The Security and Exchange Commission recently shut down a cloud computing pyramid scheme that started in Southern California and spread all the way to Hong Kong. The scheme operating as WCM or WCM777 preyed on people who may not be informed on how cloud computing or the stock market works. Phil Ming Xu of Temple City, California is credited with starting the scheme. In one year, Xu raised over $65 million dollars.
Xu promised those that bought the “investment packages” that they could get additional points for signing up their friends and this would allow to them to parlay their investments. Xu would tell the unknowing marks that his fund would allow them to acquire shares in the IPOs of up to 300 tech/cloud based companies. Xu claimed that his pyramid scheme was funding the incubation of these companies and that investors would receive double their initial stakes within 100 days.
However, Xu wasn’t spending the money in some elaborate cloud computing investment. He was spending new investor’s money to pay back the original investors. Xu also used the money to purchase stakes in 2 golf courses, to fund a slush fund in which he used to play the stock market and to furnish his lifestyle. With the parlay points system that Xu had created, he allowed the points to be traded among investors creating a secondary market that was worth over $890 million in fraudulent funds. A representative from the SEC was noted as saying, “They were operating a pyramid scheme that preyed on investors in particular ethnic communities, leaving them with nothing left to show for their investment.”
Don’t Fall Victim to a Pyramid Scheme
If it sounds too good to be true, it usually is. The emergence of cloud computing has opened the doors for many industries including investments. Unfortunately, some people who may have heard of cloud computing may want to jump on the wagon but they are uninformed of how standard investment procedures work. You should generally keep all of your investments in the stock market or in hard assets.
If you have a question about an investment, you should always talk to a licensed investment agent. If you are being pitched a cloud computing idea, do not write any checks until you have completed due diligence on the investment. You can also contact an investment agent to help you with the due diligence process. If you are investing in an idea that could potentially be worth millions, it makes sense to go ahead and retain the services of a licensed professional who can help guide your financial future.