U.S. federal authorities have sued to shut down an online pyramid scheme posing as an investment club.
The U.S. Securities and Exchange Commission (SEC) filed a civil action in a Dallas, Texas federal court on August 24th to stop Le Club Prive (LCP), a Panamanian corporation based in The Netherlands, from defrauding investors.
The suit alleges that the operation is a sham that has bilked more than 2,000 investors out of at least $5.6 million (US$) since it began operating in October 1999.
At the time the suit was filed, District Judge Jorge Solis granted a temporary restraining order to halt Le Club Prive’s activities and froze about $12 million of its assets, according to the SEC. The SEC’s suit asks the judge to permanently shut down the operation and to refund investors’ money.
Running the scam, according to the SEC, are Ron Zvi Mendelson, a Canadian, and Zdenek Kieslich. Both are currently believed to be living in Costa Rica. Also named was Eugene Chusid, of Fairlawn, New Jersey, who allegedly received at least $2 million from the scam.
The SEC alleges that Le Club Prive operated as an Internet investment club that sold memberships for $1,495 with monthly dues of $149. A “premier” membership was also offered for an additional cost of $2,995.
For their money, customers received unregistered shares of domestic and offshore mutual funds that the operators of the scam guaranteed would produce “outrageous monthly returns ranging from 6 to 40 percent, without any risk to principal.”
Among the perks of membership were investment advice, a “private, individual offshore bank account,” encrypted online banking, and “unlimited wealth-building opportunities.” The operators of Le Club Prive also promised members a $500 bounty for each new member they recruited.
The defendants allegedly diverted money received from investors for personal use. The SEC said it has traced more than $3.4 million directly to the “LCP principals or other entities that they control.” The suit also claims that “none of the banking or financial transactions reviewed by the staff reflect any indicia of legitimate business activity.”
In addition to the SEC probe, Le Club Prive faces investigations by a variety of state and national law enforcement agencies ranging from the Illinois Securities Department to the Alberta Royal Canadian Mounted Police.
One state agency investigating Le Club Prive, the Alaska Division of Banking, Securities, and Corporations, has posted a notice on its Web site warning investors: “The operator of the scheme, known as ‘Bull Dozer,’ claims to offer many ways of building wealth, most through supposed secret offshore trading programs. The money actually comes from the victims.”
Another warning about the phony investment scheme can be found at the Web site of the Australian Securities and Investments Commission (ASIC). “We believe this is yet another example of how dodgy operators are using new technology to play old tricks on their victims. Because not everybody knows how the Internet works, it’s easy to mislead people about what it can do. On the Internet you could be dealing with just about anyone from just about anywhere,” the site says.
In addition to the official investigations, a number of self-proclaimed “scam busters” have set up Web sites to share information about Le Club Prive and other questionable investment opportunities. Le Club Prive Due Diligence Site, summarizes information about ongoing investigations into Le Club Prive’s activities and provides contact information for several of the agencies investigating the scam.