Ponzi Ran From China to USA, Lender Claims

LOS ANGELES (CN) - Chinese Ponzi men ripped off a lender for $9 million, then fled to California and laundered the money through U.S. businesses, the Chinese lender claims in court.

Wuxi City Runyuan Keji Xiaoe DaiKuan Co., of Jiangyin City, sued California residents Xuewei Xu, 44; his son, Sheng Xu; Hairong Cao, 35; and Shubin Zhao, president of California-based defendants Repet and America TBS.

The Chino, Calif.-based defendant companies are recyclers, according to the complaint. Repet Group also is named as a defendant, in Federal Court.

Wuxi City wants its millions back, and damages for RICO violations, breach of contract, fraud, fraud in the inducement, conversion, unjust enrichment, and vicarious liability.

Calling the scheme a "long, substantial and complex conspiracy," Wuxi City claims the defendants bilked funds in China, and have laundered the money since 2009 through Repet, Repet Group and America TBS.

"Reminiscent of the recent spate of mortgage fraud scandals to have plagued this country, defendants knowingly utilized materially false and forged audit reports and other documents to inflate the collateral of business entities they controlled in China in order to obtain loans ostensibly for the capital requirements of those same enterprises. Rather than use these loans for their intended purposes, however, defendants conspired with others known and unknown to transfer said funds out of the People's Republic of China and into the United States for their personal use," the complaint states.

It continues: "The defendant and their co-conspirators, known and unknown, were able to perpetuate their multi-year conspiracy through a classic Ponzi scheme by paying off older loans with newer loans. But as with most Ponzi schemes, inevitably, the defendants' ability to find new victims in the People's Republic of China to pay off old victims (and thereby continue to conceal the true nature of their fraud) would become untenable."

Wuxi City claims it is "the last in a long line of victims left holding the bag," after it made commercial loans totaling $9 million to Xuewei Xu and Cao between August and October 2012.

"None of the proceeds from the above-referenced loans were utilized for their intended purposes, namely, as working capital for Jiangsu XinRong HuaXian Co. Ltd., which was owned by Cao; and Jiangsu ShengChang Keji Co. Ltd., which was owned by Xu, among several other companies," the complaint states.

Xu and Coa fled China for the United States on Nov. 21, 2012, according to the complaint.

"In doing so, defendants willfully abandoned their businesses, employees and families, leaving them to pick up the pieces of the economic destruction left by defendants' conduct. And it is here, within the Central District of California, that defendants concealed and continue to conceal the proceeds of their fraud through various corporate entities that they created as early as March 15, 2009," the complaint states.

Wuxi City claims that Xuewei Xu and others secured loans by falsifying and forging documents, then funneled the money into bank accounts controlled by Repet Group and America TBS.

"Through these corporate entities in a heretofore successful effort to hide the true origin of the proceeds, defendants paid and reimbursed themselves and other co-conspirators for various personal expenses," the complaint states.

Xuewei Xu and his son used $1.25 million to buy a single family home in Rowland Heights, Calif. - for cash - according to the complaint.

"Xuewei Xu, leaving no room for doubt, fully confessed to the allegations set forth herein in a letter to a government official shortly before he fled the People's Republic of China in a vain attempt to seek refuge in this jurisdiction," the complaint states.

"Writing that the frauds began in 2008 when five companies he controlled through straw-men suffered financial difficulties," Xuewei Xu "admitted that 'I was constantly borrowing from one source to pay for another debt,'" the complaint states.

Wuxi City claims that while Xuewei Xu "in a self-serving effort to apologize, recognized that he 'ha[s] hurt too many people and brought trouble to the government and leaders,' [he] nevertheless continued his outright lies when he claimed that he ha[s] nothing now.'"

The lender claims that China issued arrest warrants for Xuewei Xu and other members of the scam in January, and revoked Xu's and Cao's passports in April. It claims that Xu and Cao also are on Interpol's wanted list.

Wuxi City seeks more than $9 million in damages, and costs.

It is represented by Mark Allenbaugh of Wickliffe, Ohio.

Repet and Zhao did not immediately respond to a request for comment.

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