HSBC approved tens of millions in transfers related to the WCM777 Ponzi scheme, even after US authorities shut it down, according to a Suspicious Activity Report filed by the bank. This financial activity continued despite the scheme's known illegal operations.
WCM777 operated as a Ponzi scheme under Phil Ming Xu, then a California resident. The company confirmed its illegal business model, rebranding as Kingdom777 in January 2014. The U.S. Securities and Exchange Commission, or SEC, shut down WCM777 just three months later, in March.
Xu settled with the SEC in September 2014. This agreement stripped him of funds obtained through WCM777. An injunction also barred him from further acts of fraud. Zhi Tiger Liu, Xu's partner, is believed to have fled to China with $20 million to $30 million in investor funds. Liu was never apprehended by U.S. authorities.
The FinCEN Files leak revealed three WCM777-related Suspicious Activity Reports filed between 2013 and 2014. These reports documented transactions totaling $30.6 million. HSBC was the bank filing these SARs. Despite its own reports and the SEC's shutdown of WCM777 in March 2014, HSBC kept the scheme's accounts open until April 2014.
Investor funds moved through HSBC's Hong Kong accounts. By the time HSBC finally closed them, the accounts had been largely emptied. The bank's continued processing of transactions after filing SARs raises questions about anti-money laundering controls. The purpose of a Suspicious Activity Report is to flag potential illicit financial activity for regulators and law enforcement.
After settling with the SEC, Xu fled to China. He quickly relaunched WCM777 under the name World Capital Market. He resumed targeting Chinese investors with the same fraudulent model.
Chinese authorities arrested Xu in 2016 on financial fraud charges. Despite admitting fraud in his SEC settlement and his subsequent arrest, Xu maintains his innocence. He contacted the International Consortium of Investigative Journalists (ICIJ) regarding the FinCEN Files leak.
"I was misled by my lawyer to settle, which is against my heart," Xu stated. He also claimed, "My hear [sic] is pure for Kingdom. My vision is compromised." He argued that WCM777 sold "good cloud products, not securities" through an MLM structure. "SEC did the wrong thing to charge us and created big damages to me and my company," Xu said, requesting compensation for his losses. He also claimed he sold WCM777 for $1 and believed his personal rights were infringed.
An independent review of WCM777 in June 2013 concluded it was a Ponzi scheme. A court-appointed WCM777 Receiver later confirmed this research through forensic analysis two years later. Such findings directly contradict Xu's assertions of legitimacy.
The FinCEN Files comprise a series of leaked Suspicious Activity Reports. BuzzFeed initially obtained these documents and shared them with ICIJ and other media organizations for analysis and publication. The full reports remain largely unshared publicly.
The unapprehended Zhi Tiger Liu and the millions he allegedly absconded with highlight the persistent challenges in recovering funds from cross-border Ponzi schemes.