How You can Avoid Frauds Like the AOB Asia Fund.
Is the AOB Asia Fund a fraud? Well the SEC certainly thinks so. SEC Halts $45 Million Ponzi-Like Promissory Note Scheme
"The Securities and Exchange Commission, on July 12, 2007, filed an emergency action, with declarations under seal, to halt an ongoing $45 million securities offering that the SEC alleges to be a Ponzi-like scheme.
Named in the Commission's complaint are Terchi Liao (a.k.a. Nelson Liao), age 49 of Arcadia, California, and two entities he controls, also of Arcadia, AOB Commerce, Inc. and AOB Asia Fund I, LLC. The complaint also names four other Southern California entities controlled by Liao -- AOB Management, Inc., AOB Transportation, Inc., AOB Vacations, Inc., and AOB Media, Inc. -- as relief defendants based on their receipt of investor funds.
The Commission's complaint alleges that since mid-2004, the defendants have raised more than $45 million from hundreds of investors nationwide through their unregistered offering and sale of promissory notes that purportedly pay guaranteed interest of up to 5.5% per month.
The complaint further alleges that the defendants represent that they are in the business of making loans to companies in Asia, particularly China.
Although the defendants have made some loans to Asian companies, they have principally used investor funds to pay the interest on the promissory notes they previously issued and to pay commissions to investors who solicit others to invest in the notes. For example, according to the complaint, in the six-month period from July 1, 2006 through December 31, 2006, the defendants:
Raised more than $13.7 million from investors through the sale of the notes;Received less than $375,000 from legitimate business activities; but
Paid more than $6 million in interest and commissions to investors; and
Loaned or otherwise transferred almost $6 million to four related entities owned and/or controlled by Liao which are named in the complaint as relief defendants.
As alleged in the complaint, Liao has known since at least September 2006 that AOB Commerce and AOB Asia Fund were unable to pay the interest due investors from their business activities, and knew or was reckless in not knowing that they were unable to do so prior to that date.
Nevertheless, the defendants have continued to raise substantial amounts from investors through the sale of notes and have continued to pay interest and commissions with new investor principal.
The complaint also alleges that the defendants loaned or otherwise transferred significant amounts of investor monies to the relief defendants and seeks the return of those monies."
A hearing on whether a preliminary injunction should be issued against the defendants and whether a permanent receiver should be appointed was scheduled for August 6, 2007, but now at the request of one the defendants, the hearing is now scheduled for August 13th, 2007.
The Temporary Receiver is Robb Evans & Associates, LCC who will remain in place until August 14th, 2007, unless the temporary restraining order is made permanent or extended.
Both AOB Asia Fund I, LLC and AOB Commerce are California companies, but neither was registered to offer securities under the Securities Exchange Act.
Unregistered securities, like business opportunities which do not provide disclosure documents, are generally illegal.
But unfortunately, many investors who lose their money are unaware of the legal protection offered by registration.
The AOB website, in unremarkable and generates little traffic -which provides a good due diligence tip. Check the seller's website, if it is generating little traffic, then you are probably being pitched an investment irregardless of its suitability. You can check web traffic at Alexa, or at Traffic Estimate.
The second due diligence tip is, that if the investment is not registered, or the seller not registered, do not make the purchase.
While this sounds simple, in practice it is difficult to implement. For example, in this case, the investors personally negotiated the interest rate on the unregistered promissory notes. This is a clever compliance technique: the purchaser is committed to the "deal" that they struck and is unlikely to go behind it to check on whether the seller or the instrument has been registered.
You can use the SEC site to check on registration but in order to use this due diligence tip, you must accept at a gut level that your brain can trust, but you have to verify, also.
