Full opinion text
MEMORANDUM AND ORDER Roslynn R. Mauskopf, United States District Judge. Plaintiff Securities and Exchange Commission (“SEC”) commenced this action on October 9, 2013, alleging violations of Section 10(b) of the Exchange Act, 15 U.S.C. § 78j(b), and Rule 10b-5 thereunder; Section 17(a)(1) and (3) of the Securities Act, 15 U.S.C. § 77q(a)(1), (3); and Section 5 of the Securities Act, 15 U.S.C. § 77e. (Compl. (Doc. No. 1).) The SEC also alleges violations of Section 15(a)(1) of the Exchange Act, 15 U.S.C. § 78o(a)(l), and Section 17(a)(2) of the Securities Act, 15 U.S.C. § 77q(a)(2), against CKB founder Hyng Wai (Howard) Shern and CKB’s United States promoters—Daliang (David) Guo, Yao Lin, Wen Chen Hwang (aka Wendy Lee), and Joan Congyi (JC) Ma, (collectively “promoters”). (Compl.) The SEC now moves for summary judgment against all defendants pursuant to Federal Rule of Civil Procedure 56. (Mot. Summ. J. (Doc. No. 311).) Defendants oppose the motion. (Shern Opp’n (Doc. No. 327); Leung Opp’n (Doc. No. 328); Guo, Lee, Ma, Yao Lin Opp’n (Doc. No. 353).) For the reasons below, the SEC’s motion is granted. BACKGROUND Defendants are the architects and top U.S. promoters of “CKB,” a multi-national pyramid scheme made of several collective entities, purported to be a legitimate mul-ti-level marketing company (“MLM”) selling educational software. Defendants Shern, Leung, and Santos were CKB founders. Defendants Guo, Lee, Ma, Yao Lin, Kiki Lin, Chang, Chen, and Mao were among CKB’s top promoters. In just two years, defendants collectively earned approximately millions in commissions by recruiting investors with false promises of investment returns and profitable stock. I. The Purported Business Defendants described CKB as a profitable provider of web-based educational software for children. The products functioned like a video game, with animation and interactive features. Through 2012, CKB had three software products; however, by the time this suit was filed, CKB had seven unique software products. (SEC’s 56.1 at ¶¶ 20-22.) To use a product, a purchaser had to obtain a license from CKB before accessing the product via the internet. (SEC’s 56.1 (Doc. No. 311-2) at ¶¶ 18-19.) The SEC maintains that the majority of software licenses issued were never used. (SEC’s 56.1 at ¶ 23.) CKB and its promoters earned money by recruiting investors, known as Online Marketing Angels (“OMAs”). OMAs joined CKB by purchasing $1,380 “business packs,” which contained one software license; “profit reward points” (“Prpts”), which defendants claimed had a cash value of $750 and could be converted to stock in the future; and access to a password-protected account (a “back office account”) on the CKB website, which contained each OMA’s personal CKB financial information, Prpt pricing, and CKB promotional materials. (SEC’s 56.1 at ¶ 30.) CKB’s compensation plan, called the “Dynamic Rewards Plan,” offered no incentive for OMAs to sell CKB’s products to retail purchasers. Instead, it set forth a system of direct and indirect commissions earned solely by recruiting other OMAs. (SEC’s 56.1 at ¶ 54.) Defendants promoted CKB through seminars, conferences, email, a corporate webpage, individually maintained webpag-es, internet postings on sites such as YouTube, and in-person solicitations. These promotional efforts did not focus on CKB’s software, rather they promoted CKB as a no-risk business opportunity to make enormous investment returns. (SEC’s 56.1 at ¶ 24.) For example, in a presentation recorded and posted on YouTube, Chang compared CKB to prominent companies with successful initial public offerings (“IPOs”) and talked at length about how an investment in CKB could quickly multiply. In the video, Chang did not attempt to sell CKB’s actual software, offering only platitudes about CKB’s educational mission. (SEC’s 56.1 at ¶ 25.) In another video recording, Guo promotes CKB to potential investors, one of whom can be heard saying to Guo: “We’re attracted by the stocks, and not many people are using the products really.” (SEC’s 56.1 at ¶ 28.) Similarly, in a testimonial posted on the CKB website, Ma talks about how she profited from the CKB business opportunity. (SEC’s 56.1 at ¶ 26.) CKB promotional literature also emphasizes the business opportunity, not the products. As one handout states: Is It Possible to Turn $1,380 Investment To $500,000? Return on Investment: With a course-ware purchase, investing $1,380 in education, you receive a Pre-IPO privilege of PrPt for FREE, an equivalent of $750 in value, salable, redeemable, and convertible to company stock. Your investment will be doubled, quadrupled and continue to grow in size to 8 times, 16 times ... till IPO. (SEC’s 56.1 at ¶ 27.) In fact, CKB never sold its software products directly to any retail customers. The majority of licenses were purchased as part of the business pack sold to OMAs. In only a few instances did any promoter ever make a sale of a CKB license directly to a retail customer. This was such a rarity that CKB’s proceeds show no revenue attributable to retail sales of its software. (SEC’s 56.1 at ¶¶ 29-32.) II. Defendants’ False Claims that OMAs Would Own CKB Stock and that CKB Would Have an IPO Defendants typically referred to OMAs as “investors” and described the purchase of a business pack as an “investment” in CKB. Among other promotional tactics, defendants stated that OMAs would see significant returns on their investment, referred to as “pre-IPO shares,” when CKB went public. (SEC’s 56.1 at ¶¶ 33, 39.) Promoters initially told potential investors and OMAs that OMAs would directly acquire stock. Though CKB did issue stock certificates to early OMAs, it attempted to rescind such certificates in 2011 upon learning they were unlawfully issued. Yet, even after, Shern and the promoters continued to claim that OMAs could convert Prpts to stock. (SEC’s 56.1 at ¶¶ 35-36.) In a 2012 presentation, Shern told potential investors, “when the company goes public [in 2014], it could be up to eight times the rate of return. Your investment of $56,000 will become $420,000.” Similarly, in a July 2012 email, Lee sent a document-to an OMA that stated, “CKB 168 will be publicly listed in 2014 and is estimated to undergo splitting for four times before listing.” In a November 2012 email, Ma made the same representation that CKB would have an IPO in 2014. (SEC’s 56.1 at ¶ 40.) Despite these claims, CKB never provided stock to OMAs in exchange for Prpts. (SEC’s 56.1 at ¶¶ 86-38.) While defendants frequently claimed they owned “shares” in CKB, only Yao Lin ever received a purported stock certificate, which could not be sold or transferred. (SEC’s 56.1 at ¶¶ 38, 37.) Along the same lines, despite defendants’ claims of an imminent IPO, CKB, Shern, and Leung made no preparations to go public. (SEC’s 56.1 at ¶¶ 41,160.) III. Defendants’ False Claims that Investors Would Make Active and Passive Profits Defendants claimed that OMAs could make large, rapid returns on their investments. Defendants divided these returns into two categories: (a) “active” or “dynamic” returns and (b) “passive” or “static” returns. (SEC’s 56.1 at ¶ 42.) However, OMAs could only realize a profit through recruitment commissions, the majority of which were realized by defendants themselves. a. Active Returns As set forth in CKB’s Dynamic Rewards Plan (the “Plan”), OMAs could only make actual money by recruiting new OMAs to buy business packs. The Plan provided no incentive for OMAs to make retail sales. Rather, the Plan rewarded OMAs that successfully recruited new OMAs with commissions, which appeared in the OMA’s back office account. (SEC’s 56.1 at ¶¶ 52-54.) Under the Plan, CKB rewarded OMAs in two instances: (1) when they established “downlines,” new OMAs who they or their existing downlines recruited, and (2) when an existing downline purchased additional business packs. Generally, OMAs could profit from investments up to ten levels below them. Defendants, as top-ranked OMAs, could earn commissions from deeper levels. This pyramid structure incentivized OMAs to grow their business by finding new investors. As discussed above, defendants’ marketing efforts, as well as the training they provided to down-lines, focused almost exclusively on the investment opportunity. (SEC’s 56.1 at ¶¶ 55-59.) b. Passive Returns Defendants’ claims of passive returns referred to the accumulation and allegedly increasing value of Prpts. (SEC’s 56.1 at ¶ 45.) Defendants told investors that Prpts would rapidly increase in value and never decrease. OMAs were given Prpts with a purported value of $750 in their business packs, and CKB claimed that their value would increase as a function of CKB’s business pack sales. Defendants stated that so long as CKB continued to attract new OMAs, CKB would increase the value assigned to the Prpts. (SEC’s 56.1 at ¶ 46.) Every few months, CKB would “split” its Prpts, thus doubling each OMA’s Prpt holdings. (SEC’s 56.1 at ¶ 47.) Though defendants represented the value of Prpts in terns of “dollars” and claimed Prpts had a “market value,” OMAs were never actually able to realize a cash value for their Prpts. (SEC’s 56.1 at ¶¶ 48-49.) As defendants knew, or at best recklessly ignored, Prpts could not be converted to cash. (SEC’s 56.1 at ¶ 50.) Prpts could only be exchanged for more business packs or traded by OMAs on a Prpt exchange accessed through the OMA back office accounts. However, because there were effectively no buyers on the back office Prpt exchange, OMAs could not use the exchange to trade their Prpts for cash. (SEC’s 56.1 at ¶ 51.) In effect, Prpts were worthless. c. Defendants Earned the Vast Majority of Commissions The top 1% of OMAs earned 61% of all commissions. Out of 65,883 total OMA accounts, the top 12 (or .018%) earned nearly 13% of all commissions. Guo, Yao Lin, Lee, Shern, Leung, Kiki Lin, JC Ma, and Toni Chen were among those top 12 accounts. More than half of all .OMA accounts received no commissions whatsoever. (SEC’s 56.1 at ¶¶ 60-61.) Defendants and a few select others collected millions, while nearly everyone else incurred losses. The SEC alleges that such a distribution of winners and losers was inherent in the Dynamic Rewards Plan. (SEC’s 56.1 at ¶¶ 60-61, 64-66.) d. Other Investors Felt Significant Losses on their Investment Other OMAs, promised enormous returns by defendants, realized significant losses. Two examples are detailed below: 1. Harry Lee In August and September 2012, Mao recruited Harry Lee and his mother to invest in CKB. Mao, with the help of her sister, lauded CKB as a great company for Harry Lee and his mother to invest in. At Mao’s invitation, Harry Lee attended a promotional seminar on September 4, 2012. There, Wendy Lee described CKB as a legitimate company selling children’s educational products. Wendy Lee told the attendees that CKB would soon go public and that OMAs would be awarded Prpts that would rapidly multiply and could be converted to pre-IPO stock. Mao also spoke at the seminar. There, Harry Lee stated that Mao discussed the profits she had made from her CKB investment. (SEC’s 56.1 at ¶¶ 105-06.) Based on those representations, Harry Lee’s mother invested $55,200, a significant portion of which came from her retirement account, in CKB and gifted the investment to Lee for his wedding. (SEC’s 56.1 at ¶ 107.) After his mother’s investment, Harry Lee continued to attend CKB presentations. One such presentation, hosted by Wendy Lee at Mao’s home, was designed to train new OMAs to recruit other OMAs. There, Wendy Lee told attendees to promote CKB by focusing on the impending IPO and the opportunity to double or triple an investment. No instruction on how to sell the software was provided. (SEC’s 56.1 at ¶ 108.) Shortly thereafter, Harry Lee began to question his investment in CKB. He asked Mao how CKB incurred revenue without making retail sales. He also stated that her claims that he would be able to redeem his Prpts for cash were false. Mao responded that it was important to “believe” in CKB and urged Lee to recruit downlines. (SEC’s 56.1 at ¶ 109.) In July 2013, Harry Lee attempted to convert his Prpts to 15,619 shares of CKB stock. He received two responses from CKB acknowledging his request, but he never received stock certificates. (SEC’s 56.1 at ¶ 110.) 2. Richard Tuan Richard Tuan, a retiree, attended a 2012 CKB promotional event in California, at which Shern, Santos, and Lee presented. At the event, defendants claimed that CKB would soon go public in Hong Kong and that the cash value of Prpts would increase dramatically. (SEC’s 56.1 at ¶ 112.) In July 2012, Tuan invested $15,000. Shortly thereafter, Tuan attempted to convert his Prpts to stock. On July 11, 2013, CKB told him that in exchange for his Prpts, he would receive 6,082 shares of CKB stock. In November 2013, Tuan contacted Lee as he was confused about the instructions sent by CKB regarding his stock order. Despite the fact that the SEC had already initiated this suit against CKB and Lee, Lee told Tuan that he needed to provide additional information to CKB and would be required to pay a $50 fee to obtain the certificates. She did not mention the pending law suit. (SEC’s 56.1 at ¶¶ 113-16.) IV. Defendants Conduct and Roles in CKB a. Shern In January 2011, Shern described the concept of what would become CKB to Santos. In April 2011, Shern and Leung opened bank accounts to conduct CKB business. Together they directly and indirectly controlled CKB’s bank and securities accounts. (SEC’s 56.1 at ¶¶ 117-18.) After helping to create CKB, Shern acted as CKB’s International Marketing Director and as an OMA, despite being warned that it was a “conflict of interest” for a CKB director to be an OMA. (SEC’s 56.1 at ¶ 142.) As International Marketing Director, Shem, with a select few others, was responsible for designing and implementing the CKB investment plan, including drafting the plan and setting up the back office accounts. On March 10, 2011, Santos emailed Shern a draft of Policies and Procedures for CKB. (SEC’s 56.1 at ¶ 119; 3/10/11 Santos Email (Doc. No. 319— 1) at 49 (ECF pagination).) The draft explicitly stated: As a legitimate MLM Company • [CKB] pays Distributors commission based on product sales, NOT on recruiting people. • [CKB] does not require individuals to buy products in order to become a Distributor. The cost is a one time sign-up fee that is reasonable and refundable. (Draft Policies and Procedures (Doc. No. 319-1) at 51 (ECF pagination).) Despite being presented with this document highlighting the commission structure of a “legitimate MLM,” Shern created and implemented the Dynamic Rewards Plan, which compensated OMAs exclusively for recruiting new investors. (SEC’s 56.1 at ¶ 121.) Similarly, CKB required OMAs to purchase software licenses through their business packs. Yet, most OMAs had no need for the software and those that attempted to use it often had problems. In late 2011, one OMA told Shern directly that the product was “garbage.” On another occasion, Shern directly acknowledged a flaw in the software that required users to complete the same lesson for three days before being able to proceed to the next lesson. Nonetheless, Shern marketed CKB as a legitimate, growing company selling an advanced and desirable product. (SEC’s 56.1 at ¶¶ 125,127.) On many occasions, Shern traveled to the U.S. to promote CKB, including to present at seminars and other events. In a testimonial posted on the CKB website, Guo said that Shern’s “US trip helped boosting our sales a lot.” Both during these trips and at other times, Shern served as a primary source of information and instruction for promoters. (SEC’s 56.1 at ¶¶ 122-24.) Shern knew, and repeatedly discussed, that the promoters and others were describing CKB as an “investment” and claiming that investors would get CKB “shares” or “stock.” In a YouTube video he posted on May 12, 2012, Shern stated that the “idea” of CKB was “to do these educational programs and then to provide opportunities for the regular public to become the holder of the initial stocks even before the company went public.” In February 2013, Shern used a promotional flyer for an upcoming presentation that stated that participants would learn “how [they] could possess the initial non-public shares of CKB group .... How CKB can be the company to make millions for its shareholders.” (SEC’s 56.1 at ¶¶ 128-29, 132.) Yet starting in 2011, Shern had repeatedly been told that it was unlawful for CKB to sell “stock.” Shern even acknowledged in a November 26, 2012 email to Kiki Lin that the promoters “may have ... promised too much” and “members were misled.” Shern even acknowledged that it was “illegal” for CKB to distribute stock. (SEC’s 56.1 at ¶¶ 181,133-35.) Despite knowing that CKB could not sell stock, Shem continued to promise OMAs and potential investors that they could become shareholders by converting their Prpts to stock. At one of his U.S. presentations, he explained, “we have ways to convert things into stocks and give it to you.” In another presentation, Shern stated that “by accumulating [Prpts] you could change them into stock .... So by doing this we make ourself a legal operation. You know, sometimes people will say, if you sell stocks—initial stocks, it’s illegal, but we are legal.” Even after acknowledging that “members were misled,” Shern continued to pay commissions to promoters and accept investments from their downlines. (SEC’s 56.1 at ¶¶ 134-35, 138.) Shern also continuously told investors that CKB would soon go public. In one presentation, he stated “in the next 24 months the value of your initial stock will increase ... so for the next two years, and also during the first three to five years after the company gets public, we will get the value of the stock increased.” As late as June 2013, Shern edited and consulted on a revised compensation plan that still claimed that OMAs could convert their Prpts into stock. (SEC’s 56.1 at ¶¶ 136-37.) When confronted with allegations that CKB was a pyramid scheme, Shern led CKB’s efforts to suppress such allegations. In an email, Shern urged OMAs “to protect the name of the company” and aggressively deny any allegations. Shern also hired a consultant to eliminate references to the allegations from internet search results for CKB. In a December 2012 response to allegations that CKB was a fraud, Shern edited and approved a response letter stating that CKB sold “cutting-edge educational products” and it “sell[s] real products, generatefe] real sales, [and] producéis] real results.” The same response also stated that CKB would go public “in the next few years” and was not a “wild claim to squeeze money out of unsuspecting members.” (SEC’s 56.1 at ¶¶ 148-49.) As the accusations continued, Shern took steps to distance himself from CKB. By February of 2013, Shern disclosed to Santos that as a result of the pyramid scheme allegations, he had been “busy for two months’ time working with lawyers and accountants to restructure the company. And that is why now we are not owners of CKB.” Nonetheless, even after the SEC initiated this lawsuit in October 2013, Shern continued to communicate with and accept money from OMAs, and even held a webinar accessible to OMAs in which he described “the future of the company.” (SEC’s 56.1 at ¶¶ 151-52.) b. Leung Leung, one of CKB’s founders, acted as CKB’s Chief Financial Officer (“CFO”). In a CKB promotional brochure, Leung was credited with creating CKB’s “management structure.” The same brochure recounted Leung’s background in banking and wealth management and claimed that Leung has experience taking companies public. (SEC’s 56.1 at ¶¶ 153,165.) As CFO, Leung was chiefly responsible for managing CKB’s finances, collecting funds from investors, paying salaries and other business expenses, and paying commissions to OMAs. She controlled bank accounts, some of which she opened with Shern, and signed checks on behalf of CKB. In February 2012, she also signed a stock certificate on behalf of CKB for Yao Lin. (SEC’s 56.1 at ¶¶ 156-57, 166-67.) Leung was also widely understood to be in charge of CKB’s finances. She communicated directly with OMAs regarding payment issues. She frequently adjusted accounts, signed checks, modified transactions, and gave instructions to OMAs about where to send their money and other steps to take. Leung was familiar with the Dynamic Rewards Plan and the back office. (SEC’s 56.1 at ¶¶ 153, 157-58.) Even after Leung was confronted with allegations that CKB was a pyramid scheme and warned that it was illegal to sell stock, Leung continued functioning as CKB’s CFO and diverting funds into her own account. (SEC’s 56.1 at ¶¶ 161-63.) c. Guo Guo was one of CKB’s highest ranking promoters due to his success in recruiting direct and indirect downlines. Guo was also one of the earliest OMAs to invest in CKB, in May 2011. For his successful recruitment efforts, CKB awarded him a $250,000 bonus. (SEC’s 56.1 at ¶¶168, 193.) Guo traveled throughout the U.S. and China to promote CKB and recruit new OMAs. In one video, Guo stated that his-“sales group,” referring to his direct and indirect downlines, was responsible for “$100 million of sales revenue.” In testimonials posted on the CKB website, both Lee and Kiki Lin state that they were recruited by Guo. As part of his recruitment efforts, Guo provided his downlines with CKB promotional material. (SEC’s 56.1 at ¶¶ 170,172.) Like other defendants, Guo made repeated statements to potential investors that CKB would soon go public. In a presentation, he stated that the IPO would happen in 2014, and added, “So, yes, today I’m promising that we definitely can go public.” In a testimonial posted on the CKB website, Guo wrote that he had been “rewarded 500K USD and lots of shares” and that “[hjaving such a big portion of shares and Prpts given out are another attractive point of CKB168.” Guo also repeatedly referred to Prpts as “shares” and “stocks” and told potential investors that OMAs are “holders of initial stocks.” In presentations, Guo compares OMAs who help Prpts to pre-IPO investors in Google, New Oriental, and Baidu. (SEC’s 56.1 at ¶¶ 173-175.) Guo also told investors that they would enjoy enormous, risk-free returns by investing in CKB. In one video, he stated that “before going public, [Prpts] will only grow and never fall.” In another video, he told investors that OMAs can “sell our Prpt at the back [office] and convert it to money.” He also compared the allegedly risk-free CKB approach with investments in purportedly riskier public companies, where the value of the investment may fluctuate. At other times, Guo purported to explain “why there is no risk for [CKB] investors.” Guo made similar claims as to the investment after an IPO. He stated that “after going public ... the value of Prpt will increase by 50 times.” Along the same lines, he also claimed that CKB’s “stock value would be increased dozens of times or even hundreds of times.” (SEC’s 56.1 at ¶¶ 179-81,183.) In addition to telling OMAs and potential investors that CKB was a profitable, risk-free investment, Guo also explained CKB’s structure. In a variety of contexts, he explained that OMAs earned commissions by actively recruiting new investors and benefited indirectly when their down-lines successfully recruited. In one video, Guo walked OMAs through arranging a downline pyramid in order to maximize commissions. (SEC’s 56.1 at ¶ 184.) Even after being confronted with signs and accusations that CKB was a “scam” and a pyramid scheme, Guo continued to promote CKB and accept commissions. By-October 2012, Guo was aware that CKB had been accused of being a pyramid scheme when he received an email from Shern denouncing the claims and imploring the top promoters to attack CKB’s critics. Guo made no investigation into these claims, nor did he verify any of the promotional claims he made to potential investors. He never acquired, or even asked for, any internal CKB financial statements or other disclosures. Instead, he continued making the same claims to investors as detailed above. In one video, potential investors can be heard questioning CKB’s legitimacy. In response, Guo refuted any claims that CKB was not legitimate and even claimed to have given one investor a personal guarantee that a CKB investment would only increase in value. Similarly, despite the fact that Guo never received stock and, in fact, wasn’t aware of anyone who had received stock certificates, he told OMAs and potential investors that he already had CKB stock. (SEC’s 56.1 at ¶¶ 175-78,182-83,185.) Guo knew that CKB that Prpts could not actually be converted to cash and that CKB was not actually risk-free while making such claims to investors. By April of 2013, someone at CKB even told him that it was “inappropriate” to denote Prpts in dollars. Guo also later admitted that his claims that CKB was risk-free were only his “hope” and his “personal view.” He had not done anything to verify such representations. Guo also was aware that he earned no commissions and CKB offered no incentives for retail sales. Though he collected millions in commissions for recruiting new OMAs, he made only 15 or 16 software sales to non-OMAs, who were exclusively his family members in China. His promotional efforts focused entirely on recruiting new OMAs with statements that he knew were false. (SEC’s 56.1 at ¶¶ 184, 187-90.) d. Lee Lee became an OMA in July 2011. After joining CKB, she regularly hosted promotional events at her Los Angeles area home. Her OMA account ranked among the top 28 out of over 65,000 worldwide OMA accounts. (SEC’s 56.1 at ¶¶ 65, 194-95.) Lee stated that she did not have “any goals” for selling the CKB software. (Lee Dep. (Doc. No. 312-1) at 210:6-12 at 140 (ECF pagination).) Lee promoted CKB on her own website, estockclub.com. Though the site was pub-lieally accessible, Lee noted that it was in its Beta (pre-launch) form. (Defs.’ 56.1 at ¶ 196.) There, Lee gave financial advice and information about CKB. Other promoters directed OMAs and potential investors to Lee’s website, where Lee posted CKB materials, meeting times, and promotional literature for site visitors. Lee also listed the website address on her CKB business card. (SEC’s 56.1 at ¶¶ 196-97.) One presentation posted on Lee’s website, extolled CKB’s business plans and invited visitors to “[j]oin us and become a CKB OMA.” The presentation made several claims about Prpts, including that “USD 750 [of Prpts] will become USD 3,000 within six months to one year.” It listed Prpt prices on various days and added the “value of each [Prpt] has increase[d] from USD 0.024 on Jan. 1, 2012 to USD 0.169 on Sep. 21, 2012, with a return of 8 times within 9.5 months! In this way, there might be a return on 8-16 times before CKB gets listed in 2014.” A flier posted on Lee’s website claimed that “CKB’s market value is USD 2.88 billion,” and that “the first batch of 200 million Prpts are allocated, CKB has sold about 360,000 courses with the revenue of about ESD 432 million and the profit of about USD 36 million.” The flier also claimed that “each Prpt is equivalent to about USD 2.16.” (SEC’s 56.1 at ¶¶ 198, 200.) In presentations and in informal conversations with OMAs and potential investors, Lee made similar claims about Prpts. For example, in September 2012, she told potential investors that the value of Prpts would rapidly multiply and that the Prpts could be converted to pre-IPO stock. In a July 2016 email to an OMA, Lee described future increases in Prpt value and attached a chart showing how an investment of $124,000 could rapidly become over $4 million in Prpts. Lee circulated similar charts to other OMAs and potential investors. Such charts did not disclose that Prpts did not actually have a cash value and could not simply be exchanged for cash, as Lee understood. (SEC’s 56.1 at ¶¶ 80, 101, 106, 202, 207-11.) Lee also told OMAs and potential investors that CKB was taking steps to go public. Lee told OMAs that they could convert their Prpts to stock and become investors in, and have ownership of, CKB. Another presentation on her website stated that Prpts could be “[u]sed to exchange for a share certificate,” and that, if Prpts are “used to exchange for a share certificate, annual dividends can be enjoyed.” Lee claimed that these holdings would become valuable upon CKB’s imminent IPO. Lee also distributed materials and charts with similar claims to potential investors. (SEC’s 56.1 at ¶¶ 113-16, 199, 202.) Like other defendants, Lee continued to promote CKB and accept commissions despite accusations and signs that CKB was a fraud. By fall of 2012, Lee knew that CKB had been accused of being a pyramid scheme by various media sources, bloggers and even frustrated OMAs. She discussed these allegations with other defendants and she was part of an October 2012 email exchange in which Shern denied the allegations. Nevertheless, she did nothing to independently assess the allegations. In November 2012, Shern himself warned Lee that she was making false claims about CKB and he asked her to temporary take down her website, explaining that “there is information inaccurate and will be used to by ... SEC against” CKB. Though it is unclear when, or for how long, Lee’s website was taken down, evidence shows it was active in October 2013. (SEC’s 56.1 at ¶¶ 133, 213-14.) Lee also never investigated CKB’s purported efforts to go public. At one point Lee actually attempted to convert her Prpts to stock, but never received any stock certificates. Despite this, Lee never verified her claims that OMAs could become shareholders of CKB, which she repeatedly made to OMAs and potential investors. Lee also repeatedly told OMAs and potential investors that Prpts could be converted to cash, despite knowing that OMAs would have to wait in line to find a buyer on the back office exchange. In communications with potential investors, Lee described Prpts as actual CKB income even though she know the potential investors were not aware of the difference between the valueless Prpts and the actual commissions paid out. (SEC’s 56.1 at ¶¶ 202-04, 206, 211-12.) e. Ma Ma became an OMA in May 2012 and, within ten weeks, achieved the level of Executive Vice President due to her success. One of her OMA accounts was among the top 112. Prior to joining CKB, Ma had been a licensed securities professional. In her CKB testimonial, Ma claimed, “I am experienced and licensed in both the financial services and real estate industries,” and represented that she had “learned” and “studied” CKB’s business. (SEC’s 56.1 at ¶¶ 289-91.) Ma often worked in coordination with Lee, Mao, Chang, and Chen, whom she referred to as her “team.” Ma would direct OMAs and potential investors to Lee’s website for CKB promotional information. Ma also attended recruiting events with her team-and implored them in emails to work hard in recruiting new OMAs. During a trip to China, she sought to arrange CKB promotional events and speakers with Chang and Chen. (SEC’s 56.1at ¶¶ 292, 294-95.) In her CKB testimonial and in numerous communications with other OMAs and potential investors, Ma stated that she was a shareholder of CKB. In her testimonial, Ma expressed regret that had she “made a higher investment, [she would] have acquired many more shares at a lower price.” In a November 3, 2012 email to OMAs, she wrote that “[t]hose selling shares and dividends would regret what ... few shares they own later.” (SEC’s 56.1at ¶ 297.) Ma also made repeated representations that a CKB IPO was imminent. In a June 2, 2013 email to OMAs, she wrote, “June marks the last month of CKB stock lockup. If you or your friends want to catch the last flight before public listing, please lock up all points before the end of June.” At the bottom of the email, in bold, oversized letters, Ma wrote, “[o]ne without stocks cannot become rich and one without initial stocks cannot muster enormous fortune.” In another email, Ma wrote, “Oct 1 is around the corner, this will be the last chance to invest and get free shares.” In a January 22, 2013 email, Ma wrote, “[p]ro-spective investors in CKB 186 need to complete investment prior to the end of April.” On March 19, 2013, Ma sent another email -to OMAs stating that CKB had changed its website “[t]o satisfy requirements of the listing of the parent company.” (SEC’s 56.1at ¶¶ 298-300, 303.) Ma also told OMAs and potential investors that they could enjoy huge returns on their Prpts, despite knowing they were valueless. For example, Ma emailed a chart to Mao and other OMAs depicting a rapid 112% return on an OMA’s initial investment and specified a “market value” for the Prpts in dollars. Along the same lines, Ma sent emails to OMAs notifying them that they could purchase more business packs before a Prpts “split.” In one email, she itemized the enormous returns a new OMA could enjoy, writing, “[i]f 81 orders are concluded before the end of September, the company will gift [Prpts] worth ... 379,818 shares for X [times] 0.163 = $61910. In case of increases by 16 folds, the value would be $1 million at the time of the public listing, exclusive of dividend.” However, Ma knew that Prpts did not have cash value and could not be converted to cash. Although she believed that OMAs could use Prpts to purchase software licenses, and then sell those licenses for cash, she never sold licenses in this manner. Ma was aware that the only way to earn real cash was for her or her down-lines to sell business packs. Ma only ever sold a few licenses to retail purchasers., (SEC’s 56.1 at ¶¶ 304-07, 309.) By October 2012, Ma was aware that CKB had been accused of being a pyramid scheme. Along with other defendants, Ma was copied on an email exchange between an OMA and Shern, in which Shern denounced allegations that CKB was a pyramid scheme. Like Shern, Ma described similar allegations as sabotage. In a December 2012 email to an OMA, Ma wrote, “[t]here are some he[ar]says about the company, which are made intentionally to sabotage our Company. There are also people doubting about the operation model of CKB168 .... One company has created numerous millionaires with this model.” Yet Ma did nothing to investigate the allegations she denounced. Ma claims that, instead, she accepted Shern’s explanation that the accusations were motivated by jealousy. After learning of the allegations, Ma continued to promote CKB, to encourage her downlines to recruit new investors, to accept commissions and cash, and to permit her testimonial to be used on the CKB website. (SEC’s 56.1 at ¶¶ 310-13.) f. Yao Lin Lin became an OMA in May 2011, after being recruited by Guo. Lin’s top OMA account ranked among the top 28. Prior to becoming an OMA, Lin participated in sales and promotion programs for other MLMs. At the other MLMs, unlike at CKB, Lin sold products directly, in addition to developing downlines. Yet, while at CKB, Lin never made a single software sale separate from business packs sold to OMAs. (SEC’s 56.1 at ¶¶ 315-16, 321.) Lin promoted CKB by representing that Prpts had cash value, despite knowing they could not simply be exchanged for cash. He based his presentations to investors on CKB’s claims regarding the value, uses, and ever-increasing returns for Prpts. He described Prpts as “passive income,” which would increase so long as CKB continued to sell business packs. In his CKB testimonial, he claimed that he had earned over six digits, which included returns on his Prpts. However, Lin knew that Prpts could not be converted to cash. At one point, Lin had attempted to sell his Prpts on the back office exchange, but, like other OMAs, he could not find a buyer. Lin knew that other OMAs had the same experience. (SEC’s 56.1 at ¶¶ 324-26.) Lin also claimed that OMAs could convert their Prpts to stock despite his own difficulty in doing so. He passed along information to potential investors that CKB would have an IPO in July 2014, that CKB would be listed on the Hong Kong stock exchange, and that the IPO would make CKB extremely valuable. In presentations to potential investors, Lin compared CKB’s imminent IPO with the successful IPO of another Chinese education company. However, Lin himself encountered numerous roadblocks to obtaining CKB stock. Although he first tried to convert his Prpts in 2011, he did not receive a stock certificate until the summer of 2012. To get it, he had to fly to Hong Kong to visit the CKB office there. When he arrived, CKB personnel claimed not to have it. It was only after Lin confronted Leung that she provided him with a signed certificate. His other attempts, both before and after his attempt in 2011, to convert Prpts to stock failed. Lin was the only U.S. promoter to receive a stock certificate and was not aware of any other OMAs who received an actual certificate. (SEC’s 56.1 at ¶¶ 327, 329.) Like other defendants, Lin continued to promote CKB and accept commissions despite accusations and signs that CKB was a fraud. By October 2012, Lin knew that CKB had been widely accused of being a fraudulent scheme. Even prior to that, several of Lin’s recruits told him that they suspected that CKB was not a legitimate company and, in the fall of 2012, Lin reviewed articles that directly questioned CKB’s legitimacy and promotional claims and asserted that CKB was likely a type of money-transfer scheme. (SEC’s 56.1 at ¶¶ 331-32.) Despite his familiarity with the retail-sale guidelines of other MLMs from his past experiences and his knowledge that CKB did not follow those rules, Lin did nothing to independently evaluate accusations that CKB was a fraud. Lee never asked Shern or any other founder to respond to the fraud accusations. He considered the widespread skepticism about CKB to be irrelevant; he was, as he put it, “stubborn.” Similarly, Lin never attempted to verify the statements he continued to make to OMAs and potential investors. He never asked CKB for financial disclosures and he made no effort to verify Shern and other OMAs’ statements that CKB would soon go public. (SEC’s 56.1 at ¶¶ 334-35.) STANDARD OF REVIEW Summary judgment is appropriate when the pleadings, depositions, interrogatories, admissions, and affidavits demonstrate that there are no genuine issues of material fact in dispute and that one party is entitled to judgment as a matter of law. See Fed. R. Civ. P. 56(c); Celotex Corp. v. Catrett, 477 U.S. 317, 322, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986). A genuine issue of material fact exists “if the evidence is such that a reasonable jury could return a verdict for the nonmoving party.” Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986). In determining whether a genuine issue of material fact exists, the evidence of the non-movant “is to be believed” and the court must draw all “justifiable” or “reasonable” inferences in favor of the non-moving party. Id. at 255, 106 S.Ct. 2505 (citing Adickes v. S.H. Kress & Co., 398 U.S. 144, 158-59, 90 S.Ct. 1598, 26 L.Ed.2d 142 (1970)); see also Brosseau v. Haugen, 543 U.S. 194, 195 n.2, 125 S.Ct. 596, 160 L.Ed.2d 583 (2004). Nevertheless, once the moving party has shown that there is no genuine issue as to any material fact and that it is entitled to a judgment as a matter of law, “the nonmoving party must come forward with ‘specific facts showing that there is a genuine issue for trial,’ ” Matsushita Elec. Indus. Co., Ltd. v. Zenith Radio Corp., 475 U.S. 574, 587, 106 S.Ct. 1348, 89 L.Ed.2d 538 (1986) (quoting Fed. R. Civ. P. 56(e)) (emphasis in original), and “may not rely on conclusory allegations or unsubstantiated speculation,” Scotto v. Almenas, 143 F.3d 105, 114 (2d Cir. 1998) (citing cases). In other words, the nonmovant must offer “concrete evidence from which a reasonable juror could return a verdict in his favor.” Anderson, 477 U.S. at 256, 106 S.Ct. 2505. Where “the nonmoving party bears the burden of proof at trial, summary judgment is warranted if the nonmovant fails to make a showing sufficient to establish the existence of an element essential to [its] case.” Nebraska v. Wyoming, 507 U.S. 584, 590, 113 S.Ct. 1689, 123 L.Ed.2d 317 (1993) (quoting Celotex, 477 U.S. at 322, 106 S.Ct. 2548) (internal quotation marks omitted). Thus, “[a] defendant moving for summary judgment must prevail if the plaintiff fails to come forward with enough evidence to create a genuine factual issue to be tried with respect to an element essential to its case.” Allen v. Cuomo, 100 F.3d 253, 258 (2d Cir. 1996) (citing Anderson, 477 U.S. at 247-48, 106 S.Ct. 2505). DISCUSSION I. Section 10(b) of the Exchange Act, Rule 10b-5, and Section 17(a) the Securities Act The SEC alleges that all defendants violated Section 10(b) of the Exchange Act, Rule 10b-5 promulgated thereunder, and Section 17(a)(1) and (3) of the Securities Act. The SEC also alleges violations of Section 17(a)(2) of the Securities Act against Shern and the promoters. These sections of the federal securities laws are intended to protect consumers against fraud and misrepresentations in the purchase or sale of securities. To prevail on its claims under Section 10(b) and Rule 10b-5, the SEC must show that each defendant: “(1) made a material misrepresentation or a material omission as to which he had a duty to speak, or used a fraudulent device; (2) with scienter; (3) in connection with the purchase or sale of securities.” SEC v. Monarch Funding Corp., 192 F.3d 295, 308 (2d Cir. 1999). “According to the Second Circuit, in the context of violations of Section 10(b) and Rule 10b-5, scienter requires at least willful or reckless disregard for the truth or knowing misconduct.” One or More Unknown Traders, 2009 WL 3233110, at *4 (internal quotation marks and citations omitted). For its Section 17(a) claims, the SEC must set forth “[essentially the same elements ... though no showing of scien-ter is required for the SEC to obtain an injunction under subsections (a)(2) or (a)(3).” Id. Additionally, unlike private litigants, “[t]he SEC does not need to prove investor reliance, loss causation, or damages in an action under Section 10(b) of the Exchange Act, Rule 10b-5, or Section 17(a) of the Securities Act.” SEC v. Credit Bancorp, Ltd., 195 F.Supp.2d 475, 490-91 (S.D.N.Y. 2002) (collecting cases). As set forth below, the undisputed facts show that the SEC is entitled to judgment as a matter of law on its Section 10(b), Rule 10b-5, and Section 17(a) claims. a. Material Misrepresentations As detailed in the facts above, Shern and the promoters each repeatedly made representations to investors that: (1) CKB was a legitimate company, (2) Prpts had cash value, (3) OMAs could make active returns by recruiting new investors, (4) OMAs could acquire stock, and (5) CKB would go public. These representations were both false and material. i. „ Defendants’ Representations that CKB was a Legitimate Company were False “A pyramid scheme is a mechanism used to transfer funds from one person to another.... A legitimate [MLM] includes a system of distributing products or services in which each participant earns income from sales of a product to his or her downline and also from sales to the public. F.T.C. v. Five-Star Auto Club, Inc., 97 F.Supp.2d 502, 531 (S.D.N.Y. 2000) (emphasis added). Here, CKB offered no incentive for retail sales. CKB’s Dynamic Rewards Plan awarded OMAs with commissions solely for recruiting new investors or selling additional business packs to existing OMAs. See Webster v. Omnitrition Int’l, Inc., 79 F.3d 776, 782 (9th Cir. 1996) (finding proof of a pyramid scheme where “[t]he mere structure of the scheme suggests that Om-nitrition’s focus was in promoting the program rather than selling the products”). Due to this structure, CKB’s actual products largely went unused and unsold. See F.T.C. v. BurnLounge, Inc., 753 F.3d 878, 888 (9th Cir. 2014) (affirming district court’s finding of a pyramid scheme where “rewards ... were primarily in return for selling the right to participate in the money-making venture ... The merchandise ... was simply incidental”). Indeed, CKB’s proceeds show no revenue attributable to retail sales of its software. See SEC v. Better Life Club of Amer., Inc., 995 F.Supp. 167, 172 (D.D.C. 1998), aff'd 203 F.3d 54 (D.C. Cir. 1999) (finding that defendant corporation was a pyramid scheme, in part, because “almost all funds that were coming into [defendant’s] accounts were made up of new investments, not of profits from Club activities”). CKB was not a legitimate MLM because it was set up with the “structural certainty of collapse”—its revenue from sale of goods to consumers was insufficient “to cover the production costs or costs of the goods sold, the various marketing expenses, and the promised rewards for recruiting new participants.” Five-Star Auto Club, 97 F.Supp.2d at 531. Moreover, not only was CKB structured like a pyramid scheme, but it functioned like one as well. CKB commissions were disproportionately concentrated among a minute percentage of promoters. The top 1% of OMAs earned more than 60% of all commissions. Meanwhile, more than 50% of accounts earned no commissions at all. Accordingly, the Court finds that CKB was not a legitimate company as a matter of law. ii. Defendants’ Representations that Prpts had Cash Value were False Defendants told investors that each business pack contained Prpts worth “$750 dollars” and that they could earn passive returns simply by allowing their Prpts to increase in number and value. These claims were false as a matter of law. Prpts could not be converted to cash, and their value appears to have been set by CKB—an illegitimate company with no retail sales. Worse, defendants claimed that the value of an OMA’s Prpt holdings would rise as CKB grew. Such claims of passive, rapid, and risk-free returns are a common basis for liability in pyramid and Ponzi cases. See, e.g., SEC v. George, 426 F.3d 786, 788 (6th Cir. 2005) (upholding summary judgment against defendants, who described an “investment opportunity [that] had all of the hallmarks of a ‘free lunch’: The investments would be virtually risk-free and would generate lucrative returns”); Better Life Club, 995 F.Supp. at 176 (“[Defendants continued to recruit and to entice investors with unequivocal, impossible promises of doubled money in 60 or 90 days. Defendants never revealed to potential investors that the Advertising Pool was nothing more than a pyramid scheme; thus, the entire solicitation process was itself a broad misrepresentation on the grandest scale.”); SEC v. Gagnon, No. 10-cv-11891 (GCS), 2012 WL 994892, at *10 (E.D. Mich. Mar. 22, 2012) (granting summary judgment for SEC where defendants claimed “10 to 12.5% on your money per month with No Work and Little to No Risk!”); SEC v. Art Intellect, Inc., No. 2:11-cv-357 (TC), 2013 WL 840048, at *3 (D. Utah, Mar. 6, 2013) (granting summary judgment for SEC where defendants claimed “a 14% to 26% ... return, year after year ... even if you never lift a finger”). iii. Defendants’ Representations that OMAs Could Make Returns by Recruiting New Investors were False Defendants told OMAs that they could make active returns by recruiting new members. While recruitment would produce commissions, in a pyramid scheme “the required number of new members cannot, in fact, be recruited on a perpetual basis, causing the scheme to collapse of its own weight .... ” Five-Star Auto Club, 97 F.Supp.2d at 531. “ ‘[T]hose who have the greatest risk of loss are those who enter the pyramid when the market is closest to saturation .... The disclosure which would be necessary to inform a new investor of his prospects for success or failure would have to change almost daily ....’” SEC v. Int’l Loan Network, Inc., 968 F.2d 1304, 1309 (D.C. Cir. 1992) (quoting Piambino v. Bailey, 610 F.2d 1306, 1318 n.9 (5th Cir. 1980)). Because a pyramid scheme will collapse when it exhausts the pool of new recruits, the vast majority of investors will not recoup their investment—even if they actively recruit. Thus, it was false as a matter of law for defendants to claim that new investors could make active returns. iv. Defendants’ Representations that OMAs Could Acquire Stock were False In SEC actions, courts impose liability for false claims that victims can acquire non-existent securities. See SEC v. Roor, No. 99-cv-3372 (HB), 2004 WL 1933578, at *5 (S.D.N.Y. Aug. 30, 2004) (granting summary judgment for SEC where defendant promised “phantasmagorical returns on purportedly risk-free investments” that did not, in fact, exist); SEC v. Gallard, No. 95-cv-3099 (HB), 1997 WL 767570, at *3 (S.D.N.Y. Dec. 10, 1997) (“It is clear by now that the antifraud provisions relied upon by the Commission are applicable even where, as here, the ‘security’ at issue does not exist.”); see also SEC v. Lauer, 52 F.3d 667, 670 (7th Cir. 1995) (“A central purpose of the securities laws is to protect investors and would-be investors in the securities markets against misrepresentations. An elementary form of such misrepresentation is misrepresenting an interest as a security when it is nothing of the kind.”); SEC v. Milan Capital Grp., Inc., No. 00-cv-108 (DLC), 2000 WL 1682761, at *2 (S.D.N.Y. Nov. 9, 2000) (granting summary judgment for SEC where defendant “convinced approximately 200 customers to pay almost $9 million for IPO shares ... [even though defendant] had no access to IPO shares, and never provided any IPO shares to customers”). Here, defendants claimed that OMAs could become CKB shareholders. In many cases, defendants held themselves out to OMAs as shareholders already. As discussed above, defendants were aware that those claims were false. With the exception of Yao Lin, they never acquired stock. OMAs, including defendants, tried to convert their Prpts, but were entirely unsuccessful. As the record shows, CKB had no actual stock to distribute. Accordingly, these claims were false as a matter of law. v. Defendants’ Representations that CKB Would Go Public were False Each defendant told victims that their CKB stock would become valuable when CKB achieved its imminent IPO. CKB, however, had not prepared to go public. Defendants’ claims had no basis in fact, and no defendant even attempted to verify that their claims that CKB was making such steps toward an IPO were correct. While certain defendants argue that CKB was taking steps to go public, the record belies such claims. Defendants produced no information regarding the preparation of an IPO, and the back-office data recovered by the SEC contained no communications or records related to CKB’s purported IPO. As the SEC points out, CKB would have been precluded from public listing due to its fraudulent business model and lack of corporate structure. However, CKB never planned, initiated, or attempted any such necessary restructuring. Accordingly, these representations were false as a matter of law. vi. These Misrepresentations were Material “Summary judgment on matters of materiality in a securities fraud case is appropriate when the omissions and misrepresentations in question are ‘so obviously important to the investor that reasonable minds cannot differ on the question of materiality.’ ” Credit Bancorp, 195 F.Supp.2d at 492 (quoting SEC v. Research Automation Corp., 585 F.2d 31, 35 (2d Cir. 1978)); see also Better Life Club, 995 F.Supp. at 177 (“The test of materiality is whether a reasonable investor would consider the representations important.”). There can be no doubt that Shern and the promoters’ false claims of legitimacy, outsized returns, and pre-IPO stock were material to investors. See SEC v. Platinum Invest. Corp., No. 02-cv-6093 (JSR), 2006 WL 2707319, at *2 (S.D.N.Y. Sept. 20, 2006) (holding that “there can be no question” that claims regarding the timing of an IPO and the likely growth in share price, as well as false claims about the company’s business prospects and management, were material as a matter of law). Few OMAs ever even used CKB’s software. These misrepresentations were CKB’s primary inducements in recruiting new investors, and, as the victims’ statements show, they were essential to the decision to invest. Five-Star Auto Club, 97 F.Supp.2d at 529 (“The case law is clear that representations regarding the profit potential of a business opportunity are important to consumers, and therefore such are material misrepresentations.”); Gallard, 1997 WL 767570, at *3 (“[T]here is no question a reasonable investor would consider important the fact that the ‘security' at issue did not exist and that a secondary market did not exist for those securities, and that the money paid for those securities would be misappropriated.”). b. Scheme Liability Rule 10b-5 and Section 17(a) also impose what courts have called “ ‘scheme liability’ for those who, with scienter, engage in deceitful conduct.” SEC v. Jean-Pierre, No. 12-cv-8886 (LGS), 2015 WL 1054905, at *8 (S.D.N.Y. Mar. 9, 2015). Scheme liability “hinges on the performance of an inherently deceptive act that is distinct from an alleged misstatement.” SEC v. Kelly, 817 F.Supp.2d 340, 344 (S.D.N.Y. 2011); see also SEC v. Sullivan, 68 F.Supp.3d 1367, 1377 (D. Colo. 2014) (explaining that the Second, Eighth, and Ninth Circuits require “deceptive conduct in addition to misrepresentations” that go beyond mere assistance with making the misrepresentation). Defendants “must have participated in an illegitimate, sham or inherently deceptive transaction where [their] conduct or role ha[d] the purpose and effect of creating a false appearance.” Sullivan, 68 F.Supp.3d at 1377 (internal quotation marks and citations omitted). To prove scheme liability, the SEC must show that defendants: “(1) committed a deceptive or manipulative act; (2) in furtherance of the alleged scheme to defraud; (3) with scienter.” SEC v. McDuffie, No. 12-cv-02939 (TKK), 2014 WL 4548723, at *10 (D. Colo. Sept. 15, 2014) (citing SEC v. Lucent Tech., Inc., 610 F.Supp.2d 342, 360 (D.N.J. 2009)). “To prove liability under Securities Act Section 17(a)(3), however, the SEC only has to prove negligence rather than scienter.” Id. (citing SEC v. Smart, 678 F.3d 850, 857 (10th Cir. 2012)). Here, defendants’ conduct created a false appearance—namely, that CKB was a legitimate company. As a pyramid scheme, CKB was nothing but a “course of business which operates ... as a fraud.” Shern and each of the promoters thus committed inherently deceptive acts by engaging in what they claimed were the promotional activities of a legitimate MLM— organizing seminars and in-person meetings, providing training and support to downlines, providing access to back office accounts, and portraying CKB’s product as useful educational software. See, e.g., id. at *10 (granting summary judgment for SEC on scheme liability where deceptive acts included falsely “presenting HMCU to the public as a legitimate credit union”); SEC v. Constantin, 939 F.Supp.2d 288, 308 (S.D.N.Y. 2013) (granting summary judgment for SEC where “false promises about expected returns,” combined with other conduct intended to further the fraud, “suggest[s] the existence of a wide-sweeping fraudulent investment scheme”). Shern and the promoters also each enrolled victims in the CKB pyramids through the purchase of business packs, see Sullivan, 68 F.Supp.3d at 1378 (finding transactions with investors were “inherently deceptive” because they were not “legitimate” business transactions), and offered victims false assurances about CKB’s legitimacy. See VanCook v. SEC, 653 F.3d 130, 139 (2d Cir. 2011) (finding scheme liability, in part, for “false assurances”). Shern also launched the scheme, ultimately ran the business, and controlled the manner in which CKB presented itself. Apart from his deceptive promotional acts, his role as scheme architect makes him liable as a matter of law. See id. (finding scheme liability where defendant was not “merely associated with the late-trading scheme ..he was its architect.... [He] was intimately involved with the creation, marketing, and implementation of the system”); see also In re Glob. Crossing, Ltd. Sec. Litig., 322 F.Supp.2d 319, 336 (S.D.N.Y. 2004) (finding defendant’s “allegedly central role in these schemes, as their chief architect and executor, leaves no doubt as to [his] potential liability” where defendant “masterminded the misleading accounting” and “was intimately involved in all ... accounting functions”). Finally, Leung administered the commission system, addressed OMA requests and complaints, and facilitated OMAs’ investments in CKB. She also controlled the back office system of accounts that operated as a deceit on investors by misstating the value of Prpts and other misrepresentations. See Sullivan, 68 F.Supp.3d at 1378-79 (granting summary judgment against accountant for Ponzi scheme where defendant “solicited further payments from existing note-holders ... accepted investment deposits in furtherance of the BPF Ponzi scheme ... [and] generated false reports”). She also signed and provided an illegitimate stock certificate to Yao Lin, which created the false appearance that CKB was a legitimate company that would soon go public. All of this misleading conduct clearly furthered the scheme by creating the core false appearances at issue here—that CKB was a legitimate company and that OMAs would make, and were making, large returns. Accordingly, defendants are liable for engaging in a fraudulent scheme. c. Scienter “Liability for securities fraud requires proof of scienter, defined ‘as a mental state embracing intent to deceive, manipulate, or defraud.’” SEC v. Obus, 693 F.3d 276, 286 (2d Cir. 2012) (quoting Ernst & Ernst v. Hochfelder, 425 U.S. 185, 193 & n.12, 96 S.Ct. 1375, 47 L.Ed.2d 668 (1976)). “Scienter is established by knowing or reckless conduct, or even in some cases, by willful blindness, i.e., a deliberate refusal to acquire information.” Roor, 2004 WL 1933578, at *4 (internal quotation marks and citations omitted). “Representing information as true while knowing it is not, recklessly misstating information, or asserting an opinion on grounds so flimsy as to belie any genuine belief in its truth, are all circumstances sufficient to support a conclusion of scienter.” SEC v. Universal Exp., Inc., 475 F.Supp.2d 412, 424 (S.D.N.Y. 2007), aff'd sub nom. SEC v. Altomare, 300 Fed.Appx. 70 (2d Cir. 2008). For the following reasons, each of the defendants acted with scienter as a matter of law. i. Shern Shern helped to create CKB and directed its promotional efforts. Shern himself appears in promotional videos, and other defendants and victims describe him as the source of the key misrepresentations in this case. More than anyone, he knew those misrepresentations were false. See, e.g., Milan Capital Grp., 2000 WL 1682761, at *7 (granting summary judgment for SEC where “the SEC has offered ample evidence that Monas was at the center of the fraud”); Better Life Club, 995 F.Supp. at 177-78 (granting summary judgment for SEC where defendant “hatched the Advertising Pool scheme, oversaw its marketing, sale, and operation, and managed the finances”); Art Intellect, 2013 WL 840048, at *19 (granting summary judgment in Ponzi case against defendants that “were involved in the operations of the business, with significant decision-making power” including being “chiefly responsible for [company’s] marketing materials”). Specifically, Shern knew that CKB was not a legitimate company. Santos presented him with materials that explained the hallmarks of a legitimate MLM. The criteria therein—for example, sales to retail investors—placed CKB squarely on the wrong side of legitimate. Shern knew that CKB’s products contained numerous defects, were hardly used, and were often a source of dissatisfaction to the few who did use them. Shern must have known that CKB