Securities and Exchange Commission v. CKB Holdings Ltd., et al., Civil Action No. 13-5584 (E.D.N.Y., filed October 9, 2013)
SEC Halts $20 Million Pyramid Scheme Targeting Asian-American Community
The Securities and Exchange Commission recently announced charges and asset freezes against the operators and promoters of a worldwide pyramid scheme targeting members of the Asian-American community. The perpetrators of the scheme falsely promised exponential, risk-free returns to investors in a venture that purportedly sold Internet-based children’s educational courses.
The SEC’s complaint, filed under seal on October 9, 2013 and unsealed October 16, 2013 in the Eastern District of New York, alleges that since mid-2011, the defendants have solicited investments in an entity operating under the business name “CKB” or “CKB168,” which they claim is a rapidly growing and legitimate multi-level marketing company that purportedly sells web-based children’s educational courses. Defendants solicit investors through a variety of tactics, including in-person sales pitches, videotaped presentations posted on the Internet, websites, written brochures, and email and telephone communications. They attract investors by claiming that the investors will earn exponential, risk-free returns with little or no effort. Defendants claim that investors can earn money when “Profit Reward Points” (Prpts) they are granted at the time of their initial investments increase in value or pay dividends, and can earn even larger returns by converting their Prpts into shares of CKB168 stock when the company conducts a promised IPO on the Hong Kong stock exchange. Investors have also been told that they will be able to make even greater returns in the forms of commissions and bonuses by recruiting new investors. CKB promoters have raised more than $20 million from U.S. investors, and millions of dollars more from investors in Canada, Taiwan, Hong Kong, and other countries in Asia.
The complaint alleges that in reality, CKB168 is nothing more than a fraudulent pyramid scheme. CKB has little or no real-world retail consumer sales to generate the promised returns and has no apparent source of revenue other than money received from new investors. Defendants promote recruitment of new investors instead of retail sales. Most of the money raised has been paid out to accounts controlled by CKB entities and as commissions to promoters, with the bulk of the payouts going to those at or near the top of the investment pyramids, including the Defendants. The company has taken no steps to prepare for the promised IPO. The Prpts granted investors are essentially worthless.
The Honorable Roslynn Mauskopf granted the SEC’s request for a temporary restraining order, asset freeze, and other emergency relief against the 16 defendants as well as seven entities controlled by the U.S. promoters that are named as relief defendants in the complaint. A court hearing has been set for October 21, 2013 on the SEC’s motion for a preliminary injunction.
The corporate defendants are five entities based in Hong Kong, Canada, and the British Virgin Islands that collectively operate under the business name “CKB168” or “CKB.” (WIN168 Biz Solutions Ltd., CKB168 Ltd., CKB168 Holdings, Ltd., CKB168 Biz Solution Inc., and Cyber Kids Best Education Limited.) The individual defendants are three foreign nationals – Rayla Melchor Santos, Hung Wai (Howard) Shern, and Rui Ling (Florence) Leung (aka Kwai Chee Leung) – who control the CKB entities, and eight “senior promoters” in the United States – Daliang (David) Guo, Yao Lin, Chih Hsuan (Kiki) Lin, Wen Chen Hwang (aka Wendy Lee), Toni Tong Chen, Cheongwha (Heywood) Chang, Joan Congyi (JC) Ma, and Heidi Mao Liu (aka Heidi Mao.) The SEC’s complaint alleges that all sixteen Defendants violated Sections 5(a), 5(c), 17(a)(1) and (3) of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934 (“Exchange Act”) and Rules 10b-5(a) and (c) thereunder. WIN168, Howard Shern, and the senior promoters are also charged with violating Securities Act Section 17(a)(2) and Exchange Act Rule 10b-5(b). Shern and the senior promoters are charged with violating the broker-dealer registration provisions under Section 15(a)(1) of the Exchange Act. The SEC seeks disgorgement of ill-gotten gains, financial penalties, permanent injunctions, and other relief. The SEC also seeks disgorgement from Relief Defendants USA Trade Group, Inc., Ouni International Trading Inc., E-Stock Club Corp., EZ Stock Club Corp., HTC Consulting LLC, and Arcadia Business Consulting, Inc.
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