SEC Goes After Alleged Online Investment Scam

Federal regulators filed suit Tuesday to stop an allegedly fraudulent pyramid scheme they said was masquerading as an Internet investment club and had bilked about 2,000 investors of $5.6 million.

For a $1,495 membership fee plus $149 a month, Le Club Prive offered investors a chance to earn commissions by recruiting new members to the club, the Securities and Exchange Commission said in its civil suit filed in federal court in Dallas. Investors were to receive $500 for each new member they recruited and gain access to investment recommendations, the SEC said.

The club also offered shares of domestic and offshore mutual funds promising huge returns.

In fact, the SEC alleged, the investment club is a sham and investors’ money has been diverted by the people running the scheme for their own use. The agency said its investigators have traced more than $3.4 million diverted to the people running Le Club Prive or other companies they control.

U.S. District Judge Jorge Solis in Dallas put a temporary restraining order on Le Club Prive and froze the assets of the defendants--some $12 million so far.

It is the latest case brought by the market watchdog agency in the battle against a new form of investment fraud that has proliferated in Internet junk mail, online newsletters, electronic “chat rooms” and Web sites. State regulators also have been pursuing investment fraud over the Internet.

Two of the people presumed by the SEC to have controlled Le Club Prive, Zdenek Kieslich and Ron Z. Mendelson, could not be reached for comment. An attorney for Eugene G. Chusid, the third person identified by the SEC, also could not be reached for comment.

Kieslich is believed to be living in Costa Rica. Mendelson is a Canadian citizen living in Costa Rica and Chusid is a resident of New Jersey, according to the SEC.

Le Club Prive, which means “private club” in French, is said to be registered in Panama and has its business address in Hoogkarspel, the Netherlands.