$45 Million Ponzi Halted by The SEC
SEC HALTS $45 MILLION PONZI-LIKE PROMISSORY NOTE SCHEME
The Commission, on July 12, filed an emergency action to halt an
ongoing $45 million securities offering that the SEC alleges to be a
Ponzi-like scheme. Named in the Commission’s complaint are Terchi Liao
(a.k.a. Nelson Liao), age 49 of Arcadia, California, and two entities
he controls, also of Arcadia, AOB Commerce, Inc. and AOB Asia Fund I,
LLC. The complaint also names four other Southern California entities
controlled by Liao — AOB Management, Inc., AOB Transportation, Inc.,
AOB Vacations, Inc., and AOB Media, Inc. — as relief defendants based
on their receipt of investor funds. The Honorable Christina A. Snyder,
United States District Judge for the Central District of California,
issued a temporary restraining order halting the securities offering,
appointing a temporary receiver over AOB Commerce and AOB Asia Fund,
and the relief defendants. The court also temporarily froze the assets
of the defendants and the relief defendants.
The Commission’s complaint alleges that since mid-2004, the defendants
have raised more than $45 million from hundreds of investors
nationwide through their unregistered offering and sale of promissory
notes that purportedly pay guaranteed interest of up to 5.5% per
month.
The complaint further alleges that the defendants represent that they
are in the business of making loans to companies in Asia, particularly
China. Although the defendants have made some loans to Asian
companies, they have principally used investor funds to pay the
interest on the promissory notes they previously issued and to pay
commissions to investors who solicit others to invest in the notes.
For example, according to the complaint, in the six-month period from
July 1, 2006 through December 31, 2006, the defendants:
* Raised more than $13.7 million from investors through the sale
of the notes;
* Received less than $375,000 from legitimate business
activities; but
* Paid more than $6 million in interest and commissions to
investors; and
* Loaned or otherwise transferred almost $6 million to four
related entities owned and/or controlled by Liao which are named
in the complaint as relief defendants.
As alleged in the complaint, Liao has known since at least September
2006 that AOB Commerce and AOB Asia Fund were unable to pay the
interest due investors from their business activities, and knew or was
reckless in not knowing that they were unable to do so prior to that
date. Nevertheless, the defendants have continued to raise substantial
amounts from investors through the sale of notes and have continued to
pay interest and commissions with new investor principal.
The court issued an order temporarily enjoining defendants from future
violations of the securities registration and antifraud provisions of
the federal securities laws, Sections 5(a), 5(c), and 17(a) of the
Securities Act of 1933, Section 10(b) of the Securities Exchange Act
of 1934 and Rule 10b-5 thereunder. The court also issued orders (1)
freezing the assets of the defendants and relief defendants; (2)
appointing a temporary receiver over the defendants and relief
defendants; (3) requiring the defendants to provide accountings; (4)
prohibiting the destruction of documents by the defendants; and (5)
granting expedited discovery. The Commission also seeks preliminary
and permanent injunctions, return of ill-gotten gains with prejudgment
interest, and penalties against the defendants. The Commission’s
complaint also requests an order barring Liao from acting as an
officer or director of any public company.
The complaint also alleges that the defendants loaned or otherwise
transferred significant amounts of investor monies to the relief
defendants and seeks the return of those monies.
A hearing on whether a preliminary injunction should be issued against
the defendants and whether a permanent receiver should be appointed is
scheduled for August 6, 2007.
Investors may direct their inquiries to the temporary receiver, Robb
Evans & Associates LLC, at (818) 768-8100.
The SEC has issued information for investors on promissory notes,
“Broken Promises: Promissory Note Fraud,” located at
http://www.sec.gov/investor/pubs/promise.htm. [SEC v. AOB Commerce,
Inc., AOB Asia Fund, I, LLC, and Terchi Liao a/k/a Nelson Liao, et
al., No. CV 07-4507 CAS (JCx) (C.D. Cal.)] (LR-20196)
