U.S. court freezes assets of California financier

The U.S. Securities and Exchange Commission secured an emergency court order on Monday freezing the assets of California financier Danny Pang and two of his firms, accusing the Newport Beach resident of defrauding Asia-based investors of hundreds of millions of dollars.

Regulators said Pang, who founded and helmed Private Equity Management Group Inc and Private Equity Management Group LLC (the PEM Group), faked his resume, forged documents, pledged unrealistic returns and paid investors with cash raised from new ones, in a faint echo of the massive Ponzi scheme employed by confessed swindler Bernard Madoff.

U.S. securities regulators are now running about 150 active hedge fund investigations and another 50 probes involving credit default swaps and other derivatives.

In a complaint filed in Los Angeles on Friday, the SEC accused Pang -- who stepped down as PEM's Chairman and CEO this month -- of misrepresenting himself as a former M&A executive at Morgan Stanley and an alumnus of the University of California, Irvine -- neither of which were true.

"We allege that Pang lured investors with false claims and even bogus documents to dupe them into believing their principal and interest were guaranteed and insured," said Robert Khuzami, director of the SEC's Division of Enforcement.

"Swift and decisive enforcement action is critical to rooting out unscrupulous promoters who will stop at nothing to create an aura of authenticity when making unreal assurances to investors."

On April 16, PEM Group said it had appointed a special committee to investigate the operations of the company, including investment management and procedures.

It was unclear where Pang was at the moment. Spokesmen for his firms did not return calls for comment on Monday.

Pang and CFO Wilbur Quon voluntarily relinquished their positions pending the outcome of the probe.

"PEMG takes very seriously the trust its clients have placed in it," interim Chairman Robert Anderson said last week. "And as such, we intend to fully investigate allegations and issues raised."

Taiwanese Connection

The SEC also won an order requiring Pang to repatriate all assets sent overseas, turn over to the court all of his passports, and appointed Robert P. Mosier receiver over the firm with responsibility for safeguarding the group's assets.

Regulators said Pang had never registered with the SEC but had been engaged in fraud since 2003, raising hundreds of millions of dollars primarily from investors in Taiwan. Regulators did not elaborate on that and were not available for comment.

Pang and his PEM Group told investors they could generate profits by buying life insurance policies at a discount before maturity and then collecting the insurance upon the death of the insured. Instead, he used funds raised from subsequent investors to make up for shortfalls in returns, the SEC said.

The PEM Group Inc is parent of PEM Group LLC, the SEC added in its statement.

Regulators are cracking down on securities fraud as the U.S. economy heads deeper into recession.

Madoff pleaded guilty in March to the biggest investment fraud in Wall Street history: a worldwide Ponzi scheme that amounted to as much as $65 billion over two decades and involved more than 4,800 client accounts.

The case cast a harsh light on securities regulators for failing to uncover the scam, and intensified demands for stronger regulation of the financial industry.

"Pang himself directed that a bogus insurance policy be created to support the false claims that the investments were insured and guaranteed," the SEC's complaint read.

"Pang himself directed the diversion of funds from later investors to pay the purported returns of earlier investors."

[Source: Reuters, Los Angeles, 27Apr09]

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