A California man is facing SEC charges that he swindled tens of thousands of investors out of $26.5 million by selling them on the idea of getting rich off e-commerce and his new cybercurrency.
The multilevel marketing product sold by Daniel Pacheco, 45, of San Clemente, Calif., was actually a pyramid scheme that arose during the start of the cybercurrency craze in January 2017 and then collapsed a little over a year later, according to a civil lawsuit filed on Thursday by the U.S. Securities and Exchange Commission in U.S. District Court in Los Angeles.
The marketing plan and cybercurrency ended up being worthless, the lawsuit alleges, while Pacheco siphoned off investors' money to buy a $2.5 million luxury home in Redlands, Calif., and a $150,000 Rolls-Royce.
“We allege that Pacheco hid an old fraud under the guise of cutting-edge technology,” Michele Wein Layne, director of the SEC’s Los Angeles Regional Office, said in a press release. “He enticed investors by offering them the opportunity to speculate in cryptocurrency, when in fact he was simply operating a pyramid scheme.”
Pacheco carried out the scheme through IPro Solutions LLC and IPro Network, two California-based companies he controls, according to the complaint. The entities raised $26.5 million from about 20,000 members between January 2017 and March 2018, through the sale of "IPro" packages that contained information on how to start an e-commerce retail business.
IPro also offered investors two other ways to make money: through commissions earned by recruiting other IPro members and by converting "points" earned through recruitments and package purchases into a cybercurrency called PRO Currency.
The companies never delivered on any of these compensation plans, however, because IPro never had enough funds to fulfill the obligations, the SEC alleged.
Pacheco pitched his IPro product on websites, at promotional conferences and in face-to-face meetings, the SEC said, adding that the sale of the IPro packages constituted the sale of unregistered securities.
"Crucially, Pacheco misallocated and misappropriated substantial amounts of investors’ funds to the point that IPro had insufficient funds to honor its obligations under the recruitment compensation plan that had enticed investors to join the IPro program," the SEC complaint stated.
In addition to judgments that Pacheco violated federal securities laws, the complaint is seeking disgorgement of all funds received from the illegal conduct and the payment of civil penalties, according to the SEC.