The CEO of a San Francisco-area oil and gas company allegedly used the proceeds from a $68 million international “Ponzi-like” affinity scheme to buy a 5,600-square-foot home, pay personal taxes, fund pool and gardening services, and take her family on a Hawaii vacation.
The U.S. Securities and Exchange Commission charged Bingqing Yang, CEO of Luca International Group, with targeting the Chinese-American community in California and investors in Asia in the scheme, using the EB-5 Immigrant Investor Program to solicit funds.
The SEC’s complaint, filed in the U.S. District Court, Northern District of California, San Francisco Division, also names Lei (Lily) Lei, Luca’s former vice president of business development; Anthony Pollace, former CFO; and Yong (Michael) Chen, owner of Entholpy EMC.
Yang allegedly made presentations to investors portraying Luca as a successful oil and gas company with millions of barrels of oil and millions of cubic feet of gas in reserve. Despite the fact that the company was earning no profits and riddled with debt, she projected 20 percent to 30 percent annual investment returns at the presentations, and up to 15 percent returns in writing from petroleum exploration in Texas, Montana, North Dakota, Louisiana and the Gulf of Mexico. From September 2007 through March 2014, the scheme raised $68 million.
The SEC alleges that Yang commingled investor funds to prevent the scheme from collapsing, funneling money from new investors to make monthly sham profit payments to earlier investors. In March 2012, Yang transferred $1 million between Luca accounts, characterizing the transfer as purported trademark licensing fees, but allegedly transferred $950,000 of that money to her personal bank account within the same month without registering any new trademark logos.
Yang also allegedly diverted $2.4 million in investor funds through her brother’s Hong Kong company, purportedly to purchase an oil rig, and used it instead to purchase her home in an exclusive Fremont, Calif., gated community.
Funds were also allegedly used to pay for martial arts, choir and music lessons for her children; family visits to China; and homeowner association fees.
Lei allegedly sold the securities and helped Yang divert investor funds while Chen raised money for the scheme through Entholpy EMC, (doing business as “Mastermind College Funding.”)
Yang and Luca International allegedly targeted Chinese citizens seeking permanent U.S. residence through the EB-5 program, which provides a way for foreign investors to obtain a green card by meeting certain U.S. investment requirements.
The SEC alleges that Yang raised approximately $8 million from EB-5 investors to purportedly finance jobs and development costs for eight oil and natural gas drilling projects, claiming that the loan was fully secured. However, the Luca entity funded by the EB-5 investors was “hopelessly” in debt, according to the SEC complaint.