SEC Halts $150 Mio. Ponzi Scheme with ties to EB-5 Regional Center

On Oct. 15, 2013, the Securities and Exchange Commission (SEC) obtained an asset freeze in order to halt an ongoing Ponzi-like scheme being perpetrated by defendants Michael Wang, Wendy Ko, Velocity Investment Group, Inc., Bio Profit Series I, LLC, Bio Profit Series II, LLC, Bio Profit Series III, LLC, Bio Profit Series V, LLC, and Rockwell Realty Management, Inc., which are all based in Pasadena, CA.

Contributing to this story:

Andrew Stephenson, Crowd Check; Yi Song, Mona Shah & Associates, Paul Scheuren, Impact Data Source

A press release on www.sec.gov states: “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.” http://www.sec.gov/News/PressRelease/Detail/PressRelease/1370540220789#.UnqoIKVGxFx

According to the SEC’s complaint, 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 also says Wang has admitted he ran Velocity and the funds it managed as a Ponzi-like scheme. In each of the first three quarters of 2012, defendants caused one or more of the BPS funds to transfer large sums of money to BPS I – more than $4.8 million in 2012 alone. Instead of investing this money, BPS I instead used some or all of the money transferred to it to make quarterly interest payments to its investors.

Allegations

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 $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. Wang posted the falsified financial statements on an Internet website open to BPS I investors.

Each of the BPS Fund offerings promised a substantial rate of return for the investors purchasing the notes issued by the funds. In addition, the offering proceeds were subject to a variety of management fees, expense reimbursements, and sales commissions that significantly reduce the amount of investor principal available for investment (between only 82 to 86 percent of the offering proceeds were available for investment). As a result, the BPS Funds had to generate returns on investment that were well above market average just to meet the interest obligations they owed to investors.

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. This went on from June 2007 to April 2013. The filed complaint shows that Rockwell is a California corporation ostensibly controlled by an individual who is not a party to this action. But this person had virtually no control over or knowledge of Rockwell’s day-to-day operations. Instead, Rockwell is actually controlled and managed by Wang and Ko. Both defendants opened bank accounts for Rockwell on which they are the sole signatories, and these are the accounts in which the overwhelming majority of Rockwell’s banking activity is transacted. Of the hundreds of checks that Rockwell has issued over the years, its supposed owner (the non-party) has signed, and has knowledge of, fewer than a dozen.

Rockwell was ostensibly tasked with collecting monies owed to the BPS Funds from borrowers or renters of BPS-owned properties. The aggregate amount of income from this activity for the period June 2007 to April 2013 appears to total no more than $2.5 million. During the same time period, Wang transferred almost $40 million back-and-forth between the BPS Funds and Rockwell. These transactions appear to have no discernible purpose other than to foster the illusion that transfers between the BPS Funds were legitimate business activity. Rockwell has transferred more than $3.7 million directly to Wang.

According to the SEC complaint, despite the fact that Rockwell collected no more than $2.5 million in rents and loan payments on behalf of BPS, Rockwell has transferred more than $7.2 million net to Velocity Investment Group, a sum which almost certainly exceeds the management fees, expense reimbursements and sales commissions to which Velocity Investment Group is entitled.
EB-5 Regional Center Tie-In?

In addition to managing Velocity Investment Group named in the SEC complaint, Michael Wang and Wendy Ko have been affiliated with Velocity Regional Center based in Pasadena, CA. While the SEC complaint and asset freeze order do not relate to the activities of the regional center, the current litigation will likely have an impact on the regional center activities and raise concerns about the handling of investor funds in the projects it sponsored.

Presently, the Velocity Regional Center website, http://www.v-regionalcenter.com/en/about-us, indicates that Jason Wang is the current president of the regional center. However, a search of public records show that Michael Wang has been publicly identified as the president of the regional center while Wendy Ko is a listed owner.

Michael (Yin-Nan) Wang is further connected to the management of the regional center through the first few investment funds sponsored by Velocity Regional Center. Michael Wang is listed as the executive officer responsible for Velocity I LP, Velocity II LP, and Velocity III LP funds sponsored by the regional center, see http://www.sec.gov/Archives/edgar/data/1556923/000155692312000001/xslFormDX01/primary_doc.xml. Velocity I LP also provides the same address as Velocity Investment Group in the SEC complaint.

Domain registration records for the EB-5 Regional Center show the owner as Velocity Investment Group, LLC.

In the filings with the SEC for Velocity I LP, Velocity II LP, and Velocity III LP, Michael Wang lists himself as the executive for the fund and the managing member of the managing partner of the fund, but does not state the entity that is actually the managing partner. If Velocity Investment Group is the managing partner of these funds, it is possible that these funds will be brought into the litigation with negative implications for EB-5 investors.

More recent funds sponsored by Velocity Regional Center, including Velocity V LP and Velocity VIII LP, designate Jason Wang is the executive for the fund and the managing partner of the fund. No reference to managing member of the managing partner, which may indicate that Velocity Investment Group is not directly involved in the placement of the funds.

An additional EB-5 connection to the current litigation may come from the involvement of Velocity Regional Center Vice President Thomas Liu. Thomas Liu has previously served as general manager of Natural Biotechnology Pharmaceutical Manufacturing Company, which may be related to the “Bio” description on the funds sold by Velocity Investment Group. However, a search for Natural Biotechnology Pharmaceutical Manufacturing Company did not reveal any results to confirm the connection to the supposed real estate investments of the funds.

About the Defendants

• Yin Nan “Michael” Wang, age 55, resides in Hacienda Heights, CA. Wang is not registered in any capacity with the SEC. He is the sole owner ofVelocity, through which he controls each ofthe BPS Funds, and is the co­signatory along with Wendy Ko on several bank accounts ofRockwell.

• Wendy Ko, 48, resides in Pasadena, CA. Ko is not registered in any capacity with the SEC. She is co-signatory, along with Wang, on several bank accounts of Rockwell.

• Velocity Investment Group, Inc. is a Delaware corporation with its principal place of business in Pasadena, CA. Velocity is not registered with the SEC in any capacity. Velocity manages at least eight unregistered investment funds, six of which have claimed exemption from registration under Rule 506 of the Securities Act.

• Bio Profit Series I, LLC is a Delaware limited liability company with its principal place of business in Pasadena, California. BPS I has two Forms D on file with the SEC, dated June 27, 2005 and June 4, 2010, and claimed exemption from registration for both offerings under Rule 506.

• Bio Profit Series II, LLC is a Delaware limited liability company with its principal place of business in Pasadena, California. BPS II has one Form Don file with the SEC, dated November 14, 2007, and claimed exemption from registration under Rule 506.

• Bio Profit Series III, LLC is a Delaware limited liability company with its principal place o f business in Pasadena, CA. BPS III has one Form D on file with the SEC, dated Nov. 15, 2007, and claimed exemption from registration under Rule 506.

• Bio Profit Series V, LLC is a Delaware limited liability company with its principal place of business in Pasadena, CA. BPS V has one Form D on file with the SEC, dated Dec. 12, 2011, and claimed exemption from registration under Rule 506.

• Rockwell Realty Management, Inc. is a California corporation with its principal place of business in Temple City, CA. Rockwell is not registered with the SEC in any capacity and has not registered any offering of its securities under the Securities Act or a class of securities under the Exchange Act.