Danny Pang, founder and ex-chief executive of PEMGroup, will make his first court appearance in California today on charges related to cash transactions. Pang was arrested yesterday in California and his assets were frozen. The U.S. case could have a major impact in Taiwan, where Pang raised most of the money.
Taiwan estimates the PEMGroup sold securities to 16,000 Taiwanese investors distributed through at least six banks in Taiwan, according to reports in the Wall Street Journal today. Sean Chan, chairman of Taiwan's Financial Supervisory Commission, told the Journal that investors paid a total of about $700 million for these securities. The SEC, in a separate move from yesterday's arrest, secured an emergency court order freezing assets controlled by Pang and his two companies related to this possible fraud of Asia-based investors.
The charges filed in the U.S. yesterday related to how he handled cash transactions and are not related to how the securities were sold. The U.S. accused Pang of using PEMGroup employees and family members to cash 38 checks in amounts just under $10,000 to avoid filing currency transaction reports. According to the charges filed, these transactions started in June 2007.
Taiwan's banking regulator told the Journal this case could have a major impact on the case in Taiwan. Ming-Daw Chang, director of the banking bureau under Taiwan's Financial Supervisory Commission, raised concerns about the ability of Pang's businesses to pay interest regularly to Taiwanese investors who bought financial products sold by Pang. Taiwan does not yet believe the SEC charges, but they are being investigated in Taiwan.
PEMGroup's products were sold through six banks. Bank officials met with representatives of the PEMGroup last Saturday. PEMGroup representatives promised more detail about the financial products. The Taiwanese regulator is waiting for the reports from the banks on this meeting.
One of the banks involved, Hua Nan Commercial Bank, a unit of Taiwan-government owned Hua Nan Financial Holdings, issued a statement on April 16 saying that the PEMGroup's financial products had "large international financial institutions" as guarantors and custodians and said the products were still making regular interest payments. Now that the SEC froze accounts in the U.S., will those payments continue?
The Taiwan banks did not comment since the accounts were frozen and Pang was arrested, but according to Journal reports will be holding emergency meetings. Since government-controlled banks sold these investments, Pang's Taiwanese investors may be in better shape than Madoff's investors.
U.S. regulators charge that Pang lured investors with false claims of unrealistic returns and bogus documents that duped them into believing their principal and interest was guaranteed and insured. So far Pang's attorney has not commented for any press reports.
Lita Epstein has written more than 25 books, including Reading Financial Reports for Dummies and Trading for Dummies.