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Screenshot of a breaking news alert e-mail from Q2 2017
The Securities and Exchange Commission has announced charges against two India-based operators of an alleged high-yield investment scheme (also known as HYIP) seeking to exploit investors through pervasive social media pitches on Facebook, YouTube, and Twitter.
The SEC’s Enforcement Division alleges that Pankaj Srivastava and Nataraj Kavuri offered “guaranteed” daily profits as they anonymously solicited investments for their purported investment management company called Profits Paradise. They invited investors to deposit funds that supposedly would be pooled with money from other investors and traded on foreign exchanges as well as in stocks and commodities. They created a Profits Paradise website and related social media sites to describe the profits as “huge,” “lucrative,” and “handsome,” and they characterized the risk as “minimal.”
Forex HYIPs are often the preserve of small, unregulated entities, often in the Far East or Indian Subcontinent, and are very rare in the United States. Recently, New Zealand’s newly founded Financial Markets Authority warned against Phoenix Forex’s OakFX HYIP, which promised unrealistically large returns, whilst promoting that these returns were achieved by automated FX trading software which carried a price tag of several thousand dollars. Subsequently, as is common for many HYIPs, the company ran out of funds and investors were left high and dry.
In this case, the US authorities have demonstrated their ability to go overseas to bring perpetrators of such crimes to justice if those affected are on US soil. In this case, rather than soliciting via a dedicated corporate website, the two individuals concerned engaged in a campaign of client acquisition by soliciting investments to the illegal scheme via social media channels, the use of which is more widespread in the United States than many other jurisdictions.
The SEC’s Enforcement Division alleges that the guaranteed returns were false, and that the investments being offered bore the hallmark of a fraudulent high-yield investment program. Srivastava and Kavuri attempted to conceal their identities by supplying a fictitious name and contact information when registering Profits Paradise’s website address. They also communicated under the fake names of “Paul Allen” and “Nathan Jones.” After the SEC began its investigation into the investment offering, the Profits Paradise website was discontinued.
“Srivastava and Kavuri used excessive secrecy in their effort to swindle investors through social media outreach and a website that attracted as many as 4,000 visitors per day,” said Stephen Cohen, Associate Director of the SEC’s Division of Enforcement. “Our investigation stopped the constant solicitations once the website disappeared, and successfully tracked down the identities of the perpetrators behind those fraudulent solicitations.”
According to the SEC’s order instituting administrative proceedings, Mssrs Srivastava and Kavuri used the Profits Paradise website and YouTube videos to detail three investment plans with terms of 120 business days. The first plan purportedly yielded daily interest of 1.5 percent on investments of $10 to $749.
The second plan purportedly yielded 1.75 percent on investments of $750 to $3,499. And the third plan purportedly yielded 2 percent on investments of $3,500 and above. Postings on Profit Paradise’s Facebook page promised investors they could “Enjoy Hassle Free Income” and advertised a “5% Referral Commission.”
The scheme also utilized a Profits Paradise Twitter account to steer potential investors to the Profits Paradise website, and Mssrs Srivastava and Kavuri created a Google Plus page to promote the investment opportunity.
The SEC’s Enforcement Division alleges that Mssrs Srivastava and Kavuri violated Sections 17(a)(1) and (3) of the Securities Act of 1933, and will litigate the matter before an administrative law judge.
The SEC’s investigation was conducted by Carolyn Kurr and Daniel Rubenstein, and the case was supervised by C. Joshua Felker. The SEC’s litigation will be led by Kenneth Donnelly. The SEC appreciates the assistance of the Securities and Exchange Board of India as well as the Autorité des Marchés Financiers in Quebec, the Ontario Securities Commission, and the Securities and Futures Commission in Hong Kong.
The SEC today updated an investor alert educating investors about how social media may be used to promote so-called high-yield investment programs and other fraudulent investment schemes.
“We urge investors to exercise extreme caution if they are approached to invest in a website promising incredible returns with minimal or no risk. So-called high-yield investment programs are often frauds,” said Lori J. Schock, Director of the SEC’s Office of Investor Education and Advocacy.
For the full announcement by the SEC, click here.