SEC Sues Alleged Head of Cryptocurrency Pyramid Scheme

The SEC has filed a civil injunctive action against a California man for allegedly heading a pyramid scheme that raised more than $26 million from investors by selling instructional packages that provided lessons on e-commerce.[

The SEC’s complaint alleges that Daniel Pacheco conducted a fraudulent, unregistered offering of securities through two California-based companies he controls, IPro Solutions LLC and IPro Network LLC.

“Pacheco hid an old fraud under the guise of cutting-edge technology,” Michele Wein Layne, director of the SEC’s Los Angeles regional office, said in a release. “He enticed investors by offering them the opportunity to speculate in cryptocurrency, when in fact he was simply operating a pyramid scheme.”

IPro was formed in early 2017, when it started an investment program that offered online instructional materials for sale called “the IPro packages.” The materials purported to educate purchasers on how to establish and operate a successful e-commerce business. For an additional $50 annual activation fee, purchasers of IPro packages could also become what IPro called “active members” of IPro, with the potential to become “independent sales associates” or “premium independent sales associates” of IPro.

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From its start in 2017 through March 2018, IPro’s membership grew rapidly, reaching approximately 20,000 members and raising at least $26.5 million through the sale of its packages in less than a year-and-a-half, said the SEC. IPro claims that it operates a legitimate multilevel marketing enterprise, and that its customers are motivated only by a desire to purchase IPro’s ecommerce instructional materials.

According to the complaint, investors also received “points” that could be converted into a digital asset known as PRO Currency. Investors who contributed additional funds could earn a combination of cash commissions and additional convertible points by recruiting new investors into the IPro network.

The SEC said IPro’s eventual demise was quickened by Pacheco’s use of investor funds for his own personal gain.

“Among other things, Pacheco used IPro funds to purchase a multi-million dollar house, transfer millions of dollars to entities controlled by him, and buy a Rolls Royce for his personal use,” said the complaint. “Thus, despite its promises to investors, IPro lacked funds to pay promised commissions and bonuses and the pyramid scheme accordingly collapsed in March 2018.”

The complaint also says that Pacheco’s offer and sale of IPro instructional packages constituted an unregistered sale of securities because the IPro instructional packages involve an investment in a pyramid scheme; and/or an investment in the PRO Currency digital assets, and therefore must be registered with the SEC unless an exemption applies.

The SEC also named seven relief defendants for the purpose of recovering investor proceeds in their possession, however, it said it does not allege any wrongdoing by the relief defendants.

The regulator is seeking permanent injunctions prohibiting future violations of the federal securities laws, and an order requiring Pacheco and the relief defendants to disgorge their ill-gotten gains, along with pre-judgment interest, and imposed a civil penalty on Pacheco.

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Tags: Daniel Pacheco, IPro Network, Michele Wein Layne, SEC

The aggregate funded ratio of multiemployer plans dropped to 74% from 81% during the second half of 2018, mainly due to poor investment returns, according to consulting and actuarial firm Milliman.

According to Milliman’s 2019 Multiemployer Pension Funding Study, which includes 1,251 plans covering 10.5 million participants, multiemployer plan portfolios lost approximately 5% in 2018—well below the investment return assumptions of 6% to 8%. That led to asset losses that were 11% to 13% below expectations, and the overall funding shortfall for the plans increased by $51 billion during the last six months of 2018.

The study did provide some positive news for multiemployer plans. Despite the double-digit asset losses, the majority of US multiemployer plans are much healthier than they were at the market’s low point 10 years ago. Nearly one-third, or 383, of the plans in the study, are at least 90% funded, and another 288 plans are funded between 80% and90%. However, there were at least 123 “critical and declining” plans that cover roughly 1.3 million participants, many of which are likely headed for insolvency without Congressional intervention, according to Milliman.

“Despite 2018’s investment losses, it appears that the majority of multiemployer plans are positioned to absorb that experience and improve in the future,” says Ladd Preppernau, a principal and consulting actuary at Milliman. “However, for about 10% of plans, even stellar asset performance is unlikely to right the ship. Most of these plans will need outside help from lawmakers or others in order to prevent insolvency.”

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The study also found that assumed discount rates are generally between 6% and 8%, with a weighted average assumption of 7.26%, compared to 7.34% during last year’s study. The reduction was primarily attributed to the Central States, Southeast and Southwest Areas Pension Plan, which lowered its assumption to 5.50% from 6.25%.

“It is not uncommon to see critical and declining plans utilizing a lower investment return assumption than other plans,” said the study. “Short-term capital market assumptions from most financial experts predict markedly lower returns in the near future than what might be expected for longer time horizons. Thus, some critical and declining plans have set their assumptions accordingly, putting less weight on long-term expectations.”

Milliman said that while asset performance continues to be the primary driver of financial health of multiemployer pension plans, more tools are needed for many critical and declining plans to recover.

“While the JSC [Joint Select Committee on the Solvency of Multiemployer Pension Plans] was unable to provide any legislative solutions during 2018, discussions have continued at the committee level during 2019,” said the study. “Bills related to low-interest long-term loans for financially distressed plans have been reintroduced in the House and Senate,” it added. “All stakeholders should continue to monitor the issues and be prepared to act upon any developments that unfold.”

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Tags: Milliman, Multiemployer Pension Funding Study, Multiemployer Pension Plans, Pension