A $100 million class action lawsuit has been filed on behalf of the alleged victims of a Ponzi scam involving a digital currency called GemCoin.
Thousands of investors, mostly of Chinese origin, residing in the US or China, were allegedly defrauded in what may turn out to be one of the biggest Ponzis involving digital currency to date. Previous estimates for total losses were as high as $170 million. More recent figures estimate losses at $32 million.
GemCoin was marketed by Arcadia, California-based U.S. Fine Investment Arts Inc. (USFIA) as a rewards currency for buying precious stones through the company. It does not appear to incorporate the cryptographic features used in currencies like Bitcoin, though its website made some unclear indications of future such plans. Investors have charged that after trying to cash in on their holdings, they discovered the coin was worthless.
Last week, USFIA’s offices were raided in connection with an ongoing investigation by the US Securities and Exchange Commission (SEC).
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A scam like GemCoin would normally arouse suspicion pretty easily. Yet, it allegedly managed to attract so many investors due to the blessing allegedly bestowed by Arcadia Councilman John Wuo, who has served several terms as mayor. It is likely that many investors perceived that the coin enjoyed some form of government backing, making it similar to real money.
It is alleged that Wuo lavishly praised GemCoin and USFIA’s CEO, Steve Chen, and that he allegedly appeared in company marketing materials and at promotional events. In one video clip, Wuo allegedly tells the crowd “‘I am the mayor of Arcadia.” He has denied any wrongdoing or involvement with USFIA.
Wuo has resigned from his position, citing health and personal reasons. He is also being investigated by the Fair Political Practices Commission for alleged violations of the Political Reform Act.
The lawsuit is being led by Long Z. Liu, who along with family and friends, says to have lost $350,000 in the scheme.
The suit, filed in the Superior Court of California, County of Los Angeles, names 10 defendants, including USFIA, Chen and Wuo.