Wisconsin woman’s $16M investment fraud targeted Hmong-Americans in MN, seven other states, SEC charges say

Josh Verges, Pioneer Press
·4 min read

A Wisconsin woman with ties to a St. Paul charter school was charged Wednesday with securities fraud for allegedly defrauding Hmong-American investors in Minnesota, Wisconsin and six other states.

Kay Yang, 40, raised at least $16.5 million from around 70 investors between April 2017 and April 2021, according to a civil complaint filed by the Securities and Exchange Commission in U.S. District Court in Wisconsin. Today, almost nothing is left.

The SEC says most of Yang’s investors are “members of the Hmong-American communities in Wisconsin and Minnesota. Some of these investors do not speak English as a first language, and some of them were not sophisticated investors.”

Yang did not return a phone message Wednesday, and no attorney was listed in the court file.

SEC ALLEGATIONS

Yang told investors she would pool and invest their funds in stocks and foreign currency trading. But of that $16.5 million, the SEC alleges:

  • Just $7.1 million actually was used in foreign exchange trading, incurring $3.5 million in trading losses, commissions and fees;

  • $3.3 million went toward Yang’s business expenses;

  • $2.7 million was repaid to investors in Yang’s Xapphire and AK Equity funds;

  • $400,000 was used to repay investors in a previous venture; and

  • $4.5 million or more was spent to benefit Yang or members of her family.

Yang and her husband, 47-year-old Chao Yang, who also is charged in the complaint, allegedly spent over $3 million on real estate, living expenses, travel and luxury cars. That included at least $110,000 on a trip to Maui with 60 guests, $80,000 on a trip to Thailand with 20 guests and $52,000 for a Caribbean cruise.

The $313,000 in car spending included a Lexus, a Tesla and two BMWs.

Some $1.4 million was withdrawn from ATMs, much of it at casinos in Milwaukee, Las Vegas, Atlantic City and elsewhere. An FBI affidavit filed in connection with the February search of Yang’s Mequon, Wis., home says the couple wagered a total of $10.7 million over four years at a single Milwaukee casino, losing $854,000.

The FBI said it suspected Kay Yang was operating a Ponzi scheme.

COMPLAINT: YANG LIED TO SEC

Yang regularly told investors the funds were performing well and provided false documentation, according to the complaint.

Yang even lied to the SEC, the complaint states. It says she and her husband refused to testify during an SEC investigation, but in response to a subpoena she provided account statements from a foreign brokerage company “showing mostly profitable trading during 2019.

“However, these account statements were fake; some had been altered to inflate the monthly profits or to show a much smaller monthly loss than her actual trading results,” which showed $2 million in losses that year, according to the complaint.

The Wisconsin Department of Financial Institutions on July 13, 2020 issued a consent order directing Yang to pay $17 million in restitution to her investors and turn over $4.2 million in profits. Little of that was actually paid, and the SEC found Yang lacks the means to do so.

The couple’s personal and investment accounts show no “significant remaining balances, either in cash, foreign currency or securities,” the complaint states.

Despite the trading losses, “Yang has continued to raise additional funds from the Hmong-American communities in Wisconsin and Minnesota” for a new venture she called “Xapphire G Fund,” the SEC said.

Regulators have confirmed Yang is using offshore accounts for that venture, but the SEC hasn’t been able to determine whether it is “a real investment fund or a fraud.”

Kay Yang and her Xapphire fund are charged with four counts of securities fraud. Chao Yang is charged with one count alleging the improper receipt of $800,000 in investor money.

The charges are civil, not criminal. The SEC is seeking court orders that would prohibit the couple from working in an investment capacity and force them to pay penalties and return money to their investors with interest.

The Commodity Futures Trading Commission also filed a similar civil complaint against the couple on Wednesday.

HMONG COLLEGE PREP

Kay Yang has been described in a separate legal matter as a “close personal friend” of Christianna Hang, founder and former superintendent of Hmong College Prep Academy, one of Minnesota’s largest charter schools.

Hang was looking to invest some of the school’s money in May 2019 when Yang referred her to Woodstock Capital, LLC, a hedge fund based in London.

That fall, Hang wired Woodstock $5 million in school funds, in violation of state statutes that limit what schools may invest in. Eighteen months later, just $700,000 remained.

The school now is suing Woodstock, alleging its investment either was stolen or badly mismanaged.

Woodstock called the loss a matter of bad timing, saying the coronavirus pandemic made it “possibly the worst time in recent world history for investments such as those made by hedge funds in general.”

Hang and her husband, chief operating officer Pao Yang, resigned from the school at the end of last year with a combined $350,000 in separation payments.

No criminal or civil enforcement charges have been filed in the charter school matter.

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