The US Securities and Exchange Commission (SEC) says it has broken up an investment scam that defrauded citizens out of $32m by promising to mine minerals out of the ground – and pay out profits in cryptocurrency.

The SEC has lobbed fraud charges at Steve Chen and 13 companies associated with Chen, alleging he raised $32m by defrauding investors. In addition to the fraud charges, the SEC has frozen the assets of Chen and the associated companies. Chen lives in Arcadia, California.

According to the SEC complaint [PDF] filed in a Cali district court, Chen and his biz USFIA promised investors huge returns on their funds by mining minerals and paying out in "Gemcoins," a worthless cryptocurrency promised to sharply increase in value.

The SEC claimed Chen told investors USFIA was angling for a lucrative initial public offering (IPO) and owned mines in Argentina and the Dominican Republic, extracting valuable minerals such as, er, amber – which isn't a mineral but can be extracted from rock.

In reality, the SEC says, there were no mines, and any returns that Chen paid out to investors were the result of a pyramid scheme. When authorities began to get wise to the scheme, the SEC says, Chen attempted to wire some of the funds out of the US into China, prompting the move to freeze assets.

"We allege that the defendants' false claims of riches that investors would realize from USFIA's amber mining activity never materialized," SEC Los Angeles Regional Office director Michele Wein Layne said in announcing the charges on Friday.

"In reality, as alleged in the complaint, the defendants were operating a fraudulent pyramid scheme that left many investors with nothing."

The Gemcoin site appears to have since been taken offline as all pages redirect to a "down for maintenance" screen.

The SEC has filed charges including unregistered sale of securities, fraud in the sale of securities, and fraud in connection with the purchase and sale of securities. ®