior Court.
The first payment due date was February 15, 2015, and no payment was received.
Mr. Pollon and Mr. Huntsman have failed to cure the default and the Receiver is moving forward with entry of the Confession of Judgment.
Another non-responsive party…
East of Byzantium II and Passing Lane Productions
One of the more bizarre routes Xu used to launder WCM777 funds was through East of Byzantium II and Passing Lane Productions.
$155,000 was paid to these entities to help finance some sort of religious-themed movie.
In exchange, WCM received rights to profits made from the documentary, following payment of production fees and expenses, up to 120% of its initial investment, as well as a right to share in the remaining profits after other investors are similarly repaid for their contributions.
As of November 2014, the Executive Producer reported strong interest from several well-known networks and studios and planned to sell the project by years’ end.
In February 2015, the Executive Producer reported that their distributor continues to pursue sales of the mini-series worldwide.
The Receiver will continue to monitor the production and distribution of the film.
Prediction: Despite assertions the contrary, nobody is going to buy Phil Ming Xu’s crappy little movie and this is going to wind up being another loss.
KCM purchased three convertible promissory notes from MycoTechnology, Inc. (“MycoTechnology”) for a total of $1,050,000.
The market value of the underlying shares of MycoTechnology remains unclear, but the Receiver is in discussions with the company regarding a possible discounted payoff of the notes based on additional capital raises.
The Receiver monitors the company’s activities and has also assumed a seat on the MycoTechnology board of directors.
On or about August 12, 2013, KCM entered into an agreement to purchase a number of series A preferred shares (“Stock Purchase Agreement”) of Frequency Networks, Inc. (“Frequency Networks”), a company engaged in providing for the sharing of video via social media.
Pursuant to the terms of the purchase, KCM paid $3,000,000 for approximately 7,000,000 shares in Frequency Networks, which originally represented approximately 10.2% of the outstanding shares.
The Receiver has met with the company’s executives, has assumed a seat on the Frequency Networks board of directors, and is monitoring the company’s activities to determine how best to maximize the recovery from KCM’s shares.
Sale of assets
Numerous properties Xu had bought through WCM777 have already been sold off, with the remainder on track to be sold off later this year.
Various lots of furniture and personal assets are also in the process of being prepared to be sold off;
The Receiver is in the process of selling the personal property, including the general medical and office furniture, fixtures and
With the exception of one piece of medical equipment, the Receiver expects the personal property sales will be substantially complete by the end of April 2015.
On October 1, 2014, the Receiver also sent out an email blast (in English, Mandarin and Spanish) to all known investors with a project update; this notice is also posted to the Receivership Estate’s webpage and has prompted thousands of investor responses.
Upon the Receiver’s takeover and request for the Receivership Entities’ investor database/records, the Receiver was repeatedly told by Xu and other personnel that the investor database was no longer in the possession of the Receivership Entities because it was transferred in the purported sale of WCM777 to a third party.
A version of an investor database was ultimately provided by Xu; however, this database (reflecting approximately 479,330 member accounts) is missing a material amount of contact information, appears to be current only as of January 6, 2014 (with no new data beyond that date), and does not reflect detailed investment activity.
In the final days of WCM777, Xu sought to distance himself from the scheme by claiming he’d sold it off. I don’t believe the purported buyers have ever been disclosed.
This next part is important, as it outlays the Receiver’s plans for a claims process going forward:
Additionally, through her investigation of web-based service providers, the Receiver was able to gain control over an account hosted by Liquid Web, which appears to contain various Structured Query Language (SQL) databases that combine to make up investor data that may have been used to propel the online enterprise.
In an effort to further understand the data contained in these SQL databases, the Receiver has had AMA review the databases and prepare queries, which the Receiver is in the process of studying for purposes of proposing an investor claims process.
Because of the large volume of investors, in order to efficiently conduct a claims process with all investors of the enterprise, the Receiver intends to seek approval to hire a third-party claims administrator with particular expertise in efficient communications and ultimately electronic payment/web-based database capabilities with large classes of investors located around the world.
As it is anticipated that these services will be significant, both in scope and expense, the Receiver intends to devise notice and claims procedures with the assistance of counsel.
The Receiver will then ask the Court to approve the procedures, as well as the Receiver’s engagement of the proposed claims administrator.
While the Receiver anticipated filing this motion by the end of February 2015, the investor claims analysis has taken longer than expected due to the lack of detailed records regarding investor deposits into foreign bank accounts and the complexity of analyzing and reorganizing the back office database obtained from the outside web hosting company for use in determining investor claims.
The Receiver now anticipates filing a motion for approval of the claims process before the end of April 2015.
Based on the accounting work performed to date, the Receiver believes it may not be possible to account for all transfers in from and out to each investor.
This is due to several factors, including:
(a) many investors did not invest directly with the Receivership Entities
(b) many investors did not ‘register’ with the Receivership Entities
(c) many investors paid cash, and
(d) integrity and consistency issues with investor names and contact information.
Investors who thought they were being smart cookies by investing in such a manner that they believed protected them from regulatory scrutiny, have apparently screwed themselves out of filing a claim.
As it stands there’s roughly $18.3 million dollars in funds and assets awaiting distribution to WCM777 victims.
The figure is expected to increase, as the Receiver continues to pursue those who believe they don’t have to return the stolen Ponzi funds they were paid.
Zhi “Tiger” Liu litigation dropped
This one was a bit disappointing, but given the half-assed manner in which Xu ran WCM777, not entirely unexpected.
Following claims Xu’s partner Zhi “Tiger” Liu did a runner with tens of millions of dollars, he filed a lawsuit demanding the funds be returned.
This was before WCM777 was shutdown and a Receivership appointed.
The lawsuit was still open when the court appointed a Receiver, with Frietag “inheriting” the case.
Upon going over the evidence submitted by Xu in the suit, the Receiver
does not believe there is sufficient evidence to support the claims alleged.
As such, the Receiver has filed a dismissal of this state-court action, without prejudice, which dismissal was entered on February 10, 2015.
The Receiver’s investigation is ongoing and if she determines an action against Mr. Liu is appropriate, she will seek Court authority to proceed with such an action.
Liu is believed to have fled to China before regulators shut down WCM777, but his current whereabouts have yet to be confirmed.
At some point one would hope the Receiver is able to file a proper lawsuit against him and recover the funds he stole (see below).
Possible lawsuits against WCM777 insiders
As of yet nothing has been filed on this front, but from the sounds of it we might see lawsuits filed against WCM777 insiders yet.
The Receiver also recommends exploring whether there are third parties who aided Xu in connection with this enterprise.
As part of her investigation, the Receiver will evaluate whether such third parties should be liable for damages caused to the Receivership Entities and their investors.
The Receiver will seek Court approval before pursuing any such claims.
Hopefully top-investors, lawyers and anyone else who aided Xu in running and managing his WCM777 Ponzi empire get what they deserve.
Non-Coperation with Chinese bank (HSBC)
Highlighting the dangers of investing in Ponzi schemes that use Chinese banking channels, the Receiver writes:
To date, HSBC Hong Kong has not recognized the Court’s TRO or PI Order; however, through manual research of the estate’s records, the Receiver has been piecing together a significant amount of the detail.
The Receiver believes obtaining the HSBC Hong Kong documents may lead to the identification of fraudulent transfers to third parties and identification of investor deposits and disbursements necessary to determine investor claims and distributions.
However, the cost of tracing these funds overseas will be very expensive. Preliminary estimates are the costs would exceed $100,000 in overseas and domestic attorney fees, translation costs and bank charges.
If the Receiver considers this expense justifiable, she will seek authorization to engage counsel in Hong Kong for the purpose of having the Orders recognized in Hong Kong and as necessary to obtain bank records from HSBC Hong Kong.
In going over the Receiver’s fourth interim report, three major points stuck out for me.
The first is the calculated choice of third-parties Xu chose to launder WCM777 funds through. That they all seem to be shady individuals, organizations and companies that hold the uniform belief they are entitled to keep the funds paid, I believe, is no co-incidence.
Neither is it a co-incidence that these parties are not paying up.
I appreciate that legal procedures need to be followed here but I really think the time for giving any of these parties the benefit of the doubt has passed.
Time to play hardball and collect what has ordered to have been paid back.
The claims process is the second thing to look out for. If filed by the end of this month it will likely be approved next month, with communication sent out to investors shortly thereafter.
We’ll keep an eye out for that and if you invested and losts funds in WCM777, you should to.
The third is potential litigation against WCM777 insiders and net-winners. I haven’t seen net-winners explicitly mentioned but I hope the Receiver is looking to pursue clawback litigation against them.
This might be problematic in international jurisdictions, but at least top-investors in the US should be held accountable.
The next Receivership report is due to be filed on June 10th.