On October 1st, WCM777 founder Xu Ming published a letter, purportedly from legal firm Barnett & Linn, addressing the SEC compliance of the company's "Profit Points." Ming had questioned if these points constituted an unregistered security under federal law.
Barnett & Linn lists SEC compliance as one of its practice areas. William Barnett and Roger Linn have each represented business clients for over 30 years. The firm operates out of California.
Ming likely approached the California-based firm, which specializes in SEC compliance, for legal consultation. He was unsure if WCM777's "Profit Points" compensation plan would be viewed as an unregistered security by the SEC.
WCM777's compensation plan offered affiliates a 100-day passive return on investments up to $1999. It also paid recruitment commissions for new investors. Additionally, the company offered "Profit Points."
These Profit Points were issued with each membership position purchase. WCM777 claimed the points "will be turned into stock when WCM goes public on NASDAQ." The company also held 20% of all WCM777 affiliate earnings "to purchase profit points."
Despite the scheme's apparent similarities to an unregistered security, Barnett & Linn advised otherwise when consulted. The WCM777.me website, registered to Xu Ming of World Capital Market in Pasadena, California, launched in mid-2013.
The website functioned as a communication portal for affiliates and WCM777 executive management. On October 1st, an account named "Phil Ming Xu" created a forum thread titled "SEC LAWYER'S LEGAL OPNION ON PROFIT POINTS." Here, Ming published what appeared to be a letter from Barnett & Linn.
The letter advised the company that their profit points "do not appear" to "fall under the category of a 'security'," unregistered or otherwise.
Barnett & Linn's letter began by explaining WCM777's profit points: "You have requested that we review the proposed point system (the 'Points') to be initiated by WCM777 ('WCM777') in regard to its multi-level distribution program, as to whether the points may be considered securities under the Securities Act of 1933, as amended (the '1933 Act')."
The firm stated, "We understand the relevant facts as follows: WCM777 sells CLOUD products through a multi-level distribution network. Its member-distributors ('Members') receive commissions based upon the dollar amount of products purchased from WCM777." WCM777 also proposed distributing Points to its Members, with the number based upon the dollar amount of purchases.