Asset Freeze, Financial Penalties Hit Holdings Company After Ponzi Scheme

Jack Humphrey, Regulatory journalist
May 01, 2011 /

Citing several violations against the Securities Exchange Act of 1934, a court order obtained by the Securities and Exchange Commission has frozen the assets of a holdings company that defrauded investors through a sham investment scheme.

At issue is the Ponzi scheme, a fraudulent investing scam similar to the case of Francisco Illarramendi which faced complaints from the Securities and Exchange Commission and Connecticut’s US Attorney’s Office on March after promising investors of high yields of their investments with little risk. In reality, the scheme was designed to generate returns only for old investors using new investments.

The SEC busted the Ponzi scheme perpetrated by China Voice Holding Corp. that traded in over-the-counter markets, claiming it had a portfolio of telecommunications products and services in USA and China.

Approximately $8.6 million has been funneled from investors through the fraudulent scheme operated by China Voice’s co-founder and his two associates.

Stephen Cohen, associate director of the SEC’s Division of Enforcement, said the defendants “falsely touted what they claimed to be a prudent investment with reliable returns through loans made to carefully selected businesses.”

The SEC’s complaint filed before the U.S. District Court for the Northern District of Texas (Dallas Division) claimed that David Ronald Allen, China voice’s chief financial officer, and his associates Alex Dowlatshahi and Christopher Mills offered limited partnerships to several investors that promised at least 25 percent in returns.

The promoters allegedly made these investors to believe their money was being loaned to firms with “demonstrated track record and large profit margins.” In reality, the complaint continued, Allen and his associates used the investments to pay earlier investors.

They were also accused of funneling the money to benefit family members and to the holdings company and a complicated web of other companies controlled by Allen.

The complaint further alleged that Allen and his associates attempted to maintain the scheme by increasing the pace and size of the offerings. Shortly before the SEC’s enforcement, they allegedly planned to make two more limited partnerships offerings.

Not only did the holdings company defrauded investors of their money, it also made misrepresentations in its financial position. The SEC added that China Voice, its former chairman and CEO William Burbank IV, and Allen, overstated the value of business relationships and failed to disclose to investors “significant loans from related parties needed to fund its operations.”

Beginning September 2006, China Voice allegedly claimed to provide telephone and other communications software in China on a more wide basis than it actually did.

In June 2008 after an audit, the holdings company retracted its previous “extensively publicized contracts” in several press releases and public filings involving services made to the government and other entities in China. The holdings company found that majority of the its revenue came from its U.S. subsidiaries, but went on to tout its purported contracts.

Additionally, two of China Voice shareholders, Gerald Patera and Ilya Drapkin, were also charged for their participation in the finance stock promotion campaigns of Allen.

The campaigns were made to pump up the price of stock of the holdings company, and included wide distribution of spam faxes to thousands of people containing false and misleading statements about China Voice .

The campaigns had cost more than a million dollars, the SEC claimed, with Patera and Drapkin dumping millions of shares of the company into the market.

The SEC sought a temporary restraining order, preliminary and permanent injunctions, disgorgement of unlawful proceeds plus prejudgment interest, and a financial penalty to be imposed on Allen, Dowlatshahi, Mills, Burbank, Patera, Drapkin, Wilson and various related companies.

In addition, Allen, Burbank, Patera, Drapkin were banned from taking any position in the penny stock market.

 

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