SEC Charges Luca International and Its CEO in Fraud Scheme Targeting Chinese-Americans and EB-5 Investors

SEC Charges Luca International and Its CEO in Fraud Scheme Targeting Chinese-Americans and EB-5 Investors

On July 6, 2015, the Securities and Exchange Commission issued Litigation Release No. 23298 announcing the filing in federal court in San Francisco of a civil enforcement lawsuit against a Bay Area oil-and-gas company and its CEO, charging a $68 Million Ponzi-like scheme and affinity fraud targeting Chinese-American investors in California and investors in Asia.  Although the majority of the fraud involved activities not involving the EB-5 sphere, the entire scheme included $8 Million from foreign investors solicited through the EB-5 Program.
The charges include securities fraud, misappropriation of funds, use of funds for improper and personal purposes, false and misleading statements, and unregistered brokering, grounding causes of action seen in prior EB-5 enforcement actions and administrative proceedings.  Significantly, the Luca case also includes some noteworthy “firsts”: for the first time in a case involving the EB-5 Program, the charges include conducting unregistered securities offerings in violation of claimed exemptions, specifically Regulation D; and likewise for the first time, the charges also include investment adviser fraud, the SEC alleging that certain defendants were investment advisers as defined under the Investment Advisers Act and committed fraud under that additional law.
Named Defendants include Bingqing Yang, her entities Luca International Group, LLC, Luca Resources Group, LLC, Luca Energy Fund, LLC, her fundraiser Lei (Lily) Lei, her former CFO Anthony Pollace, and Yong (Michael) Chen and his company Entholpy EMC, Inc.  Related parties sanctioned on the same set of facts are discussed below in the Wisteria/Fujigami matter.  The relief sought includes disgorgement, civil penalties, injunctions against fraud, further securities participation, and solicitation, an asset freeze, appointment of a receiver, and accountings.
SEC Litigation Release No. 23298 link: .
SEC’s Luca complaint link: .
Luca-Related Administrative Proceeding
Concurrently with the filing of its complaint in SEC v. Luca, the SEC also announced it had reached a settlement with Wisteria Global, Inc. and Hiroshi Fujigami, who consented to the entry of an order instituting administrative and cease-and-desist proceedings and imposing sanctions for the respondents’ actions as unregistered broker-dealers in certain of the transactions also involved in the Lucacase (but evidently not the EB-5 portion).  Interestingly, the Respondents arranged an investment seminar outside the USA, arranged meetings with foreign investors in the US on multiple locations that also included site visits, and acted as a translator as well as a facilitator at the US meetings and also through YouTube videos.  The Respondents asserted an inability to pay full disgorgement, prejudgment interest, and a civil penalty, so the SEC accepted the sanctions of censure, a cease-and-desist from future violations, and disgorgement of $1.130 Million, and a securities bar.  The Wisteria/Fujigami Administrative Proceeding link is: .
Update to Ireeco Case Description
Review of the SEC’s Administrative Proceeding in the Ireeco case identifies the Respondents as the two Ireeco entities, without including their principals as indicated in our June 24, 2015 SEC News Alert.  The Ireeco Administrative Proceeding link is: .


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