An $100m class action lawsuit has been filed on behalf of victims of an alleged Ponzi scheme involving the fake cryptocurrency ‘Gemcoin’ days after a US Securities and Exchange Commission (SEC) crackdown.
The complaint, filed Monday by The Liu Law Group at the Los Angeles Superior Court, claims the scheme defrauded thousands of Chinese and Chinese-American investors beginning in 2014. It follows an SEC complaint late last month and a seizure of assets from the company’s Arcadia headquarters on 1st October.
The documents name 10 defendants allegedly involved in the Gemcoin scandal, including Steven Chen, who oversaw the alleged scam, and John Wuo, former mayor of Arcadia City who has resigned from his position as a city councilman in the wake of the lawsuit filing.
Wuo appeared at functions hosted by US Fine Investment Arts (USFIA), the company behind Gemcoin at the center of controversy. In past statements, he called Gemcoin a “breakthrough in finance”.
The now-former city councilman is also reportedly under investigation by the California Fair Political Practices Commission, a state agency that oversees campaign finance activity. Wuo has denied any wrongdoing or involvement with USFIA.
In a letter read aloud during a public hearing earlier this week in Arcadia, Wuo wrote that he was resigning “due to personal and health reasons”.
The defendants are accused of operating an international Ponzi scheme that targeted residents in both China and the United States.
In addition to Chen and Wuo, the suit named as defendants Solomon Yang, Leonard Johnson, John Zhang and Kun Jiang, as well as four corporations believed to be owned by Chen: USFIA, the US-China Consultation Association Liaison/Consulting Services (UCCA), AmKey Inc, and Alliance Financial Group.
Virtually worthless
According to the complaint, Gemcoin was used as a ruse to entice investors. Investors were initially pushed to invest their own money in USFIA and solicit others to invest as well.
Bonuses including money and luxury goods were promised at a number of investor events conducted during the scheme’s period of activity. Investors were also given precious stones called ambers that were said to be of high value but upon appraisal were subsequently deemed to be virtually worthless.
Later, investors were told that they would receive a new cryptocurrency – Gemcoin – prior to an explosive surge in value.
The complaint states:
“Defendants themselves, and through their entities and agents, sold worthless assets called Gemcoins, which were purportedly backed by their own amber mines in the Dominican Republic. Defendants heralded Gemcoin as a new cryptocurrency they invited that would be revolutionary and grow exponentially in value, and that Plaintiffs could become early investors.”
“In reality,” the complaint continues, “there was never any cryptocurrency, and Defendants used their false cryptocurrency and false legitimacy of USFIA to defraud the public.”
USFIA executives made claims of government backing, allegedly telling investors that their venture had the explicit support of the Chinese government as well as US President Barack Obama.
Yang is said to have told investors that he was related to Chinese President Xi Jinping and was the son of a senior Communist Party official. He also allegedly claimed a networth of nearly 300 million euros. These claims, according to the complaint, were designed to give the impression of legitimacy.
The complaint goes on to outline how individuals part of the USFIA scheme had previously operated in China and Thailand. A law enforcement crackdown in October 2014 conducted by Chinese and Thai authorities resulted in the shutdown of that scheme, the complaint reads.
In a recent interview, attorney Long C Liu, who filed the suit on behalf of a single John Doe investor and is seeking class-action status for as many as 3,000 victims, said that investors were promised a functioning virtual currency but received nothing in return.
“Basically the whole idea of Gemcoins is a fiction. It’s made up. It’s a fabrication,” Liu told CoinDesk.
Wuo did not respond to a request for comment. A representative for USFIA could not be reached.
The full complaint can be found below:
Gemcoin- Complaint Conformed Copy
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