UPDATE (1st October 21:25 BST): This piece has been updated with additional information about the SEC’s complaint.

A California company promoting an alternative digital currency called Gemcoin has had its assets seized by the US government amid allegations of fraud.

The San Gabriel Valley Tribune reported yesterday that US Fine Investment Arts (USFIA) Inc's offices were raided on Tuesday in connection with an ongoing investigation by the Securities and Exchange Commission (SEC). The asset seizure came after a complaint was filed by the SEC against the firm and its CEO, Steve Chen.

This week’s raid coincided with a visit to the home of Arcadia City Councilman John Wuo, according to the Tribune. Wuo has faced calls to resign in the wake of the company’s collapse months after he made public appearances alongside executives of USFIA.

Wuo has denied any wrongdoing or connection with the firm.

In a complaint filed in federal court, the SEC accused Chen and USFIA of fraudulently selling unregistered securities. In addition to Chen and USFIA, 12 additional California entities were named as defendants. The complaint was filed under seal on 22nd September.

Michele Wein Layne, director of the SEC's Los Angeles Regional Office, said in a statement:

Separately, the California Department of Business Oversight today sent a desist and refrain order to USFIA, Chen and two other individuals in connection with the illegitimate sale of unregistered securities.

In its complaint, the SEC said that Chen began soliciting investors in 2013, raising as much as $32m.

At the time, Chen claimed that the company had under its control several mines capable of producing ambers, a precious stone that formed the cornerstone of USFIA's pitch to investors. Other claims focused on rapid returns on their investment as well as promises of a future initial public offering.

The company pushed investors to bring in new buyers of the firm's securities, promising prizes such as cars, vacations and other luxury goods, as well as what were essentially commission bonuses for bringing in new money. Ambers were also promised to investors, and according to the SEC, some investors did receive stones, albeit ones that were deemed "practically worthless" following inspection.

At first, USFIA offered investors different levels of ownership in the company that would be converted into common shares following the IPO. The value of these shares would debut for at least $20 per share, Chen said.

In September 2014, the SEC said, USFIA told investors "that instead of cash or shares, they would receive a cryptocurrency known as 'Gemcoins' in exchange for their investment in USFIA, which would greatly increase in value".

The company allegedly told investors that the cryptocurrency tokens were backed by real-life assets in the form of South American amber mines and, among other fraudulent statements, that the US government had purchased a tranche of Gemcoins. As part of the new arrangement, Chen told investors, the IPO would be delayed for two years.

The SEC further stated:

Chen is said to have used the funds collected from customers – of which roughly $19m came from Asian bank accounts – for personal expenses.

According to the agency, after being interviewed by police in Arcadia, California, Chen attempted to wire $7.5m overseas from a Bank of America account he controlled. Of that amount, $3.5m was successfully sent to China while the remainder was held by the bank.

The SEC is seeking civil penalties as well as the collection of any gains related to the alleged pyramid scheme.

Despite the federal government's action against USFIA, some investors are moving to take their fraud claims to civil court as well.

Attorney Long Z Liu of the Liu Law Firm, based in San Gabriel, California, is reportedly moving to file a class-action lawsuit on behalf of investors. Liu was not immediately available for comment.

The main website

associated with Gemcoin is listed as "under maintenance", directing users to USIAF’s website, though another website, InvestGemcoin.com, is still accessible.

The main phone number listed for USFIA on its website was not connecting calls at press time.

The full SEC complaint can be found below:

USFIA Complaint

Image via Wikimedia