SEC Brings Complaint in $68 Million Affinity Fraud Scheme

On July 6, the Securities and Exchange Commission filed a complaint in connection with a $68 million affinity fraud scheme allegedly orchestrated by Bingqing Yang, through her wholly owned management companies, Luca International Group, LLC, Luca Resources Group, LLC and Luca Energy Fund, LLC (collectively, Luca Managers), with the help of Ms. Yang’s chief fundraiser, Lei Lei.

The SEC alleged that from 2007 to 2014, Ms. Yang and her co-defendants targeted Chinese-Americans and investors in China and Japan to purchase interests in Yang’s oil and gas ventures (Luca Funds). According to the SEC, Ms. Yang and Ms. Lei used brochures and seminars to mislead investors into believing that they could expect annual rates of return of 20-30 percent, monthly distributions and a return of their principal in three to five years, even though they knew that the funds were losing millions of dollars in oil and gas investments.

The defendants also allegedly pitched some of the investments as eligible for the EB-5 Immigrant Investor Pilot Program, under which foreign investors can obtain green cards by meeting certain investment requirements. The SEC claimed that the defendants’ monthly reports to investors were materially false and misleading because these reports omitted that the cost of operations for the oil and gas wells at issue far exceeded the proceeds of oil and gas sales.

The complaint alleged that the combined balance of the Luca Managers and Luca Funds in March 2015 was less than $12,000 despite $68 million in investments, and that Ms. Yang misappropriated millions for personal use and to make Ponzi-like payments to earlier investors.

The complaint also alleged that the use of funds conflicted with the offering materials, citing a $510,000 golf junket for potential investors, which included a $200,000 speaking fee for a former president of the United States.

The SEC alleges that these actions violate the Securities Exchange Act of 1934, the Securities Act of 1933 and the Investment Advisers Act of 1940, and it seeks, among other things, to enjoin defendants from future violations, disgorgement of profits and civil penalties.

SEC v. Luca International Group, LLC, et al., No. 3:15-cv-03101 (N.D. Cal filed July 6, 2015)

http://www.natlawreview.com/article/sec-brings-complaint-68-million-affinity-fraud-scheme

Mentions

• UNITED STATES SECURITIES AND EXCHANGE COMMISSION
• Luca International Group, LLC
• Luca Energy Fund Regional Center
• BingQing Yang

Litigation Cases

• UNITED STATES SECURITIES AND EXCHANGE COMMISSION vs Luca Energy Fund Regional Center & BingQing Yang

States

• New York