SEC Sues Alleged Head of Cryptocurrency Pyramid Scheme
Daniel Pacheco is accused of bilking investors out of $26.5 million.
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.
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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