The SEC has obtained a court order freezing the assets of China Voice Holding Corp., which trades OTC and has claimed to have a portfolio of telecommunications products and services in both the U.S. and China.  It's alleged that China Voice's co-founder and 2 associates are operating an $8.6mn Ponzi scheme and, in part, using proceeds to help fund the company's operations.

David Ronald Allen, founder and CFO, along with his associates Alex Dowlatshahi and Christopher Mills, promised investors in a series of offerings of limited partnerships that they'd earn returns of at least 25% on their investments.  Investors were told their money would be loaned to companies with a demonstrated track record and large profit margins. 

Investor funds, instead, were used to pay back investors in earlier partnerships and funneled to China Voice and a complicated web of other companies that Allen controls.  Monies also went to enrich the trio and their family members.

        Maintaining the Scheme.    Allen and his associates increased the pace and size of the offerings to obtain a steady stream of proceeds from defrauded investors.  They were planning or even begun to solicit funds from investors in at least 2 more limited partnerships in the ongoing fraud.  The court order obtained late yesterday freezes the assets of Allen and several others in addition to China Voice.  The court also temporarily enjoined these defendants from participating in the offering of securities like those used to perpetrate the fraudulent scheme as alleged by the SEC.

        SEC's Other Allegations.   In addition to the Ponzi scheme, the SEC' charges China Voice, its former chairman and CEO William Burbank IV, and Allen, for a series of fraudulent company statements about its financial condition and business prospects.  Among other things, the SEC alleges that China Voice greatly overstated the value of certain business relationships and misled investors by failing to disclose significant loans from related parties needed to fund its operations.

Beginning in at least September 2006, China Voice overstated its business in China in press releases and public filings.  The company later recanted in audited financial statements in June 2008, when it disclosed that the majority of the company's revenue came from its U.S. subsidiaries.  Nevertheless, China Voice and its stock promotion campaigns continued to tout purported Chinese contracts.

Two other China Voice shareholders - Gerald Patera and Ilya Drapkin - were charged for helping Allen finance stock promotion campaigns to pump up the company's stock price.  They used blast faxes orchestrated by Robert Wilson, who also was charged.  The spam faxes went out to thousands at once and contained false and misleading statements about China Voice and who was paying for the faxes.  At the same time they were spending more than a million dollars on stock promotion, Patera and Drapkin dumped millions of shares of the company into the market.

The SEC seeks a permanent injunction, disgorgement of unlawful proceeds plus prejudgment interest, and a financial penalty.  The SEC also seeks penny stock bars against Allen, Burbank, Patera, Drapkin, and Wilson as well as officer and director bars against Allen and Burbank.

        SEC Staff Credits.   Investigation by Carolyn Welshhans, David Herman, Pierron Leef, Donato Furlano in Washington, D.C. Jane Peterson will lead the litigation.      [SEC Release 11-101, 4/29]