Luca liquidating trustee files suit tied to Ponzi-scheme allegations

By Caroline Salls

Pittsburgh, Aug. 23 – The trustee for Luca International Group, LLC’s Luca Liquidating Trust filed a lawsuit Tuesday against the company’s former vice president of business development Lei (Lilly) Lei, former chief financial officer Anthony V. Pollace and founder and former chief executive officer Bingqing Yang, according to a filing with the U.S. Bankruptcy Court for the Southern District of Texas.

“This litigation concerns the mismanagement and misapplication of corporate funds by the officers, directors and others in control of the debtors, including each of the defendants,” trustee Randy Williams said in the complaint.

Specifically, Williams alleged that, beginning in 2007, Yang, Lei and the Luca managers “engaged in a scheme targeting the Chinese American community as well as investors in Asia to invest in the unregistered offerings of a series of investment funds.”

According to the lawsuit, Yang and Lei told investors that their money would be invested in oil and gas drilling operations, that they could expect annual rates of return of 20% to 30%, and that the investments were risk free. They guaranteed 12% to 15% returns to some investors.

However, Williams said Yang, Lei and the Luca managers actually deceived investors in the Luca funds by misrepresenting that their operations were successful and by projecting outsized investment returns, all the while knowing that the operations were losing millions of dollars and that the enterprise was “sinking under a mountain of debt.”

To prevent the scheme from collapsing, the trustee said Yang comingled investor funds and used new investor money to continue making sham profit payments to earlier investors, while diverting millions of dollars for personal and undisclosed uses, including the purchase of a $2.5 million home, pool and gardening services, a family vacation to Hawaii and a golf junket.

In addition, Williams alleged Pollace solicited investors even after he was aware that the Luca funds were not properly accounting for their expenses, that Yang was comingling investor money and that the wells were producing very little oil and gas.

Chinese citizens targeted

The trustee alleged that Yang, Lei and Luca International targeted Chinese citizens who sought permanent U.S. residence through the EB-5 Immigrant Investor Pilot Program, which provides a method for foreign investors to obtain a green card by meeting U.S. investment requirements. The defendants allegedly raised roughly $8 million from these investors.

“Despite raising $68 million purportedly to fund oil and gas operations, as recently as March 16, 2015, the combined balance of the debtors’ bank account was less than $12,000,” the lawsuit said.

“The defendants returned some of the monies raised from newer investors to other investors as profits in Ponzi- like fashion.”

Also, Williams said the defendants enabled Yang to misappropriate an additional $2.4 million of investor funds, which were used to purchase the home, and they allowed Yang to transfer more than $2 million from Luca Operation to an account held in the name of Sansun Technology Ltd., a Chinese company controlled by her brother.

Misleading statements

The trustee also alleged that the defendants, on behalf of the company, issued monthly operating reports that were materially false and misleading because the reports omitted any operating expenses incurred by the Luca debtors. Also, Williams said the defendants failed to have the company file registration statements with the Securities and Exchange Commission for the offer or sale of any securities they were offering.

The defendants compounded the financial mismanagement by borrowing about $12 million from a lender in Hong Kong at an interest rate of 30% and by making Luca Operation the guarantor of that loan’s payment, the lawsuit alleged.

Williams is seeking “damages for the acts and omissions of the defendants,” as well as for attorney’s fees and related costs.

Luca International Group, a Houston-based explorer and producer of natural gas, petroleum and related hydrocarbons, filed for bankruptcy on Aug. 6, 2015. The Chapter 11 case number is 15-34221.

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