In an unusual move, the Securities and Exchange Commission has temporarily shut down a Beverly Hills hedge fund and wealth management business -- which allegedly sought to defraud investors -- before anyone actually invested.
Elijah Bang and Daniel Lee, who operated IU Group Inc., allegedly targeted retirees, professors and Christians by misrepresenting the business and its financial performance, soliciting clients using a variety of company names and claiming that the fund managed over $800 million, according to an SEC statement on Monday.
Some websites stated that the company was founded by "devoted Christians who believe in God, Jesus Christ and the Holy Spirit," the SEC said. Lee sent email solicitations to college professors. Both men told potential clients that they handled money for professional athletes, actors, executives and politicians.
The SEC obtained a temporary restraining order to halt business activities and filed a complaint in the U.S. District Court in central California accusing Bang and Lee of fraud and seeking financial penalties.
John McCoy III, the associate regional director for the Los Angeles office of the SEC, said it was unusual, but not unheard of, for the SEC to stop a business scam before any investors were lured in.
"Often, particularly with defrauded investors, we don't get a complaint or tip until someone actually puts in money, tries to get it out and then the person says, 'Oh well, I don't actually have any of it,' " McCoy said.
In this case, the SEC received an early tip from the public, and subsequent investigations have uncovered zero investors and no money, McCoy said. But further digging could turn up new evidence.
"Part of the problem with these cases is the lack of transparency," he said. "There's always the caveat that we don't know what we don't know."
According to the SEC, Bang and Lee are also old hands at securities fraud. In 2009, the California Department of Corporations ordered the two to desist and refrain from illegal and fraudulent sale of securities.
But last year, they began soliciting money again under UI Group, whose business license was suspended in California, and under a variety of other company names not registered with the SEC or the state.
Calls and emails to Bang and Lee were not returned. David Van Havermaat, an attorney for the SEC, said neither men had hired a lawyer yet.
McCoy added that the district attorney's office or U.S. attorney's office could also bring criminal charges against the two men.
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-- Shan Li