Monday, October 23rd 2017

Newegg Sued for Alleged Involvement in Ponzi Scheme Through Fake Orders

Newegg (owned by Beijing-based Hangzhou Liaison Interactive Information Technology) has been sued by a conglomerate of South Korean banks. The plaintiffs claim that the Southern California computer parts retailer has aided, abetted, and profited from enabling a Ponzi Scheme to take place with its products orders. The lawsuit, filed in U.S. District Court in Los Angeles, alleges that Newegg and ASI Corp., a South Korean computer wholesaler, made fraudulent orders from Korean hardware manufacturer Moneual, whose chief executive, Hong-seok Park, was sentenced in 2015 to 23 years in prison for financial fraud, and additionally subject to fines and forfeitures.

Newegg and ASI took part on the whole scheme by creating non-existent, exaggerated-pricing (sometimes 300x higher than market value) orders for Moneual products, thus allowing it to gain a higher valuation from investors. By inflating sales figures, the suit alleges that Moneual was able to receive hundreds of millions of dollars from South Korean banks. As a reward, Newegg and ASI received kickbacks from Moneual.
All in all, it's suspected that Moneual managed to get their hands on around $3 billion in loans from ten major Korean banks through this scheme. The complaint said "No such business would have bought the products at such an inflated price, unless it intended to create the illusion of extensive, profitable, high-value commerce between it and its supplier for the purpose of defrauding lenders into supporting the transactions."

The four banks are demanding a jury trial and monetary damages. They say that $230 million is still owed from the faulty loans that Moneual obtained. Sources: LA Times, Digital Trends
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36 Comments on Newegg Sued for Alleged Involvement in Ponzi Scheme Through Fake Orders

#1
Chaitanya
Didn't a Chinese firm take over newegg last year?
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#2
W1zzard
Chaitanya said:
Didn't a Chinese firm take over newegg last year?
that's correct. updated the story
Posted on Reply
#3
brian111
Moneual was the parent company of Zalman. If anyone remembers about three years ago there was a brief time when Zalman was rumored to be going bankrupt. Luckily for them them they weren't involved in the fraud and they were restructured to be able to continue doing business.

As far as Newegg goes, that's a lot of high priced merchandise to justify that type of money (just an observation- I'm not suggesting they did anything wrong).
Posted on Reply
#4
natr0n
Reminds me of that nursery rhyme... humpdy dumpdy had a great fall.

newegg has been doing devious things for years.

My own personal example: If you view products a few times the price jumps up.
Posted on Reply
#5
Wiggynation
natr0n said:
Reminds me of that nursery rhyme... humpdy dumpdy had a great fall.

newegg has been doing devious things for years.

My own personal example: If you view products a few times the price jumps up.
I definitely feel like Mike's Computer Shop does this. A card i hoe'd and humm'd about changed price like 4 times while i viewed it within a week. Was low at first. Then viewing it 2 more times a day or two apart. It's price went up both times.then it went backdown when i looked back, but already decided to buy local after the double price hikes
Posted on Reply
#6
Raevenlord
News Editor
Wiggynation said:
I definitely feel like Mike's Computer Shop does this. A card i hoe'd and humm'd about changed price like 4 times while i viewed it within a week. Was low at first. Then viewing it 2 more times a day or two apart. It's price went up both times.then it went backdown when i looked back, but already decided to buy local after the double price hikes
Always use incognito mode and, if possible, different IPs while checking for pricing. Sites (especially travelling-related) gauge your interest and create a buyer profile with the amount of money you're willing to pay, and increase prices accordingly. Usually better prices can be found in incognito mode for the same products.
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#7
Prima.Vera
I really hope Amazon is not using this scheme...
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#8
bug
Whatever wrong doing happened here, it doesn't look like a Ponzi scheme to me.
Posted on Reply
#9
InVasMani
Chaitanya said:
Didn't a Chinese firm take over newegg last year?
China firm or China farm...
Posted on Reply
#10
ZoneDymo
InVasMani said:
China firm or China farm...
wait what?
Posted on Reply
#11
Upgrayedd
Sweet, I hope they get caught. I quit buying from newegg after that takeover. The prices did seem funky at times. I did learn something today though, shop in incognito, awesome tip!
Posted on Reply
#12
Bones
Upgrayedd said:
Sweet, I hope they get caught. I quit buying from newegg after that takeover. The prices did seem funky at times. I did learn something today though, shop in incognito, awesome tip!
Speaking of funky pricing...... https://www.newegg.com/Product/Product.aspx?Item=9SIA6ZP5X42712

About $200 US more than it sold for new back in the day when these were mainstream and of the current gen used.
I also like (NOT) the funny names some of these side vendors have, this one almost mocking the shopper viewing it with others on the sidebar being even higher.

I also highly suspect after the Chinese company had bought them out the egg is now become a way to move faked brandname Chinese-made products too and probrably through one of these hole in the wall vendors. Began seeing these odd vendors not long after these deals/loans happened timewise according to the info about what happened.
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#13
Dave65
Been using Newegg for years, never had a problem..
Posted on Reply
#14
bug
Bones said:
Speaking of funky pricing...... https://www.newegg.com/Product/Product.aspx?Item=9SIA6ZP5X42712

About $200 US more than it sold for new back in the day when these were mainstream and of the current gen used.
I also like (NOT) the funny names some of these side vendors have, this one almost mocking the shopper viewing it with others on the sidebar being even higher.

I also highly suspect after the Chinese company had bought them out the egg is now become a way to move faked brandname Chinese-made products too and probrably through one of these hole in the wall vendors. Began seeing these odd vendors not long after these deals/loans happened timewise according to the info about what happened.
nothingbutsavings.com -> registered by domainsbyproxy.com

Though they do have a mail address and a 1-800 number for assistance.
Posted on Reply
#15
dozenfury
It's good for the small business startups to get going, but a lot of online sites tend to do this now with side-vendors mixed in. Wal-Mart and Best Buy do it also. So whether it's Amazon, Newegg, or Wal-Mart I filter and if possible only purchase from the main company or at most the "fulfilled by Amazon" so at least it is being pulled and filled from their warehouse.

A lot of sites also do the dynamic pricing where they adjust automatically on demand/views. So the incognito mode is a good tip.

As for Newegg, I've bought from them for over 10 years and never had any trouble. They've always been very good with RMAs too. Their only catch are the rebates where it's a 50/50 bet at best sometimes whether you get it even with everything filled out perfectly. But the rebates are handled by a third-party. So it's tough to put on Newegg, but I'm sure they know that the rebates are gamed a bit. They do this with "free after rebate" anti-virus software a lot where it looks good, except gl on the rebate and many of those av software packages use an annual subscription model where they auto charge you full renewal price after 1 year if you don't remember to cancel.
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#16
Sandbo
If only any other Canadian stores had the same low price and product availability......
Despite of some bad experiences you might have, I have been actually pretty lucky with Newegg so far.
Here I got from them my Threadripper within days of release, where other stores had it back-ordered and priced ridiculously, let alone it is one of the only stores having a full selection of G.Skill RAM and Lian-Li chassis......
Also, all my returns so far were well handled, and even for products which are replacement-only, at worst I got full store credit refund and no requests had been declined.

For this issue, if it is for real, I can only say they were foolish to exchange that much money for all the troubles.
Posted on Reply
#17
Dave65
bug said:
nothingbutsavings.com -> registered by domainsbyproxy.com

Though they do have a mail address and a 1-800 number for assistance.
I don't buy from NewEgg unless it is sold by them, third parties I do not trust..
Posted on Reply
#18
Bones
bug said:
nothingbutsavings.com -> registered by domainsbyproxy.com

Though they do have a mail address and a 1-800 number for assistance.
Thing is anyone can get an 800 or 888 number, also the name domainsbyproxy.com makes it sound even more fishy to me.

In spite of this I've never had a problem (Yet) with the egg, even though I've had to do a return twice in the past.
Things were resolved quickly and to my satisfaction, however do note these returns/RMA's were all done before the supposed incident the lawsuit is about meaning before the Chinese buyout was done.
I can't say what it would be like now, only what it was like before so.... Caveat Emptor.
Posted on Reply
#19
bug
I'm not even sure why people need to tell their newegg experiences in this thread. Newegg built its whole business on exceptional services (and great prices, once upon a time). The only real question is whether they'll uphold that after the new acquisition. And it's clearly too early to tell that.
Posted on Reply
#20
Bones
Because to communicate these experiences is a way to tell that and know if problems with it are starting up.
If you have a problem but remain silent then expect these problems to continue unchecked, this way if it starts up and a trend/pattern is noticed then we'll know and you gotta start comparing notes somewhere for this to happen. I did see elsewhere a customer did report buying some earbuds from one of these side vendors and they turned out to be fakes of the real brandname.

He did report it BUT they are still listed as a vendor there. http://www.overclock.net/t/1640512/la-times-korean-banks-sue-newegg-alleging-ponzi-scheme/30#post_26407998

I know you'll have stuff like this coming out of the woodwork but it's still not a bad idea to keep one eye open at least, esp when you know as fact some shady stuff involving them in some way has happened.
Posted on Reply
#21
BiggieShady
bug said:
Whatever wrong doing happened here, it doesn't look like a Ponzi scheme to me.
It can be looked at as ponzi scheme with few big investors (banks) ... you are taking loans progressively from different banks and using a part of new loans to pay rates for existing loans ... faking product orders to get higher credit (huge amounts with long periods and nice interest rates) ... I suppose it can work for quite a while especially if long initial grace period exists ... Ponzi was faking high return of the investment for the same effect - for getting more money form more investors. This is similar - you are indirectly indicating sure investment by faking orders instead of directly returning fake profits (you are through payment rates but it's decoupled from fake orders bubble). They probably thought how this is ponzi better then ponzi, only they were messing with the banks.
Posted on Reply
#22
Basard
bug said:
I'm not even sure why people need to tell their newegg experiences in this thread. Newegg built its whole business on exceptional services (and great prices, once upon a time). The only real question is whether they'll uphold that after the new acquisition. And it's clearly too early to tell that.
Well, their GPU prices could use some work.... Everyone's can. I'll keep this 780 until the prices are fair again. I dont care if it takes a decade.
Posted on Reply
#23
lexluthermiester
Dave65 said:
Been using Newegg for years, never had a problem..
Me neither. And I've made at least a dozen purchases this year.'
BiggieShady said:
It can be looked at as ponzi scheme with few big investors (banks) ... you are taking loans progressively from different banks and using a part of new loans to pay rates for existing loans ... faking product orders to get higher credit (huge amounts with long periods and nice interest rates) ... I suppose it can work for quite a while especially if long initial grace period exists ... Ponzi was faking high return of the investment for the same effect - for getting more money form more investors. This is similar - you are indirectly indicating sure investment by faking orders instead of directly returning fake profits (you are through payment rates but it's decoupled from fake orders bubble). They probably thought how this is ponzi better then ponzi, only they were messing with the banks.
While you good point, strictly speaking, on Newegg's part this would be investment fraud, not a ponzi scheme. Moneual would be guilt of a ponzi scheme.
Basard said:
Well, their GPU prices could use some work.... Everyone's can. I'll keep this 780 until the prices are fair again. I dont care if it takes a decade.
If the new prices are killing you, buy used cards. As used 980 can be had for a damn good price on Amazon and Ebay. Although, a 780 is a great card. You really don't NEED to upgrade unless a game is running slow, but even then turn down[or off] AA and set AF to 4x.
Posted on Reply
#24
BiggieShady
lexluthermiester said:
strictly speaking, on Newegg's part this would be investment fraud, not a ponzi scheme. Moneual would be guilt of a ponzi scheme.
Maybe, but I think getting a kickback for signing one side of many bogus orders needed for this scheme to work is being exactly a part of the scheme
Posted on Reply
#25
Totally
And they had the gall to ban me for years now because of suspected fraud due to having 2 accounts(forgot original pass and retrieval was a pita compared to creating a new one).
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