Grimes & Reese Reports: SEC Halts Pyramid Scheme Posing as MLM

At the request of the Securities and Exchange Commission, a federal court in Los Angeles has frozen the assets of a group of businesses that the SEC alleges to be operating a pyramid scheme masquerading as a multilevel marketing organization. The companies are based in California and Hong Kong and controlled by “Phil” Ming Xu, a California resident.

According to the SEC, businesses operating under the names WCM and WCM777 posed as multilevel marketing companies selling third-party cloud computing services. The SEC complaint alleges that they raised more than $65 million by falsely promising returns on investment of 100 percent or more in 100 days.

The SEC’s complaint stated that WCM and WCM777 sell their products exclusively to investors and depend almost entirely on the recruitment of new investors and purchases by existing investors to provide the money for returns.

Investors were told they would receive points, either through their investments or by enrolling other investors. The points then could be converted into equity as part of IPOs for the companies they were investing in. However, the SEC charges that WCM and WCM777 instead used the funds to make Ponzi payments as “returns” to some investors.

They also used investor money for unauthorized purchases, including two golf courses, a warehouse, vacant land, several single family homes, stocks and related investments.  They also sent investor money to a rough diamond jewel merchant another unrelated company affiliated with Xu.

In addition to the asset freeze, the court granted the SEC’s request for the appointment of a temporary receiver over the assets of WCM, WCM777, and several other entities named as relief defendants for the purpose of recovering money from the scheme.

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