Wealthy backers lured into investing millions of dollars in mining rare and precious amber gems were the victims of a Ponzi scam, according to financial watchdogs.
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The US Securities and Exchange Commission has filed fraud charges against Steve Chen, who allegedly masterminded the scheme that raised $32 million from dozens of investors who have yet to see any return.
According to the SEC, the US financial regulator, Chen pledged to pay investors dividends from companies mining the amber in the virtual currency Gemcoin.
He told investors his company owned the mining rights to huge amber mines in Argentina and the Dominican Republic plus other assets valued at $50 billion.
Investors could buy shares in the deal for between $1,000 and $30,000.
The SEC said Chen told investors that they could expect a 6,400% guaranteed return and falsely claimed the US government owned 70% of all Gemcoin in circulation.
Thousands of investors changed their cash into Gemcoins after Chen told them the amber in his mines was security for the virtual currency.
However, the SEC reckons Gemcoins are worthless.
The SEC was alerted after detectives investigated alleged death threats against Chen from unhappy investors.
Chen ran his amber and Gemcoin business through a California company called USFIA. The SEC has frozen all the company’s assets and those of 13 associated companies.
Losses could top $100m
“We allege that Chen made false claims of riches that investors would realise from his company’s amber mining activity never materialised,” said Michele Layne, director of the SEC’s Los Angeles office.
“The scheme was actually a pyramid network that left most investors with nothing for their money.”
Disgruntled investors are launching legal action against Chen and his companies.
“Most of the people who have approached us are in this for an average $10, 000,” he said. “The $32 million is just the amount lost in California, and we would not be surprised if the real losses turn out to be $100 million or more by the time the investigations is finalised.
“There must be thousands of investors out there who have written off their cash or have yet to contact the police or SEC about this.”
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