U.S. SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 23120 / October 28, 2014
Securities and Exchange Commission v. eAdGear, Inc., et al., Civil Action No. 14-cv-04294-RS (U.S. District Court for the Northern District of California)
On September 24, 2014, the Securities and Exchange Commission filed an action in federal court in San Francisco, charging the operators of an international pyramid scheme that raised more than $129 million from investors worldwide, primarily in the U.S., China, and Taiwan. The case followed another against a separate pyramid scheme that lured investors in the U.S., China, and Korea with seminars, webinars and YouTube videos.
The newest case charges Hong Kong-based eAdGear Holdings Limited and California-based eAdGear, Inc., along with operators Charles S. Wang and Qian Cathy Zhang, of Warren, N.J., and Francis Y. Yuen, of Dublin, Calif. According to the SEC complaint, even though eAdGear claimed to be a successful Internet marketing company, nearly all of its revenue was generated by investors, not its products or services.
The complaint alleges that eAdGear's operators used money from new investors to pay earlier investors as well as to repay a personal loan and purchase million-dollar homes for themselves. It alleges the operators concealed and perpetuated the scheme by displaying sham websites on eAdGear's own site to make it appear as if it had real, paying customers and manipulated revenue distributions to investors to appear profitable.
The eAdGear case followed one filed earlier that week in federal court in Georgia against Zhunrize Inc. and CEO Jeff Pan for allegedly defrauding investors of more than $105 million since 2012. Despite its claims to be a legitimate multi-level marketing company, Zhunrize derived most of its funds from selling memberships, not products, according to the SEC complaint.
In both cases, the courts granted the SEC's request for an asset freeze and issued a temporary restraining order. In the case of eAdGear, that order bars the defendants from soliciting investors, including through websites they have used until now - www.eadgear.com, www.eadgear.net, www.winteam777.com, and www.winteam168.com. A hearing on the SEC's motion for preliminary injunction has been scheduled for November 14.
Jessica W. Chan, John A. Roscigno, and Jason M. Habermeyer of the SEC's San Francisco Regional Office conducted the investigation. Erin E. Schneider and Cary S. Robnett supervised the investigation. Ms. Chan and Susan F. LaMarca will lead the SEC's litigation.
Michael E. Mashburn and Kristin Wilhelm of the SEC's Atlanta Regional Office conducted the Zhunrize investigation, supervised by Peter J. Diskin. Ms. Wilhelm is leading the SEC's litigation.