SEC Busts Pyramid Scheme for Investing in Online Childrens Educational Courses
The SEC froze the assets of five entities that collectively went by “CKB” and “CKB168”. A string of international organizations participated in this world wide Ponzi scheme that targeted Asian Americans. The company offered “risk free” investments in their online childrens educational courses. The three main executives, living overseas, and their US based promoters raised over $20 million from US investors, with additional investors coming from China and Hong Kong. They leveraged relationships within the Asian American community to raise these funds.p
CKB put out promotional material, videos, websites, and seminars to make the company appear to be legitimate. However, this was all smoke and mirrors. Behind the lovely façade there was no actually operating company. They were not selling consumer products, as they claimed to be. In fact they did not generate any revenue at all. The only funds brought into the company were from investors. The majority of those funds were paid out to CKB executives and their promoters.
Antonia Chion, an associate director in the SEC’s Division of Enforcement said, “CKB’s operators and promoters profited by abusing relationships of trust within the Asian-American community and promising investors they can earn more money by recruiting other investors instead of selling actual products. What CKB really sells is the false promise of easy wealth.”
The SEC has formerly charged the following executives and promoters of CKB:
- Rayla Melchor Santos
- Hung Wai (“Howard”) Shern
- Rui Ling (“Florence”) Leung
- Daliang (David) Guo
- Yao Lin
- Chih Hsuan (“Kiki”) Lin
- Wen Chen Hwang (“Wendy Lee”)
- Toni Tong Chen
- Cheongwha (“Heywood”) Chang
- Joan Congyi Ma
- Heidi Mao Liu
It appears as though CKB attempted to structure its dealings to avoid the SEC, however, that strategy did not work. The SEC considers their dealing to be the improper sale of unregistered securities. The company told people that wanted to purchase an educational course that they had to invest in CKB, then they would receive “Profit Reward Points”. When the points increased in value the investor would supposedly see a return. They were also promised that the company would go public on the Hong Kong Stock Exchange in 2014, giving them another opportunity to earn money.
The investors were also promised that they could make more money by recruiting additional investors. The promises were lavish, Kiki Lin even added, “And for those who really want to make money, who are really hard working, in a short time you would all be like John,” who she claimed “made money to buy five houses in Las Vegas.” They would turn investors into recruiters and continued to grow through this practice until eventually enough investors complained and the SEC got involved.
This is a clear example of why it is important to conduct due diligence. As an investor you should be leery of companies that are promising that you can make money by getting other people to contribute money. Companies traditionally make money by selling goods and services, not be recruiting investors. The SEC publishes regular information on scams and companies that have been busted. Read our blog and their reports before you make an investment to be sure that the company you are interested in isn’t on the watch list.