Seven People Indicted for Allegedly Posing as Advisors in Multimillion-Dollar Fraud

By Kenneth Corbin

The FBI is trying to determine the identities of hundreds of victims who were allegedly tricked by scammers in China posing as investment advisors on social media in a high-stakes pump-and-dump scheme.

The Justice Department announced earlier this month that it had seized about $214 million in proceeds from the alleged fraud. The DOJ is asking a court to have the money forfeited to the U.S., at which point it could be returned to the investors who fell victim to the scam.

Posing as advisors, the perpetrators of the alleged scam aggressively promoted investments in a company based in the Cayman Islands called Chinese Liberal Education Holdings, or CLEU, that trades on the Nasdaq Composite exchange in the U.S., according to prosecutors.

The scammers "made false representations and instructed investors to purchase shares of CLEU stock, promising significant returns on their investment," the FBI says in a notice directing potential victims to a form they can submit documenting their experience.

The defendants' promotion of the stock on social media and messaging platforms allegedly helped drive the share price artificially higher, "at which point the defendants sold thousands of shares and made millions of dollars in profits," according to the Justice Department, which has charged seven individuals with wire fraud and securities fraud.

The defendants, described in the indictment as residents of Taiwan or Malaysia, aren't in U.S. custody, but warrants have been issued for their arrest. Court records don't indicate that any defendant has retained a lawyer in the matter.

The alleged scheme fits with a pattern of malicious activity on social media that has caught the attention of U.S. regulators and consumer advocates. In September, the Securities and Exchange Commission's Office of Investor Education and Advocacy issued an alert warning of scams involving stock tips promoted through social media.

Among the red flags included in that bulletin were promises of "high investment returns with little or no risk." The alert also warned about strangers claiming to be renowned investment professionals or employees of a registered investment advisor or a broker. The latest scheme appears to fit within that description.

The DOJ says that the seven individuals, pretending to be U.S.-based investment advisors, "engaged in misleading promotion and coordinated trading" of shares of CLEU stock, which purportedly provided educational services in China.

During the relevant period, there was a sizable increase in the number of CLEU shares issued. That wasn't publicly disclosed until after the defendants had allegedly received millions of shares directly from the company.

CLEU didn't immediately respond to a request for comment.

When the company accounted for the accurate number of shares outstanding — including those sold by the defendants — in an SEC filing at the end of January, CLEU's share price fell about 99%. Those losses affected around 600 U.S. investors and others globally, according to the indictment.

Before that announcement, the defendants had each sold between 3.7 million and 9.3 million shares of the stock, the Justice Department says.

This content was created by Barron's, which is operated by Dow Jones & Co. Barron's is published independently from Dow Jones Newswires and The Wall Street Journal.