Court-Appointed Investigator of Alleged Gemcoin Fraud Issues First Report

Steve Chen, currently under investigation by the SEC. – Courtesy Photo

Gemcoin Investigator Reveals Mounting Evidence of Fraudulent Activity by Arcadia Businessman

By Joe Taglieri

The court-appointed receiver for all financial assets associated with the founder of Gemcoin, an allegedly fraudulent cryptocurrency, issued the first public update of his increasingly extensive investigation.

The report, filed Nov. 13 with the federal court in Los Angeles that is overseeing the case, highlights a number of areas of suspected financial malfeasance by Steve Chen and his business entities.

In late-September authorities froze Chen’s assets and appointed receiver Thomas Seaman to investigate the Gemcoin operation and a number of other Chen-affiliated companies. Authorities raided Chen’s office and began the lengthy task of confiscating computers and documents from USFIA Inc. and many other corporate entities headquartered at 135 E. Live Oak Ave.

The receiver has identified more than 40 companies and numerous bank accounts tied to Chen.

So far Seaman has commandeered nearly $20.5 million in cash assets from Chen, also known as Li Chen or Chen Li, and his wife Jennifer Zhao, also known as Li Zhao or Zhao Li. Confiscated real estate includes the USFIA office building in Arcadia, the 112-unit Hills Garden Hotel in Rancho Cucamonga, a 36-unit apartment building in Alhambra, a warehouse, several single-family residences and parcels of undeveloped land that included a proposed golf course site in Moreno Valley.

The hotel and apartment building continue to generate revenue, now paid to Seaman, from hotel guests and apartment renters.

While the full scope of Chen’s financial empire still remains largely unclear, Seaman’s report bluntly notes the apparent clarity of the Securities and Exchange Commission’s fraud allegations:

“At this point there is no indication of any legitimate Gemcoin or other viable business. There is also no indication [Chen’s companies] had any significant sources of income other than monies raised from investors. Rather, based on documents located at the company headquarters and gathered from other sources, it does not appear that the assets described in online and written marketing materials actually exist. Instead of mines located around the world, millions of dollars in precious gems, and houses and cars available to be awarded to investors, the Receiver has found only costume jewelry and bins filled with rings of nominal value.”

Seaman investigators also identified “large payments to companies outside the United States, including companies in China, Vietnam, Mexico, and the Dominican Republic” made prior to the asset freeze.

Another notable find was the existence of a company called Ally Investors, which functioned as a corporate shell though which Chen and his wife siphoned cash from Gemcoin investors for lavish personal expenses.

Zhao’s LinkedIn webpage described her as the CEO of Ally. State records show Zhao is Ally’s registered agent, and the company’s Arcadia address is 753 Carriage House Drive. Zhao is the current owner of the nearly 6,000-square-foot, six-bedroom home valued at $3.5 million, according to property records.

Although Zhao and Ally have hired attorneys and demanded the accounts be unfrozen, “Company accounting records and bank records gathered by the Receiver … show Zhao and Ally received large sums from [Chen’s companies],” according to the report. “These records also reflect large cashier’s checks drawn on one of the Ally accounts and cashed at a casino by Chen.”

Chen’s son Mo Chen met with investigators regarding the USFIA affiliate Amkey Global. According to the report it appears that Amkey Inc. – a defendant in the SEC’s civil suit against Chen – sells vitamins and dietary supplements online in East Asia using a pyramid structure, also called “multilevel marketing.”

Mo Chen claimed to have managed the company from the two-story, 18,000-square-foot office complex on Live Oak Avenue and requested he and his wife continue to operate the business.

“The Receiver is open to operating the business if it can be done in a legal, ethical, and profitable manner,” the report states. “Accordingly, the Receiver met with them in order to get a better understanding of the business and requested a basic [financial statement] of the cash flows and information about distribution and compensation. No information has been provided to date. Mo Chen did acknowledge during the meeting that Amkey Global owes Amkey approximately $1.3 million.”

Prior to the asset freeze Chen hired Century City law firm Bird Marella and paid a $600,000 retainer.

Citing the judge’s court order, attorneys representing Seaman from the firm Allen Matkins in Los Angeles requested that Bird Marella turn over all files relating to Chen and forfeit the sizable retainer to Seaman.

When the request was initially refused, Seaman’s lawyers threatened to seek a court order to force Bird Marella’s compliance.

At that point Bird Marella “provided its engagement letter, confirming its joint representation of Chen and USFIA, disclosed that it had received a retainer of $600,000, but would not disclose the source of the funds,” the report explains. “The Receiver has demanded the $600,000 be immediately turned over and intends to seek relief from the Court if Bird Marella fails to comply.”

The report also describes the September raid in which Seaman questioned 32 employees of Chen.

“Shortly after the Receiver arrived and the U.S. Marshals secured the Company Offices, Chen arrived,” the report states. “He was wearing a security guard uniform and carried a loaded gun, which was not concealed. The U.S. Marshals seized the weapon and also found $46,150 in cash in Chen’s car. The funds are being held by the Receiver.”

To date Seaman’s team has collected about 100 terabytes of data from roughly 240 storage devices and shutdown an estimated 10 websites tied to Gemcoin and USFIA.

In addition to all books, records, furniture and office equipment, during the raid the receiver seized “two new large Mercedes vans, five diamonds located in Chen’s desk, a weapons safe with ammunition, and owner’s manuals for two rifles (but not the rifles themselves), a bag of 1,160 Chinese New Year cards each containing a $5 bill, and several designer … women’s bags.”

The USFIA office also contained a cache of worthless ornamental jewelry predominantly made of amber.

“The pieces are hung in locked and lit showcases with price tags in the tens of thousands of dollars, far in excess of their actual value,” Seaman concluded after consulting a gemologist. “There is additional jewelry inventory of even less value in a separate part of the Company Offices, much of which is labeled as having value in the tens of thousands or even millions of dollars and appears to have been used to attract investors.”

Updates and documents pertaining to the Gemcoin fraud case are available at usfiareceiver.com.

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