Johnny Tseng (a/k/a Kuanhao J. Tseng, Kuanhao Tseng), Kevin Zhang (a/k/a Kevin Huapeng Zhang, Huapeng Zhang), and Summitcrest Capital, Inc.
U.S. SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 25792 / July 28, 2023
Securities and Exchange Commission v. Johnny Tseng (a/k/a Kuanhao J. Tseng, Kuanhao Tseng), Kevin Zhang (a/k/a Kevin Huapeng Zhang, Huapeng Zhang), and Summitcrest Capital, Inc., No. 5:23-cv-01488 (C.D. Cal. filed July 28, 2023)
SEC Charges Real Estate Investment Fund with Offering Fraud Targeting Investors in Chinese-Speaking Communities
The SEC brought charges against Summitcrest Capital, Inc., and its principals, Johnny Tseng and Kevin Zhang, for conducting an offering fraud through their real estate investment fund, SC Development Fund, LLC. SC Development Fund raised approximately $19.8 million from about 30 investors in the United States and China between February 2018 and November 2019. SC Development Fund filed for bankruptcy in July 2020 and is now defunct.
The SEC's complaint alleges that SC Development Fund - formerly known as SC Development Fund V, LLC - was a real estate investment fund managed by Tseng and Zhang through Summitcrest, which they co-owned. As alleged, SC Development Fund sought investors for its unregistered offering from Chinese-speaking communities in the United States and China. According to the SEC's complaint, SC Development Fund represented that it would use investor funds to make real-estate related loans "to the general public" and utilize income from these loans to make promised interest payments and return of capital to investors. The SEC alleges that contrary to these representations, SC Development Fund used investor funds exclusively for loans to Zhang's real estate development and contracting business, and at least twelve other real estate development entities under Zhang's control. In addition, the complaint alleges that Tseng and Zhang misled investors by using investor funds to pay purported finder's fees to two entities that were supposed to be independent third parties, but were in fact controlled by Tseng or Zhang.
The SEC's complaint, which was filed in the Central District of California, charges Summitcrest, Tseng, and Zhang with violating the antifraud provisions of Section 17(a) of the Securities Act of 1933 ("Securities Act") and Section 10(b) of the Securities Exchange Act of 1934 ("Exchange Act") and Rule 10b-5 thereunder, and the registration provisions of Sections 5(a) and 5(c) of the Securities Act. The complaint seeks permanent injunctions, conduct-based injunctions, disgorgement with prejudgment interest, and civil penalties against Summitcrest, Tseng, and Zhang, and officer and director bars against Tseng and Zhang.
Summitcrest and Tseng, without admitting or denying the allegations in the SEC's complaint, consented, pre-filing, to the entry of final judgments permanently enjoining each of them from violating the antifraud provisions of Section 17(a) of the Securities Act and Section 10(b) of the Exchange Act and Rule 10b-5 thereunder, and the registration provisions of Section 5 of the Securities Act; prohibiting each of them from participating in the issuance, purchase, offer, or sale of any security (provided, however, that such injunction would not prevent Tseng from purchasing or selling securities for his own personal account); ordering Summitcrest to pay disgorgement of $16,600,000.00, plus prejudgment interest of $4,349,481.52, on a joint and several basis with Tseng and Zhang, and to pay a $2,232,280.00 civil penalty; ordering Tseng to pay disgorgement of $16,600,000.00, plus prejudgment interest of $4,349,481.52, on a joint and several basis with Summitcrest and Zhang, as well as disgorgement of $60,000.00, plus prejudgment interest of $15,721.03, on an individual basis, and to pay a $414,366.00 civil penalty; and imposing an officer and director bar against Tseng.
The SEC's investigation was conducted by Marisa Westervelt and Carol Kim and was supervised by Victoria A. Levin and Rhoda Chang in the Los Angeles Regional Office. Kathryn Wanner will lead the litigation against Zhang.
Investor Alerts:
The SEC's Office of Investor Education and Advocacy (OIEA) and the Division of Enforcement's Retail Strategy Task Force warn investors not to make investment decisions based solely on common ties with someone recommending or selling the investment.
The SEC's Office of Investor Education and Advocacy (OIEA) presents this guide of key strategies for protecting yourself and your community from the potentially devastating impact of affinity fraud.