It is one of the biggest Ponzi schemes alleged by authorities in L.A.’s history – and, as of yet, not a single investor has been revealed to be from the United States.

The Securities and Exchange Commission froze the assets of Pasadena’s Velocity Investment Group Inc. earlier this month, unsealing fraud charges against it, owner Yin Nan “Michael” Wang and employee Wendy Ko.

The real estate investment company is believed to have raised more than $150 million from about 2,000 investors, mostly from China and Taiwan, to buy property and make loans on residential and commercial buildings in the United States. But authorities claim that instead of running a legitimate business, it paid out exorbitant returns – in some cases promising gross returns as high as 300 percent – using money from new investors.

Experts say it is among the most sizable L.A. funds to be charged by authorities as a Ponzi scheme, though a tier below larger cases in Riverside, Santa Barbara and Orange County.

“It has to be one of the largest in the Los Angeles area,” said Terree Bowers, a former U.S. attorney now practicing at Arent Fox who reviewed the case for the Business Journal. “But it also shows how the SEC is trying to be very proactive with Ponzi schemes and get in early before an even greater amount is expended. After Bernie Madoff, the SEC was criticized for not acting quickly enough.”

Though the money came from overseas, Wang and his company entered into a complex web of business dealings in Los Angeles.

Records show Velocity made a number of real estate investments in Southern California, mostly in the form of home mortgage loans, though the SEC argues that portfolio was tiny compared with the amount of money raised, and not the primary source of returns to investors.

Wang, 55, is also alleged to be the owner of a number of separate businesses, including a career college in Pasadena and an Anaheim hotel operator, which authorities say received money from a company controlled by Velocity. The government alleges these transactions were intended to benefit Wang, not his investors.

Big promises

Wang began recruiting investors through Velocity in 2005, with stated plans to invest in California real estate. It managed several investment funds selling promissory notes to investors, most of them from China and Taiwan, according to the SEC’s case filings. Terms were appealing: The first offering, which raised $75 million from 1,000 investors, promised returns of up to 12 percent a year. Four subsequent offerings between 2007 and 2012 raised another $75 million, in some cases promising investors average returns of up to 18 percent a year.

But the SEC, which has brought civil charges against Wang, Ko and the company, alleges Velocity was not a very active investor, never having more than $12 million in loans outstanding at any given time. Real estate records show the first investment fund, Bio Profit Series I, has held interests in at least nine homes in Los Angeles County, in areas as varied as Eagle Rock, Long Beach and South Gate. Subsequent funds acquired 15 properties in Southern California, most of those in San Bernardino County, according to the SEC.

Not only did the company not put its capital to work, but it allegedly lost its money on investments made. According to a court declaration filed by Christine Guan, the company’s former accounting manager, Velocity lost millions during the real estate crunch as its mortgages went into default and began overstating the value of mortgage loan receivables by as much as $20 million.

“Michael Wang told me that BPS I investors would pull their money out of BPS I if they received accurate financial statements about the fund,” she stated in court papers.

The SEC’s complaint does not mention any investor losses and no investor lawsuits have been filed. Instead, the suit relies on transactional evidence and Guan’s declaration, pointing to a possible whistleblower in the case.

“My guess is this woman worked for the company, decided she saw some bad things going on and reported it to the SEC,” said Peter Shakow, an attorney at Bird Marella in Century City. “It’s hard to tell whether anybody actually hasn’t gotten their money. It sounds more like people have gotten money to which they are not entitled.”

High fees

The company is also alleged to have used as much as 18 percent of fund assets to cover management fees, expense reimbursements and sales commissions, considered very high by investment industry standards. In one instance in 2007 or 2008, Guan said, Velocity transferred $200,000 directly to the Bellagio Casino in Las Vegas to pay Wang’s gambling debts, which he argued were necessary to entertain brokers there.

The fees and reimbursements meant returns had to be as high as 22 percent a year in some cases to ensure investors received their promised returns; the SEC has argued that was unsustainable, especially given the losses incurred. In order to pay off investors, the company allegedly has shifted money from new investors to old ones. In its complaint, the SEC claims Velocity’s first investment fund received $5 million last year alone from subsequent investment funds in order to make interest payments to older investors.

Shakow said the pattern alleged is typical of a Ponzi scheme.

“It’s rare that someone starts out trying to orchestrate a Ponzi scheme,” he said. “Oftentimes it devolves into that as the business doesn’t materialize or as assets decrease in value. There is a common mentality of people accused of fraud that ‘I’m one step away from cleaning this all up.’ They end up continuing to engage in fraud to cover up previous fraud.”

Wang’s attorney did not respond to requests for comment and an attorney representing Velocity declined comment. A number listed for Velocity was no longer in service. The SEC declined to comment on the case.

Wang has owned other interests that are alleged to have benefited from Velocity’s business.

The government claims this occurred through Rockwell Realty Management, a Temple City company that Wang and Ko allegedly took control of and used to collect and redistribute money among Wang-controlled entities.

It allegedly collected $2.5 million in rents and loan payments on behalf of Velocity and an additional $21 million from other Wang-controlled entities, paid out $7.2 million to Velocity, an additional $3.7 million directly to Wang and $2 million to entities owned by him. Those entities to allegedly receive money include International Career College, a Pasadena school training dental and nursing assistants; Jackson Glen LLC, owner of a Glendale condominium project; and Vienna Capital Inc., owner and operator of a Baymont Inn & Suites hotel in Anaheim.

State records show the companies either list Wang or Ko as officers or Velocity’s Pasadena address.

Rosemead Councilwoman Sandra Armenta, who worked as an admissions manager at International Career College, said the school opened early last year, but struggled to enlist enough students. Though she saw Wang around campus on at least one occasion, she only met him once, at a Lunar New Year banquet earlier this year hosted by Velocity at a Chinese restaurant in San Gabriel.

She described him as quiet, and said he only stood out because he had come straight off a plane from Taiwan and was underdressed. Like others at the event, he gave a speech expressing hopes for the new year. Later, she was offered a job with Velocity, but said she turned it down because she did not want to exploit her political position. Within months, she was laid off and the school was shut down.

“I heard Velocity being mentioned, but never inquired as to who they were. It didn’t pertain to me,” she said.

Wang also owned a separate company not mentioned in the SEC lawsuit – Pasadena’s Velocity Regional Center. Like Velocity Investment Group, the company was set up to direct money from overseas investors into real estate projects – but through a federal program known as EB-5, which grants foreign investors a green card in exchange for a $500,000 investment.

Velocity Regional Center secured foreign investments on behalf of a business center development on Proctor Avenue in City of Industry. Real estate records show that a Velocity Investment Group fund first bought the property in 2010, then sold it within months to the current owner, Proctor-Industry LLC, which listed the same address as Velocity Investment Group.

Investment funds managed by Velocity Regional Center also paid $4 million to Wang’s Rockwell Realty, according to the SEC.

(The EB-5 program incentivizes projects in high-unemployment areas, and although Industry houses 219 residents and thousands of businesses, Wang was able to qualify the Industry site because of state estimates that more than 20 percent of those 219 residents were unemployed. A state Employment Development Department spokesman admitted its unemployment estimates for the city “aren’t keeping pace with local economic activity.”)

An attorney at Velocity Regional Center told the Business Journal that Wang sold the company in August of last year and is no longer involved.

Shakow and Bowers said the case against Wang is strong, citing employee testimony and an apparent confession by him to a business partner not named in court records that he was paying old investors with new investor money. But they said there could be unforeseen weaknesses in the case.

“It always looks worse when you’re just hearing from one side,” Shakow said. “There may be perfectly legitimate explanations for the financial transactions. This accounting manager may be totally flawed as a witness and things often happen at trial that are totally unpredictable.”