Cryptocurrency Archives - Investor News

LA-Based Media and Entertainment Company Charged with Unregistered Offering of NFTs

Administrator — Wed, 30 Aug 2023 16:51:00 +0000

Washington D.C. — The Securities and Exchange Commission this week charged Impact Theory, LLC, a media and entertainment company headquartered in Los Angeles, with conducting an unregistered offering of crypto asset securities in the form of purported non-fungible tokens (NFTs). Impact Theory raised approximately $30 million from hundreds of investors, including investors across the United States, through the offering.

According to the SEC’s order, from October to December 2021, Impact Theory offered and sold three tiers of NFTs, known as Founder’s Keys, which Impact Theory called “Legendary,” “Heroic,” and “Relentless.” The order finds that Impact Theory encouraged potential investors to view the purchase of a Founder’s Key as an investment into the business, stating that investors would profit from their purchases if Impact Theory was successful in its efforts. Among other things, Impact Theory emphasized that it was “trying to build the next Disney,” and, if successful, it would deliver “tremendous value” to Founder’s Key purchasers. The order finds that the NFTs offered and sold to investors were investment contracts and therefore securities. Accordingly, Impact Theory violated the federal securities laws by offering and selling these crypto asset securities to the public in an unregistered offering that was not otherwise exempt from registration.

“Absent a valid exemption, offerings of securities, in whatever form, must be registered,” said Antonia Apps, Director of the SEC’s New York Regional Office. “Without registration, investors of all types are deprived of the protections afforded them by the robust disclosures and other safeguards long provided by our securities laws.”

Without admitting or denying the SEC’s findings, Impact Theory agreed to a cease-and-desist order finding that it violated registration provisions of the Securities Act of 1933 and ordering it to pay a combined total of more than $6.1 million in disgorgement, prejudgment interest, and a civil penalty. The order also establishes a Fair Fund to return monies that injured investors paid to purchase the NFTs. Impact Theory agreed to destroy all Founder’s Keys in its possession or control, publish notice of the order on its websites and social media channels, and eliminate any royalty that Impact Theory might otherwise receive from future secondary market transactions involving the Founder’s Keys.

The SEC’s investigation was conducted by Benjamin Mishkin, Jessica Quinn, and Judith Weinstock of the SEC’s New York Regional Office. Hane L. Kim of the Division of Examinations, Gwen Licardo, Pamela Sawhney, and Mark R. Sylvester of the Enforcement Division’s Crypto Assets and Cyber Unit (CACU) and Carmen Taveras Alam, Ignacio Franceschelli, and Joshua Mallett of the Division of Economic and Risk Analysis provided assistance. The investigation was supervised by Sheldon Pollock, David Hirsch, and Jorge Tenreiro.

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Press release by SEC.

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Former New Jersey Corrections Officer Charged with Crypto Fraud Scheme Targeting Law Enforcement Personnel

Administrator — Thu, 24 Aug 2023 15:14:29 +0000

John DeSalvo also charged with fraud in separate investment scheme

Washington D.C. — The Securities and Exchange Commission has charged former New Jersey State Correctional Police Officer John A. DeSalvo with fraudulently raising funds through the unregistered offering of the Blazar Token, a crypto asset security he created but that collapsed in May 2022. The SEC also charged DeSalvo with misappropriating investor funds, much of which he sent to his personal crypto asset wallets and used to pay for a bathroom renovation.

According to the SEC’s complaint, from the Blazar Token’s launch in November 2021 to its eventual collapse, DeSalvo raised at least $620,000 from approximately 220 investors. As the complaint alleges, DeSalvo claimed that the Blazar Token would replace existing state pension systems and falsely told investors that Blazar Token was registered with the SEC; that he had arranged for Blazar Token to be purchased by automatic payroll deduction; and that investors were guaranteed to receive extraordinary returns. Ultimately, DeSalvo misappropriated and misused investor funds. According to the complaint, DeSalvo targeted law enforcement and first responders with his fraudulent schemes.

Additionally, the SEC’s complaint alleges that, in an earlier fraud scheme, beginning in late January 2021, DeSalvo solicited investors, primarily through social media, to participate in an investment venture where he was to invest their funds in stocks, options, and crypto asset securities. The complaint alleges that, within weeks of depositing the $95,000 he raised from 17 investors into his brokerage account, DeSalvo lost about $17,000 of those funds in speculative investments, misappropriated the remaining $78,000, and told investors that the group’s securities had lost all value due to poor market conditions.

“We allege that DeSalvo orchestrated several fraudulent investment schemes that targeted law enforcement personnel and promised astronomical returns, including one involving a crypto asset security that would somehow replace traditional state pension systems. Rather than producing any returns or revolutionary technology, he instead misappropriated and misused investor money,” said Gurbir S. Grewal, Director of the SEC’s Division of Enforcement. “What’s particularly offensive about this case is that DeSalvo used his status as a former corrections officer to gain the trust of fellow law enforcement personnel, a number of whom invested their savings with him. I am proud that the SEC is able to deliver some measure of justice to those brave first responders who DeSalvo victimized by holding him accountable for his appalling conduct.”

“Our complaint alleges a brazen affinity fraud that preyed on retail investors’ trust and sense of community,” said David Hirsch, Chief of the Crypto Assets and Cyber Unit in the SEC’s Division of Enforcement. “Too often in crypto, we see promoters perpetrate familiar frauds in shiny new wrappers by making claims that are difficult for investors to independently verify. Registering the offer and sale of securities enables critical oversight and improves disclosures to investors, and we will continue to pursue those who fail to abide by the securities laws’ registration requirements.”

The complaint, filed in the U.S. District Court for the District of New Jersey, charges DeSalvo with violating the antifraud and offering registration provisions of the securities laws. It seeks injunctive relief, disgorgement plus prejudgment interest, and civil penalties.

In a parallel action, the U.S. Attorney’s Office for the District of New Jersey today announced criminal charges against DeSalvo.

The SEC’s investigation was conducted by Brian Higgins and Brian Thomas of the Philadelphia Regional Office and David Snyder of the Crypto Assets and Cyber Unit. It was supervised by Assunta Vivolo, Scott A. Thompson, Nicholas P. Grippo, Jorge G. Tenreiro, and David Hirsch. The SEC’s litigation will be handled by Christopher R. Kelly and supervised by Gregory R. Bockin.

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Press release by SEC.

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SEC obtains emergency order against Utah-based company’s crypto asset fraud scheme

Administrator — Mon, 07 Aug 2023 14:42:27 +0000

Washington D.C. — The Securities and Exchange Commission has announced that it obtained a temporary asset freeze, restraining order, and other emergency relief against Digital Licensing Inc., a Draper, Utah based entity doing business as “DEBT Box,” as well as the company’s four principals, Jason Anderson, his brother Jacob Anderson, Schad Brannon, and Roydon Nelson, and 13 other defendants in connection with a fraudulent scheme to sell crypto asset securities to hundreds of U.S. investors that raised approximately $50 million and unspecified amounts of Bitcoin and Ether.

The SEC’s complaint, unsealed yesterday in the U.S. District Court for the District of Utah, charges the defendants in an ongoing scheme that began in March 2021 to sell unregistered securities they call “node licenses.” In hundreds of online videos and social media posts, as well as at investor events, the defendants told investors that the node licenses would generate various crypto asset tokens through crypto mining activity and that revenue-generating businesses in a variety of sectors would drive the value of the various tokens DEBT Box mined, resulting in exorbitant gains for investors. In reality, as alleged, the node licenses were a sham intended to obscure the fact that the total supply of each token was created by DEBT Box instantaneously using code on a blockchain.

“We allege that DEBT Box and its principals lied to investors about virtually every material aspect of their unregistered offering of securities, including by falsely stating that they were engaged in crypto asset mining,” said Tracy S. Combs, Director of the SEC’s Salt Lake Regional Office. “We filed this emergency action to protect the victims of the defendants’ unlawful actions and stop further harm.”

The SEC’s complaint further alleges that DEBT Box and its principals —along with defendants James Franklin, Western Oil Exploration Company Inc., and Ryan Bowen—lied to DEBT Box investors about the revenues of the businesses purportedly driving the value of the tokens.

In total, 18 defendants, including those mentioned above, have been charged with engaging in unregistered securities offerings. DEBT Box, Jason Anderson, Jacob Anderson, Brannon, Nelson, Franklin, Western Oil, and Bowen were also charged with violations of the antifraud provisions of the federal securities laws. Jason Anderson, Jacob Anderson, Brannon, Nelson, Bowen, Mark Schuler, Benjamin Daniels, Joseph Martinez, Travis Flaherty, Brendon Stangis, Matthew Fritzsche, B & B Investment Group, LLC, and iX Global, LLC were charged with acting as unregistered brokers.

The complaint seeks permanent injunctive relief, the return of alleged ill-gotten gains, and civil penalties. The Honorable Judge Robert J. Shelby, U.S. District Judge for the District of Utah, entered an order on July 28, 2023, imposing a temporary restraining order, asset freeze, and other relief. Judge Shelby also entered an order appointing Josias N. Dewey of the law firm Holland & Knight LLP as a temporary receiver over DEBT Box to, amongst other things, marshal assets for the benefit of investors. Investors who believe they were affected by the DEBT Box offering may visit the receiver’s website at www.debtboxreceiver.com or call (305) 349-2134.

The SEC’s continuing investigation is being conducted by Joseph Watkins, Laurie Abbott, and Mitchell Davidson of the Salt Lake Regional Office and Karaz Zaki of SEC Headquarters. The litigation will be led by Casey Fronk and Michael Welsh. The matter is being supervised by Ms. Combs.

Investors can learn more about the risks of investing in crypto asset securities and unregistered offerings by reading SEC investor education bulletins such as Exercise Caution with Crypto Asset Securities and 10 Red Flags That An Unregistered Offering May Be A Scam.

Press release by SEC.

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Man Charged in $110 Million Cryptocurrency Scheme

Editor — Sat, 04 Feb 2023 14:24:02 +0000

A Puerto Rico man was scheduled to make his initial appearance this week at the federal courthouse in Manhattan to face commodities fraud, commodities market manipulation, and wire fraud charges in connection with the manipulation of the Mango Markets decentralized cryptocurrency exchange.

According to court documents, Avraham Eisenberg, 27, engaged in a scheme to fraudulently obtain approximately $110 million worth of cryptocurrency from the cryptocurrency exchange Mango Markets and its customers and achieved this objective by artificially manipulating the price of certain perpetual futures contracts. He was previously arrested on Dec. 26, 2022, in San Juan, Puerto Rico, pursuant to a criminal complaint and ordered detained.

“Exploiting decentralized finance platforms is the new frontier of old school financial crimes in which criminals abuse emerging technologies for their own personal gain,” said Assistant Attorney General Kenneth A. Polite, Jr. of the Justice Department’s Criminal Division. “With this prosecution, the Criminal Division is sending the message that no matter the mechanism used to commit market manipulation and fraud, we will work to hold those responsible to account.”

Mango Markets is a decentralized cryptocurrency exchange that allows investors to, among other things, purchase and borrow cryptocurrencies and cryptocurrency-related financial products. Mango Markets is run by the Mango Decentralized Autonomous Organization (the Mango DAO). The Mango DAO has its own crypto token named MNGO, which investors can buy and sell. Holders of the MNGO token are allowed to vote on changes to the Mango Markets platform and issues related to the governance of the Mango DAO.

“As alleged, Avraham Eisenberg manipulated the Mango Markets cryptocurrency exchange in order to obtain over $100 million in illicit profits for himself,” said U.S. Attorney Damian Williams for the Southern District of New York. “Through his scheme, Eisenberg left others holding the bag. Market manipulation is illegal in all of its forms, and this office is committed to prosecuting such schemes wherever they occur – including the cryptocurrency markets.”

“The defendant is alleged to have executed a scheme through which he fraudulently acquired over $100 million worth of cryptocurrency,” said Assistant Director in Charge Michael J. Driscoll of the FBI New York Field Office. “The FBI is dedicated to safeguarding the integrity of all financial markets and will ensure any individual willing to exploit one be held responsible in the criminal justice system.”

Eisenberg is charged in the Southern District of New York with one count of commodities fraud, one count of commodities manipulation, and one count of wire fraud. If convicted, he faces a maximum penalty of 10 years in prison for the commodities fraud count, maximum penalty of 10 years in prison for the commodities manipulation count, and maximum penalty of 20 years in prison for the wire fraud count.

The FBI is investigating the case with assistance from Homeland Security Investigations and IRS Criminal Investigation. The Commodity Futures Trading Commission and the Securities and Exchange Commission initiated parallel civil proceedings.

National Cryptocurrency Enforcement Team (NCET) Trial Attorney Jessica Peck and Assistant U.S. Attorneys Thomas Burnett and Noah Solowiejczyk for the Southern District of New York are prosecuting the case.

The NCET was established to combat the growing illicit use of cryptocurrencies and digital assets. Under the Criminal Division, the NCET conducts and supports investigations into individuals and entities that enable the use of digital assets to commit and facilitate a variety of crimes, with a particular focus on virtual currency exchanges, mixing and tumbling services, and infrastructure providers. The NCET also sets strategic priorities regarding digital asset technologies, identifies areas for increased investigative and prosecutorial focus, and leads the department’s efforts to collaborate with domestic and foreign government agencies as well as the private sector to aggressively investigate and prosecute crimes involving cryptocurrency and digital assets.

An indictment is merely an allegation. All defendants are presumed innocent until proven guilty beyond a reasonable doubt in a court of law.

Press Release by DOJ.

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Creator of CoinDeal Crypto Scheme and Seven Others Charged Over Alleged $45 Million Fraud

Editor — Tue, 10 Jan 2023 21:56:06 +0000

Orchestrator used investors’ funds to buy cars, real estate, and a boat

Washington D.C. — The Securities and Exchange Commission today charged Neil Chandran, Garry Davidson, Michael Glaspie, Amy Mossel, Linda Knott, AEO Publishing Inc, Banner Co-Op, Inc, and BannersGo, LLC for their involvement in a fraudulent investment scheme named CoinDeal that raised more than $45 million from sales of unregistered securities to tens of thousands of investors worldwide.

According to the SEC’s complaint filed in the U.S. District Court for the Eastern District of Michigan, Chandran, Davidson, Glaspie, Knott, and Mossel falsely claimed that investors could generate extravagant returns by investing in a blockchain technology called CoinDeal that would be sold for trillions of dollars to a group of prominent and wealthy buyers. From at least January 2019 to 2022, Chandran, Davidson, Glaspie, Knott, and Mossel allegedly disseminated false and misleading statements to investors regarding the purported value of CoinDeal, the parties involved in the supposed sale of CoinDeal, and the use of investment proceeds. According to the complaint, no sale of CoinDeal ever occurred and no distributions were made to CoinDeal investors. The complaint further alleges that the defendants collectively misappropriated millions of dollars of investor funds for personal use, and that Chandran used investor funds to purchase items such as cars, real estate, and a boat.

“We allege the defendants falsely claimed access to valuable blockchain technology and that the imminent sale of the technology would generate investment returns of more than 500,000 times for investors,” said Daniel Gregus, Director of the SEC’s Chicago Regional Office. “As alleged in our complaint, in reality this was all just an elaborate scheme where the defendants enriched themselves while defrauding tens of thousands of retail investors.”

In June 2022, the U.S. Department of Justice indicted Chandran in the U.S. District Court for the District of Nebraska on three counts of wire fraud and two counts of monetary transaction in unlawful proceeds for his involvement in CoinDeal.

The SEC’s complaint charges:

Chandran, Davidson, Glaspie, Knott, Banner Co-Op, and BannersGo with violating the antifraud and registration provisions of the Securities Act and Exchange Act;
Davidson, Glaspie, Knott, Banner Co-Op, and BannersGo with aiding and abetting certain of Chandran’s violations of the antifraud provisions of the Exchange Act; and
Mossel and AEO Publishing with aiding and abetting Glaspie’s violations of the antifraud and registration provisions of the Securities Act and Exchange Act.

The SEC’s complaint seeks disgorgement plus pre-judgment interest, penalties, and permanent injunctions against all defendants; officer and director bars against Chandran, Davidson, Glaspie, Knott, and Mossel; and a conduct-based injunction against Chandran.

The SEC’s ongoing investigation is being conducted by Dante A. Roldán, Steven Tremaglio, Caryn Trombino, and Lynette Nichols-Newman, and supervised by Ana D. Petrovic and Paul A. Montoya, all of the Chicago Regional Office. The litigation will be led by Michael D. Foster, also of the Chicago Regional Office. The SEC appreciates the assistance of the Michigan Department of Licensing and Regulatory Affairs and Florida Office of Financial Regulation.

The SEC’s Office of Investor Education and Advocacy has issued investor alerts on the red flags of investment fraud.

Press Release by SEC.

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Four Individuals Charged in Crypto Scheme Targeting Spanish-Speakers

Editor — Wed, 14 Dec 2022 21:49:48 +0000

Forcount Trader Systems’ creator and promoters orchestrated $8.4 million fraud

Washington D.C., Dec. 14, 2022 — The Securities and Exchange Commission today charged Francisley Valdevino Da Silva, Juan Antonio Tacuri Fajardo, Ramon Antonio Perez Arias, and Jose Ramiro Coronado Reyes for their roles in creating and promoting Forcount Trader Systems, Inc., a fraudulent crypto asset pyramid scheme that raised more than $8.4 million from hundreds of retail investors primarily from Spanish-speaking communities throughout the United States and other countries.

According to the SEC’s complaint, from approximately July 2017 to November 2020, Brazilian national Da Silva and U.S.-based promoters Tacuri, Perez, and Coronado enticed and defrauded investors out of millions of dollars with the promise of guaranteed returns resulting from investments in “memberships” in Forcount Trader Systems. These memberships purportedly gave investors an interest in profits from Forcount’s supposed crypto asset trading and mining operations. Investors could also participate in Forcount’s referral program, which, as the complaint alleges, incentivized recruiting new victims. The complaint alleges that the defendants knew or were reckless in not knowing that Forcount had no crypto asset trading and mining operations and that the only way the scheme could continue was by increasing the investor base. The defendants allegedly accelerated Forcount’s inevitable collapse by misappropriating investor funds to buy themselves homes, cars, and luxury goods.

“As the complaint alleges, Da Silva, Tacuri, Perez, and Coronado deceived investors, most of whom were members of Spanish-speaking communities, with false promises of high returns on crypto-asset related investments,” said Thomas P. Smith, Jr., Co-Acting Regional Director of the New York Regional Office. “Protecting investors from fraudulent pyramid schemes where promoters pitch high returns and complex commission structures is part of the SEC’s mission to make markets fair and open to all.”

The SEC’s complaint, filed in federal district court in the Southern District of New York, charges the defendants with violating the anti-fraud and registration provisions of the federal securities laws. The complaint seeks permanent injunctive relief, conduct-based injunctions preventing the defendants from participating in multi-level marketing or crypto asset offerings, disgorgement of ill-gotten gains and prejudgment interest, civil penalties, and officer-and-director bars.

In a parallel action, the U.S. Attorney’s Office for the Southern District of New York today announced criminal charges against Da Silva and Tacuri.

The SEC’s ongoing investigation is being conducted by Shannon Keyes and Christopher Mele of the SEC’s New York Regional Office. It has been supervised by Hane L. Kim of the SEC’s Retail Strategy Task Force and Mr. Smith. The litigation will be conducted by Ms. Keyes and Mr. Mele. The Commission appreciates the assistance of the U.S. Attorney’s Office for the Southern District of New York; the El Dorado Task Force and Securities Investigations Group of Homeland Security Investigations (“HSI”) New York; HSI Brasilia; HSI Orlando; HSI Tampa; the Brazilian Federal Police; the Bureau of Financial Investigations of Florida Office of Financial Regulation; the Bureau of Insurance Fraud, Property & Casualty in the Division of Investigative and Forensic Services of the Florida Department of Financial Services; the New York City Sheriff’s Office; and the New York City Police Department.

The SEC’s Office of Investor Education and Advocacy and Enforcement’s Retail Strategy Task Force direct investors to resources on detecting and avoiding pyramid schemes and a Spanish language investor alert, Esté al tanto de los Esquemas de Pirámides haciéndose pasar por Programas de Mercadeo de Niveles Múltiples. Investors can find additional information about pyramid schemes at Investor.gov.

Press Release by SEC.

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‘My Big Coin’ founder convicted of $6M cryptocurrency fraud scheme

Administrator — Fri, 22 Jul 2022 17:54:27 +0000

Defendant Defrauded Investors of Over $6 Million

A federal jury convicted a New York man this week in connection with a scheme to defraud investors by marketing and selling fraudulent virtual currency.

According to court documents and evidence presented at trial, Randall Crater, 51, of East Hampton, founded My Big Coin Pay Inc. (My Big Coin), a purported cryptocurrency and virtual payment services company headquartered in Las Vegas, Nevada, and offered virtual payment services through a fraudulent digital currency, “My Big Coins,” which he marketed to investors between 2014 and 2017 using misrepresentations about the nature and value of Coins. Crater and his associates falsely claimed that Coins was a fully functioning cryptocurrency backed by $300 million in gold, oil and other valuable assets. Crater also falsely told investors that My Big Coin had a partnership with MasterCard and that Coins could readily be exchanged for government-backed paper currency or other virtual currencies. Crater promulgated these misrepresentations through social media, the internet, email and text messages.

In reality, Coins were not backed by gold or other valuable assets, did not have a partnership with MasterCard and were not readily transferable. Over the course of the scheme, Crater misappropriated over $6 million of investor funds for his own personal gain, including spending hundreds of thousands of dollars on antiques, artwork and jewelry.

In January 2018, the Commodity Futures Trading Commission (CFTC) announced commodity fraud charges against Crater and My Big Coin Pay Inc. The CFTC also filed civil charges against the Chief Executive Officer of My Big Coin, John Roche, and two of Crater’s associates Mark Gillespie and Michael Kruger.

Crater was convicted of four counts of wire fraud, which carries a maximum statutory penalty of up to 20 years in prison for each count, and three counts of money laundering, which carries a maximum statutory penalty of up to 10 years in prison for each count. He is scheduled to be sentenced on Oct. 27. A federal district court judge will determine any sentence after considering the U.S. Sentencing Guidelines and other statutory factors.

Assistant Attorney General Kenneth A. Polite, Jr. of the Justice Department’s Criminal Division, U.S. Attorney Rachael Rollins for the District of Massachusetts, Special Agent in Charge Joseph R. Bonavolonta of the FBI’s Boston Field Office and Inspector in Charge Eric Shen of the U.S. Postal Inspection Service (USPIS) made the announcement.

The FBI, USPIS, and CFTC investigated the case.

Trial Attorney Babasijibomi Moore of the Criminal Division’s Fraud Section and Assistant U.S. Attorney Christopher J. Markham for the District of Massachusetts are prosecuting the case.

Press release distributed by the DOJ.

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Former Coinbase employee charged with insider trading scheme

Administrator — Thu, 21 Jul 2022 17:23:31 +0000

Washington D.C. — The Securities and Exchange Commission today announced insider trading charges against a former Coinbase product manager, his brother, and his friend for perpetrating a scheme to trade ahead of multiple announcements regarding certain crypto assets that would be made available for trading on the Coinbase platform.

The SEC’s complaint alleges that, while employed at Coinbase, Ishan Wahi helped to coordinate the platform’s public listing announcements that included what crypto assets or tokens would be made available for trading.

According to the SEC’s complaint, Coinbase treated such information as confidential and warned its employees not to trade on the basis of, or tip others with, that information. However, from at least June 2021 to April 2022, in breach of his duties, Ishan repeatedly tipped the timing and content of upcoming listing announcements to his brother, Nikhil Wahi, and his friend, Sameer Ramani. Ahead of those announcements, which usually resulted in an increase in the assets’ prices, Nikhil Wahi and Ramani allegedly purchased at least 25 crypto assets, at least nine of which were securities, and then typically sold them shortly after the announcements for a profit. The long-running insider trading scheme generated illicit profits totaling more than $1.1 million.

“We are not concerned with labels, but rather the economic realities of an offering,” said Gurbir S. Grewal, Director of the SEC’s Division of Enforcement. “In this case, those realities affirm that a number of the crypto assets at issue were securities, and, as alleged, the defendants engaged in typical insider trading ahead of their listing on Coinbase. Rest assured, we’ll continue to ensure a level playing field for investors, regardless of the label placed on the securities involved.”

“In nearly a year, the defendants collectively earned over $1.1 million in illegal profits by engaging in an alleged insider trading scheme that repeatedly used material, nonpublic information to trade ahead of Coinbase listing announcements,” said Carolyn M. Welshhans, Acting Chief of the Enforcement Division’s Crypto Assets and Cyber Unit. “As today’s case demonstrates, whether in equities, options, crypto assets, or other securities, we will vindicate our mission by identifying and combatting insider trading in securities wherever we see it.”

The SEC’s complaint, filed in federal district court in Seattle, Washington, charges Ishan Wahi, Nikhil Wahi, and Ramani with violating the antifraud provisions of the securities laws and seeks permanent injunctive relief, disgorgement with prejudgment interest, and civil penalties. In a parallel action, the U.S. Attorney’s Office for the Southern District of New York today announced criminal charges against all three individuals.

The SEC’s investigation, which is ongoing, was conducted by Michael Brennan, Jennie B. Krasner, and Gregory Padgett, with assistance from Patrick McCluskey and Donald Battle. The case was supervised by Paul Kim, Joseph Sansone, Chief of the Market Abuse Unit, and Ms. Welshhans. The litigation will be led by Daniel Maher and Peter Lallas and supervised by Olivia Choe. The SEC appreciates the assistance of the U.S. Attorney’s Office for the Southern District of New York and the FBI.

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Press release distributed by the SEC.

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DOJ charges six individuals with cryptocurrency fraud over $100M in intended losses

Administrator — Sat, 02 Jul 2022 16:55:45 +0000

The Department of Justice, together with federal law enforcement partners, has announced criminal charges against six defendants in four separate cases for their alleged involvement in cryptocurrency-related fraud, including the largest known Non-Fungible Token (NFT) scheme charged to date, a fraudulent investment fund that purportedly traded on cryptocurrency exchanges, a global Ponzi scheme involving the sale of unregistered crypto securities, and a fraudulent initial coin offering.

“The Department of Justice and our partners are dedicated to using every available tool to protect consumers and investors from fraud and manipulation,” said Assistant Attorney General Kenneth A. Polite, Jr. of the Justice Department’s Criminal Division. “These indictments reflect our deep commitment to prosecuting individuals involved in cryptocurrency fraud and market manipulation.”

“Our office is committed to protecting investors from sophisticated scammers seeking to capitalize on the relative novelty of digital currency,” said U.S. Attorney Juan Antonio Gonzalez for the Southern District of Florida. “As with any emerging technology, those who invest in cryptocurrency must beware of profit-making opportunities that appear too good to be true.”

“These cases serve as a crucial reminder that some con artists hide behind trendy buzzwords, but at the end of the day they are simply seeking to separate people from their money,” said U.S. Attorney Tracy L. Wilkison for the Central District of California. “We will continue to work with our law enforcement partners to educate and protect potential investors about both traditional and trendy investments.”

“As cryptocurrency marketplaces advance and offer new opportunities for consumers, criminals also seek ways to exploit them,” said Assistant Director Luis Quesada of the FBI’s Criminal Investigative Division. “The FBI, alongside our law enforcement partners, will continue to investigate and bring those criminals to justice, and to protect the American people.”

“This investigation and prosecution exemplifies the importance of public-private partnerships,” said Executive Associate Director Steve K. Francis of Homeland Security Investigations (HSI). “As a result of our strong relationships with industry partners, HSI received information leading to this investigation and ultimate indictment. HSI will continue to investigate criminal organizations operating in emerging technologies and are proud to have worked with the Department of Justice Fraud Section to put an end to this criminal activity.”

The following charges are announced today as a part of this national enforcement action.

Crypto NFT Scheme:

United States v. Le Ahn Tuan:

Le Anh Tuan, 26, a Vietnamese national, was charged with one count of conspiracy to commit wire fraud and one count of conspiracy to commit international money laundering in the Central District of California in connection with a scheme involving the “Baller Ape” NFT. As alleged in the indictment, Tuan was involved in the Baller Ape Club, an NFT investment project that purportedly sold NFTs in the form of various cartoon figures, often including the figure of an ape. According to the indictment, shortly after the first day Baller Ape Club NFTs were publicly sold, Tuan and his co-conspirators engaged in what is known as a “rug pull,” ending the purported investment project, deleting its website, and stealing the investors’ money. Based on blockchain analytics, shortly after the rug pull, Tuan and his co-conspirators laundered investors’ funds through “chain-hopping,” a form of money laundering in which one type of coin is converted to another type and funds are moved across multiple cryptocurrency blockchains, and used decentralized cryptocurrency swap services to obscure the trail of Baller Ape investors’ stolen funds. In total, Tuan and his co-conspirators obtained approximately $2.6 million from investors. If convicted of all counts, Tuan faces up to 40 years in prison. HSI is investigating the case. Fraud Section Trial Attorneys Kevin Lowell and Tian Huang are prosecuting the case.

Crypto Ponzi and Unregistered Securities Scheme:

United States v. Emerson Pires, Flavio Goncalves, and Joshua David Nicholas:

Emerson Pires, 33, and Flavio Goncalves, 33, both of Brazil, and Joshua David Nicholas, 28, of Stuart, Florida, were each charged in the Southern District of Florida with one count of conspiracy to commit wire fraud and one count of conspiracy to commit securities fraud in connection with a global cryptocurrency-based Ponzi scheme that generated approximately $100 million from investors. Pires and Goncalves also were charged with conspiracy to commit international money laundering. The indictment alleges that Pires and Goncalves, both founders of EmpiresX, along with Nicholas, the so-called “Head Trader” for EmpiresX, fraudulently promoted EmpiresX, a cryptocurrency investment platform and unregistered securities offering, by making numerous misrepresentations regarding, among other things, a purported proprietary trading bot and fraudulently guaranteeing returns to investors and prospective investors in EmpiresX. As alleged in the indictment, blockchain analytics shows that Pires and Goncalves then laundered investors’ funds through a foreign-based cryptocurrency exchange and operated a Ponzi scheme by paying earlier investors with money obtained from later EmpiresX investors. If convicted of all counts, Pires and Goncalves face up to 45 years in prison and Nicholas faces up to 25 years in prison. FBI and HSI are investigating the case. Fraud Section Trial Attorneys Kevin Lowell and Sara Hallmark and Assistant U.S. Attorney Yisel Valdes of the U.S. Attorney’s Office for the Southern District of Florida are prosecuting the case.

Crypto Initial Coin Offering Scheme:

United States v. Michael Alan Stollery:

Michael Alan Stollery, 54, of Reseda, California, was the CEO and founder of Titanium Blockchain Infrastructure Services (TBIS), a purported cryptocurrency investment platform. Stollery was charged in an information filed in the Central District of California with one count of securities fraud for his role in a cryptocurrency fraud scheme involving TBIS’s initial coin offering, which raised approximately $21 million from investors in the United States and overseas. As alleged, in order to lure investors, Stollery falsified TBIS white papers (a document for prospective investors that typically explains how the technology underlying the cryptocurrency works and the purpose of the cryptocurrency project), planted fake testimonials on TBIS’s website, and fabricated purported business relationships with the U.S. Federal Reserve Board and dozens of prominent companies, including Apple Inc., Pfizer Inc., and The Walt Disney Company, to create the appearance of legitimacy. If convicted of all counts, Stollery faces up to 20 years in prison. The FBI and the Federal Reserve Board’s Western Region San Francisco Office are investigating the case. Fraud Section Trial Attorneys Kevin Lowell, Tian Huang, and Andrew Tyler are prosecuting the case.

“Those who fraudulently misrepresent their relationship with the Federal Reserve to deceive the public in cryptocurrency or other fraud schemes will be held accountable and brought to justice,” said Acting Special Agent in Charge Cory Nootnagel of the Office of Inspector General for the Board of Governors of the Federal Reserve System and the Bureau of Consumer Financial Protection, Western Region. “I commend our agents, their federal law enforcement partners, and the Justice Department’s Criminal Division’s Fraud Section for their hard work and persistence.”

Crypto Commodities Scheme:

United States v. David Saffron:

David Saffron, 49, of Las Vegas, Nevada, was the owner of Circle Society, a cryptocurrency investment platform. Saffron used Circle Society to solicit investors to participate in an unregistered commodity pool, which is a fund that combines investors’ contributions to trade on the futures and commodity markets. Saffron was charged in the Central District of California with one count of conspiracy to commit wire fraud, four counts of wire fraud, one count of conspiracy to commit commodities fraud, and one count of obstruction of justice. As alleged in the indictment, Saffron falsely represented to investors that he traded investors’ funds to earn profits using a trading bot that could execute over 17,000 transactions per hour on various cryptocurrency exchanges. Saffron falsely represented that his trading bot would generate between 500% to 600% returns on the amount invested. To entice investors to invest, Saffron allegedly led investor meetings at luxury homes in the Hollywood Hills and elsewhere, and traveled with a team of armed security guards in order to create the false appearance of wealth and success. In total, Saffron fraudulently raised approximately $12 million from investors. If convicted of all counts, Saffron faces up to 115 years in prison. IRS Criminal Investigation (IRS-CI) is investigating the case. Fraud Section Trial Attorneys Kevin Lowell and Theodore Kneller, and Assistant U.S. Attorney James Hughes of the U.S. Attorney’s Office for the Central District of California are prosecuting the case.

“Mr. Saffron preyed on investor interest in cryptocurrency by enticing victims with fake technology and false promises of guaranteed returns,” said Special Agent in Charge Ryan L. Korner of the IRS-CI’s Los Angeles Field Office. “In reality, Mr. Saffron was operating an illegal Ponzi scheme to defraud victim investors and used the funds for his own personal benefit. IRS-CI will pursue and root out these schemes to protect investors, preserve our commodity markets, and bring financial fraudsters to justice.”

Crypto Fraud Victims:

All investor victims of the Baller Ape Club, EmpiresX, TBIS, and Circle Society schemes are encouraged to visit the webpage https://www.justice.gov/criminal-vns/crypto-enforcement to identify themselves as potential victims and obtain more information on their rights as victims, including the ability to submit a victim impact statement.

An indictment is merely an allegation, and all defendants are presumed innocent until proven guilty beyond a reasonable doubt in a court of law.

Press release distributed by the DOJ.

Featured image: by Crypto360 is marked with CC BY 2.0.

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SEC Nearly Doubles Size of Enforcement’s Crypto Assets and Cyber Unit

Administrator — Tue, 03 May 2022 19:06:00 +0000

Washington D.C., May 3, 2022 — The Securities and Exchange Commission today announced the allocation of 20 additional positions to the unit responsible for protecting investors in crypto markets and from cyber-related threats. The newly renamed Crypto Assets and Cyber Unit (formerly known as the Cyber Unit) in the Division of Enforcement will grow to 50 dedicated positions.

“The U.S. has the greatest capital markets because investors have faith in them, and as more investors access the crypto markets, it is increasingly important to dedicate more resources to protecting them,” said SEC Chair Gary Gensler. “The Division of Enforcement’s Crypto Assets and Cyber Unit has successfully brought dozens of cases against those seeking to take advantage of investors in crypto markets. By nearly doubling the size of this key unit, the SEC will be better equipped to police wrongdoing in the crypto markets while continuing to identify disclosure and controls issues with respect to cybersecurity.”

Since its creation in 2017, the unit has brought more than 80 enforcement actions related to fraudulent and unregistered crypto asset offerings and platforms, resulting in monetary relief totaling more than $2 billion. The expanded Crypto Assets and Cyber Unit will leverage the agency’s expertise to ensure investors are protected in the crypto markets, with a focus on investigating securities law violations related to:

Crypto asset offerings;
Crypto asset exchanges;
Crypto asset lending and staking products;
Decentralized finance (“DeFi”) platforms;
Non-fungible tokens (“NFTs”); and
Stablecoins.

In addition, the unit has brought numerous actions against SEC registrants and public companies for failing to maintain adequate cybersecurity controls and for failing to appropriately disclose cyber-related risks and incidents. The Crypto Assets and Cyber Unit will continue to tackle the omnipresent cyber-related threats to the nation’s markets.

“Crypto markets have exploded in recent years, with retail investors bearing the brunt of abuses in this space. Meanwhile, cyber-related threats continue to pose existential risks to our financial markets and participants,” said Gurbir S. Grewal, Director of the SEC’s Division of Enforcement. “The bolstered Crypto Assets and Cyber Unit will be at the forefront of protecting investors and ensuring fair and orderly markets in the face of these critical challenges.”

The infusion of 20 additional positions into the Crypto Assets and Cyber Unit will bolster the ranks of its supervisors, investigative staff attorneys, trial counsels, and fraud analysts in the agency’s headquarters in Washington, DC, as well as several regional offices.

Press release distributed by the SEC.

Featured image: by Crypto360 is marked with CC BY 2.0.

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