Lin Miao, who bankrolled L.A. tech incubator Be Great Partners with money federal regulators claim was the product of a long-running scam, agreed to pay $150 million to settle the government’s accusations.
But when it became clear that the figure was beyond his ability to pay, the Federal Trade Commission backed off, agreeing to take some $10 million in assets instead. Now it appears the government might not even get that much.
Thomas W. McNamara, a court-appointed receiver, has so far been able to recover $8 million from assets once belonging to Miao, former business partner Andrew Bachman and their companies.
The government alleged Miao and others defrauded cellphone customers out of tens of millions of dollars through Boston marketing company Tatto Inc. in a scheme that charged $10 monthly fees for unauthorized subscription text message services, such as celebrity news alerts or horoscopes.
Some of the proceeds from the alleged scheme found their way overseas and some were used to start Be Great, which was located in a tower on Wilshire Boulevard on the Miracle Mile near the Los Angeles County Museum of Art.
Be Great has since closed. The roughly $2 million McNamara is trying to recover is believed to be held in a $1 million Hong Kong brokerage account and a Sri Lankan bank account.
The latter account belongs to Michael Pearse, who has also been accused of participating in the alleged scheme, and Jon Bloomberg, who managed some of Miao’s real estate investments from his L.A. office, according to court papers.
In court filings, McNamara said that earlier this year he was close to a deal with Pearse and Bloomberg to recover the money. That deal disappeared, however, when the FBI arrested Miao in May at Los Angeles International Airport. Miao has been charged with conspiracy to commit wire fraud and mail fraud and conspiracy to commit money laundering. If convicted, Miao, who was released on a $447,000 bond, could face up to 20 years in prison.
Pearse, who has returned to his native Australia, was charged with conspiracy to commit wire fraud and mail fraud at the same time as Miao, putting the kibosh on McNamara’s efforts to get money out of him, said Daniel Benjamin, the receiver’s lawyer in San Diego.
“Once he was facing the threat of criminal action, he pretty much wanted to stay in Australia,” Benjamin said. “It’s always more difficult when people are overseas if you want to collect money from them.”
In court papers, McNamara said that Bloomberg, who does not face criminal charges, has also stopped negotiating.
Now both he and Pearse could face civil contempt charges, Benjamin said.
Neither Pearse nor Bloomberg could be reached for comment.
Miao, believed to be at his parents’ house in Utah, could not be reached either.
Victor Sherman, a Santa Monica criminal defense attorney representing Miao, said he is negotiating with the government, which has not obtained an indictment from a grand jury. Prosecutors have until Sept. 19 to obtain an indictment if the negotiations are unsuccessful.
Sherman would only confirm the status of the criminal proceedings, declining further comment. He said Miao would decline to be interviewed.
If a deal is not negotiated and prosecutors obtain an indictment, Miao would then face a jury trial in the U.S. District Court for the Southern District of New York.
For now, Miao is required to wear a location-monitoring bracelet and is barred from selling any assets valued higher than $1,000.
Meantime, as the criminal proceedings are just heating up, the receiver’s efforts in L.A. federal court are starting to wind down.
Despite the challenges, McNamara has successfully liquidated Miao’s Range Rover, Bentley and five real estate properties – three condos in Chicago and two in Los Angeles – in addition to some fine jewelry, according to court documents.
A Ferrari and Mercedes-Benz once belonging to Bachman, who co-founded Tatto with Miao, were also sold, bringing the proceeds to $8 million after fees and other expenses.
Bachman and his attorney did not return requests for comment.
Benjamin, McNamara’s lawyer, said the funds recovered so far are much higher than many other FTC cases.
“When we do these FTC cases, like this one with telephone cramming or any of those other types of consumer-fraud cases, the difficulty is there is not always liquid assets that can be easily recovered beyond what they have in accounts,” McNamara said. “Based on the cases we’ve seen, this has been a very good recovery.”
Perrie Weiner, co-managing partner of law firm DLA Piper’s L.A. offices who reviewed the case for the Business Journal, said it’s fairly common for assets to land in foreign bank accounts.
“That all depends on what the alleged fraudster does with the victims’ monies and/or if there is an international component to the scheme itself,” Weiner said in an email. “It’s a game of hide the ball, in order to perpetuate the alleged fraud as long as possible and to make the assets, particularly the cash, difficult to trace and find.”
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