Cryptocurrency ecosystem rocked by $32 million scam

The US Securities and Exchange Commission (SEC) has alleged that Steve Chen and US Fine Investment Arts, Inc. (USFIA) have misled several investors and were “operating nothing more than a pyramid scheme”.

Starting in 2013, Chen and USFIA began to raise considerable amount of funds from investors, totalling approximately $32 million. The SEC said that among other false and misleading representations made by Chen which caused investors to invest in USFIA, include claims that:

• USFIA owns several large mines, including amber mines in the Dominican Republic and Argentina
• An investment in USFIA was guaranteed to increase in value sixty four times over a very short period
• USFIA was going to conduct an initial public offering ("IPO") in the near future
• Investors would receive or be entitled to receive pre-IPO shares in USFIA that would increase in value once the company went public. No IPO ever took place
• In around last September, investors were told that instead of cash or shares, they would receive a cryptocurrency known as "Gemcoins" in exchange for their investment in USFIA, which would greatly increase in value

Moreover, in order to encourage investors to invest in Gemcoins, material misrepresentations were made through the USFIA website, and through secondary websites that link to websites Chen controlled:

• The use of Gem coin as a virtual currency has been legalized by the State of California
• Gemcoin is backed by $15 billion in assets and that there is "zero" chance of devaluation because Gemcoins are backed by their equivalent in precious stones
• 2000 ATM platforms exist for converting Gem coins into paper money

In the face of growing investor unrest, Chen was interrogated by the Arcadia Police Department on September 15, 2015, regarding his operation of USFIA, following which Chen attempted to wire $7.5 million out of USFIA's bank account at Bank of America to a bank in the Peoples Republic of China.

The SEC said, “In light of the Defendants' ongoing conduct, and Chen's recent efforts to move investor funds overseas, the SEC seeks a temporary restraining order and preliminary and permanent injunctions prohibiting future such violations and prohibiting Defendants from soliciting, accepting or depositing any investor monies; an order freezing Defendants' assets, appointing a temporary receiver, providing for expedited discovery, requiring preservation of documents, and ordering an accounting; and disgorgement of Defendants' ill-gotten gains, prejudgment interest, and civil penalties.”