usfia-logoAs we reported on a GemCoin party in Arcadia and Amber queen pageant in Singapore, the SEC was in the midst of halting USFIA’s business operations.

In a complaint filed under the seal on September 22nd, the SEC alleged USFIA is a $32 million dollar Ponzi scheme..

At the heart of the complaint is USFIA’s GemCoin scheme, which the SEC label a “securities offering fraud”.

Steve Chen, owner and President of USFIA, is identified as the primary perpetrator.

The SEC allege Chen is responsible for a boatloat of marketing lies:

According to its website, USFIA is a subsidiary of and founded by US China Consultation Association (USCCA), which is purportedly a joint venture between the United States and Chinese governments.

Among other false and misleading representations made, Chen has claimed that

  • USFIA owns several large mines, including amber mines in the Dominican Republic and Argentina
  • that an investment in USFIA was guaranteed to increase in value sixty four times over a very short period
  • that USFIA was going to conduct an initial public offering in the near future, and that investors would receive or be entitled to receive pre-IPO shares in USFIA that would increase in value once the company went public

Chen’s initial porky pies paved the way for GemCoin, which surfaced in September 2014.

No IPO ever took place. Later, in approximately September 2014, investors were told that instead of cash or shares, they would receive a cryptocurrency known as “GemCoin” in exchange for their investment in USFIA, which would greatly increase in value.

This was about the time I started receiving USFIA review requests, but it wasn’t until late June 2015 that I had enough information to write one.

In their complaint, the SEC pretty much came to he same conclusion I did:

Chen, through his various business entities, is operating nothing more than a pyramid scheme, where nvestors are encouraged to build out a network of downstream investors and are compensation on their ability to do so.

The USFIA amber-mining investments that Chen and his related business entities sold to investors, with the prospect of receiving pre-IPO shares, as well as the GemCoin offering constitute securities under the federal securities laws.

As to the specifics of investment fraud Chen carried out through USFIA, we begin with USFIA’s so-called “backed by amber” GemCoin claims.

In addition to receiving (GemCoin) units or points in USFIA, investors also typically received an amount of amber, purportedly equal to 30% of their investment.

USFIA did sent (sic) the amber to investors, but upon obtaining appraisals of the amber, investors learned that the amber was practically worthless.

“Backed by worthless amber” is what those USFIA fliers should have read, but instead investors were fed “outlandish statements” like this:

  • GemCoin is growing exponentially and there are millions of GemCoin users around the world today
  • GemCoin’s value is backed by Alliance Financial Group’s mines around the world
  • GemCoin is issued by USFIA Currency Fund, a “multinational corporation” in California that is owned, supported and backed by AFG
  • AFG is involved in the processing of world class jewelry, REITs, biotech, information technology and the aerospace industry
  • AFG has more than $50 billion in assets worldwide and more than 2,000 business associates and
  • AFG owns the unique Copper Pectolite mines and Rhodochrosite mines in Argentina and El Valle mines in the Dominican Republic, where its 30,000 square foot mine produces 2/3 of the world’s high-quality amber
  • the use of GemCoin as a virtual currency has been legalized by the State of California
  • GemCoin is backed by $15 billion in assets and that there is “zero” chance of devaluation because GemCoins are backed by their equivalent in precious stones
  • that 2000 ATM platforms exist for converting GemCoins into paper money
  • that USFIA would open 3000 coffee shops in the next three years
  • that USFIA owned 70% of the amber mines in the Dominican Republic
  • that Steve Chen founded China Unicorn, had been an undersecretary to the Secretary of States of the People Republic of China, and that the USCCA reported to both the presidents of the United States and the PRC
  • that units in USFIA would increase exponentially every two months, such that 10,000 units would become 100,000 units in two months, and would double every two months after that
  • that investors would be permitted to withdraw or sell their Gemcoins within 60 days on investing
  • that investors would be able to sell their Gemcoins to other investors at an online auction facility conducted on USFIA’s website
  • that the price of Gem coins would steadily increase over time
  • that the United States government has purchased 70% ofthe Gemcoins in circulation

The assert that the claims above are little more than “false and misleading statements and representations”.

USFIA never engaged in an IPO and investors have been unable to sell or auction off their Gem coins, and their value is de minimus.

“De minimus” is ‘a Latin expression meaning about minimal things‘. That is to say GemCoins and the purported amber that backed them are infact completely worthless.

Yet as ridiculous as Chen and USFIA’s claims might sound in hindsight, they were enough to get investors to part with $32 million dollars.

During the period from July 2011 through May 2015, approximately $32 million had been credited to USFIA’s primary bank account at the Bank of America.

Of that amount, almost $19 million came in the form of wires, made by individuals primarily located in Asia, from foreign banks located in Asia.

Approximately $5.7 million came in the form of checks, the majority of which were drawn on U.S. banks.

Spin a boatload of epic lies, and apparently $19 million out of Asia is no sweat.

Behind Steve Chen’s narrated fantasy however, is the same old Ponzi scheme business model we’re seeing pop up all over the MLM cryptocurrency niche.

It does not appear from USFIA’s bank records that it had any apparent revenues during the period in issue.

Other amounts, both credited to and debited from USFIA’s primary account at the Bank of America, consisted of transactions with corporate entities controlled by Chen.

All of these funds represent funds obtained from investors in connection with Chen’s and USFIA’s securities offering, as many of the wires  and checks credited to USFIA’s primary bank account at Bank of America were in denominations of the investment amounts promoted by USFIA.

The only money flowing into USFIA was new affiliate investment… ergo so too were the funds flowing out.

And while USFIA investors were unable to withdraw the numbers on a screen USFIA showed them in their affiliate backoffices, here’s what was going on inside the scheme.

Substantial amounts were drawn out of USFIA’s primary bank account to purchase luxury automobiles, entertainment, travel, and as cash withdrawals.

All those GemCoin galas BehindMLM has been covering these past few months? The money to put them together had to come from somewhere…

And finally, as the scheme began to unravel with revelations of violent threats against USFIA investors, Steve Chen attempted to make off with what funds remained.

In the face of growing investor unrest, and negative publicity in the press, Chen was interviewed by the Arcadia Police Department on September 15, 2015, regarding his operation of USFIA.

Immediately after that interview, Chen attempted to wire $7.5 million out of USFIA’s bank account at Bank of America to a bank in the Peoples Republic of China.

The wire was broken down into two parts, and $3.5 million was sent abroad, while the remainder is still held by the bank.

The current status of the $3.5 million Chen sent abroad, and indeed that of Chen himself, is unknown.

The SEC in the meantime however have filed for three claims of relief against USFIA and Chen, those being

  1. the unregistered offer and sale of securities (Securities Act violations)
  2. fraud in the offer or sale of securities (Securities Act violations) and
  3. fraud in connection with the purchase or sale of securities (Exchange Act violations)

The SEC requested that a TRO be be issued against Chen and USFIA, which was granted on September 28th.

In addition to the temporary relief, the SEC is seeking preliminary and permanent injunctions, disgorgement of allegedly ill-gotten gains with prejudgment interest, and civil penalties.

“We allege that the defendants’ false claims of riches that investors would realize from USFIA’s amber mining activity never materialized,” said Michele Wein Layne, director of the SEC’s Los Angeles Regional Office.

“In reality, as alleged in the complaint, the defendants were operating a fraudulent pyramid scheme that left many investors with nothing.”

The case is still currently sealed, so unfortunately I can’t look at the docket just yet and tell you what’s to come.

Separately though, I’d be very surprised to not see additional criminal charges laid down against Chen at a later date. I think this is pretty much going to go down the same way DFRF Enterprises did.

A communication published less than 24 hrs ago by Chen, or someone representing him, suggests he might think this is yet to just blow over:

To ensure that formally USFIA fully respects the legal regulation and remains clean of all false accusations, Steve Chen asked to cooperate fully with the Security and Exchange Commission (SEC) with the help of the FBI, and gave full access to the process flows and USFIA GEMCOIN by One World Currency to control the legal aspect.

During this control, public access to servers USFIA of websites will be interrupted for two days or more.

This interruption during the investigation will be used to continue to test the process, update data and system and to continue to transform the bonus points in crypto Gemcoin currency.

Please note that this survey is a great opportunity for Gemcoin launder and wash once and for all the name of all suspicion of embezzlement. Once this investigation is complete we can reach the heights that we have set, free of legal pitfalls.

As pioneers in this new phase gemcoin of cryptocurrency, it is hoped that we will all be patient for the next 13 days. We wish you the best!

My guess is that there’s a preliminary injunction hearing scheduled sometime over the next fortnight, hence Chen’s apparent optimism that he and USFIA will be cleared of all charges.

Stay tuned…