The Securities and Exchange Commission has announced fraud charges and an emergency asset freeze against a group of Pasadena, Calif.-based companies at the center of an ongoing real estate investment scheme.
The SEC alleges that Yin Nan (Michael) Wang and Wendy Ko have raised more than $150 million from approximately 2,000 investors by selling promissory notes issued through Velocity Investment Group, which manages a series of investment funds entitled the Bio Profit Series.
Each of the Bio Profit Series funds purports to be primarily in the business of making real estate-related loans in California, but in reality Wang and Ko have used money received from newer investors to make the promised quarterly interest payments to earlier investors in Ponzi-like fashion.
Michele Wein Layne, director of the SEC’s Los Angeles Regional Office, said: "The SEC sought emergency action to prevent the further dissipation of investor assets through an expected set of upcoming Ponzi-like payments. Wang falsified financial records and used another company to create the illusion of legitimate economic activity."
According to the SEC’s complaint unsealed today in U.S. District Court for the Central District of California, Wang and Velocity Investment Group have been raising money since at least 2005.
Wang is the sole owner of Velocity Investment Group, and the Bio Profits Series fund accounts are controlled by Wang and Ko, who transferred some investor funds to make quarterly interest payments to other investors. The SEC’s complaint says Wang has admitted that Velocity was using new investor money to pay earlier investors.
The SEC alleges that Wang directed one of the Bio Profit Series funds to provide its outside accountant with inaccurate financial information that materially overstated its mortgage loans receivable and mortgage income figures.
The more than US$9.8 million of mortgage loan income shown in those financial statements included accrued interest that Wang knew that the fund would never actually receive.
Wang told Velocity’s accounting manager that investors would flee if they were told the true numbers, and it would be difficult for him to raise money.
The SEC further alleges that Wang and Ko used transactions between the Bio Profit Series funds and another company charged in the complaint – Rockwell Realty Management – with the apparent purpose of concealing the fraud. These transactions appear to have had no purpose other than to obfuscate the amount of transfers among the various funds.
The SEC’s complaint charges Wang and his companies as well as Ko with violations of Section 17(a) of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5.
The Honorable John A. Kronstadt of the U.S. District Court for the Central District of California granted the SEC’s request for a temporary asset freeze against Velocity, Bio Profit Series I, Bio Profit Series II, Bio Profit Series III, Bio Profit Series V, and Rockwell Realty Management.
Judge Kronstadt’s order prohibits the destruction of documents, requires the defendants to provide accountings, and allows expedited discovery. A court hearing has been scheduled for December 9 on the SEC’s motion for a preliminary injunction.
The SEC’s investigation was conducted by M. Lance Jasper, Peter F. Del Greco, and Dora Zaldivar in the Los Angeles office. The SEC’s litigation will be led by Lynn M. Dean and David J. Van Havermaat.