Former Top Executive of Investment Fund Admits $294 Million Securities Fraud Conspiracy (DOJ Release)
https://www.justice.gov/usao-nj/pr/former-top-executive-investment-fund-admits-294-million-securities-fraud-conspiracy
In response to an Information https://www.justice.gov/d9/2023-11/hughes.information.pdf filed in the United States District Court for the District of New Jersey, John Hughes pled guilty to one count of conspiracy to commit securities fraud. As alleged in part in the DOJ Release:

Hughes co-founded Prophecy Asset Management LP (Prophecy) and worked as its chief operating officer and chief compliance officer. Prophecy solicited investments and operated funds that, at their peak, had over $360 million in assets under management. Prophecy’s other co-founder worked as its CEO and portfolio manager. From January 2015 to March 2020, Hughes conspired with his co-founder to falsely represent to investors that Prophecy employed a “first-loss” trading strategy that purportedly allocated investor money to a diverse array of traders, called sub-advisors, who were required to provide cash collateral in order to gain access to the investors’ pooled money and backstop any potential losses. Hughes and his co-founder also falsely represented to investors that if a sub-advisor began to experience trading losses that approached the amount of their required cash collateral, Prophecy would contact the sub-advisor to increase or replenish their collateral and, if necessary, suspend allocations and trading, or even terminate the sub-advisor if losses were substantial. These false claims induced victims to believe that Prophecy operated low-risk, transparent, and diversified funds.

In reality, over time, Hughes and his co-founder allocated most of the funds’ capital to a single, primary sub-advisor without requiring him to provide cash collateral to back potential losses. They also failed to suspend his allocations or trading, even though he sustained approximately $290 million in losses that far exceeded his cash collateral. Hughes and his co-founder fraudulently concealed this and other information from victim investors, causing the victims to believe their investments were far more secure than they actually were. Hughes, his co-founder, and the sub-advisor also actively covered up these spiraling losses and collateral deficiencies by using, among other things, bogus transactions and forged documents.

In turn, the sub-advisor helped Hughes and his co-founder conceal millions of dollars in losses they caused Prophecy’s funds through bad investments. They used fake documents and money that the sub-advisor provided to paper over and hide these bad investments from victim investors and Prophecy’s auditor.  

The fraud ultimately resulted in trading losses that wiped out Prophecy’s funds and caused over $294 million in losses to the victims.  

Also see: SEC Charges President/CCO of Prophecy Asset Management Advisory Firm with Multi-Year Fraud (SEC Release)

Canadian Resident Admits Conspiring with Convicted Ponzi Schemer and Others to Defraud Investors of Tens of Millions of Dollars (DOJ Release)
https://www.justice.gov/usao-nj/pr/canadian-resident-admits-conspiring-convicted-ponzi-schemer-and-others-defraud-investors
In response to an Information https://www.justice.gov/d9/2023-11/hattab.information.pdf in the United States District Court for the District of New Jersey, Alaa Mohamed Hattab pled guilty to one count of conspiracy to commit securities fraud. Previously, co-conspirators Christopher Anderson and Richard Curry pled guilty to conspiracy to commit securities fraud and are awaiting sentencing. Charges are still pending against co-conspirators Eliyahu “Eli” Weinstein, Aryeh “Ari” Bromberg, Joel Wittels, and Shlomo Erez. As alleged in part in the DOJ Release: 

[W]einstein was convicted two times in New Jersey federal court for defrauding investors. His first case involved a real estate Ponzi scheme, and his second case stemmed from additional fraud Weinstein committed while on pretrial release. For these crimes, which resulted in combined losses to investors of approximately $230 million, Weinstein was sentenced to serve 24 years in prison, followed by three years of supervised release. On Jan. 19, 2021, after Weinstein had served less than eight years, the President of the United States at that time commuted Weinstein’s term to time served, leaving intact the rest of his sentence.

Soon after being released from prison, Weinstein began orchestrating a new scheme to solicit money from investors through a company called Optimus Investments Inc. (Optimus). Using the fake name “Mike Konig,” Weinstein ran Optimus with Bromberg and Wittels. Hattab served as a broker for Optimus and helped conceal Weinstein’s involvement in various business ventures from investors.

According to documents filed in this case and statements made in court:

Hattab admitted that from February 2022 to July 2023, Hattab’s business partners raised money from investors to fund purported business ventures with Weinstein, including a company called Saniton Plastic LLC. On Aug. 26, 2022, Hattab met with Curry, Anderson, Weinstein, and Bromberg at a hotel in Branchburg, New Jersey, and discussed continuing to conceal Weinstein’s identity from investors and others. Hattab admitted he became aware that Weinstein had raised money from investors for specific deals on medical supplies and baby formula and used that money for other purposes, including to fund Hattab’s business ventures. Hattab admitted he understood that information concerning Weinstein’s misappropriation from investors and others was important for investors to know, and that he agreed with others to mislead investors by not disclosing Weinstein’s misappropriations.

Former Jackson Lawyer and Former Jackson Lobbyist Sentenced for Conspiracy to Defraud Investors (DOJ Release)
https://www.justice.gov/usao-sdms/pr/former-jackson-lawyer-and-former-jackson-lobbyist-sentenced-conspiracy-defraud-0
In the United States District Court for the Southern District of Mississippi, former lawyer Jon D. Seawright, 51, and former lobbyist Ted Brent Alexander, 58, pled guilty to conspiracy to commit wire fraud. Seawright was sentenced to one year and one day in prison plus two years of supervised release; and Alexander was sentenced to five years of probation (inclusive of two years of home confinement with electronic monitoring). Seawright and Alexander were further ordered to pay restitution joint and severally in the amount of $977,044.53. As alleged in part in the DOJ Release:

Alexander and Seawright conspired in a scheme to defraud investors by soliciting millions of dollars under false pretenses and by failing to use investor funds as promised. They represented to investors that they were in the business of loaning funds to a “timber broker” to buy timber rights from landowners and then to sell the timber rights to lumber mills at a higher price. Alexander and Seawright promised investors a return of 10% or more over twelve or thirteen months on each unit of invested capital. They led their investors to believe that they were inspecting each tract of land and were vetting each document, deed, and contract in support of their investments, causing investors to believe that their investments were secured by valid assets and that the financial incentives and interests of Alexander and Seawright aligned with those of the investors. In fact, Alexander and Seawright failed to inspect each property related to the timber rights underlying each investment, and they failed to verify each executed lumber mill agreement related to each investment. They made few or no such inquiries, and if they had made such inquiries, they would have discovered that the timber deeds, lumber mill agreements, and related documents had been falsified and were not valid.

Alexander and Seawright also represented to their investors that Alexander and Seawright would only profit from each series of the investment if it performed as promised to the investors. This gave the investors the misleading impression that their interests were fully aligned with those of Alexander and Seawright. In fact, in addition to receiving a predetermined percentage of return on the investors’ funds, Alexander and Seawright also received undisclosed payments of approximately 3% for recruiting investments to the timber investment scheme immediately upon transferring the investment funds to the purported timber broker. They did not disclose to the investors: (a) the fact of these payments, (b) the amount of the payments in relation to the investments made, or (c) the timing of the undisclosed payments to Alexander and Seawright before any repayment was made to the investors. 

Former Stockbroker Sentenced to More Than Five Years in Prison for Penny-Stock Securities Fraud Scheme / Defendant conspired to facilitate and participate in market manipulations and attempted to acquire a fraudulent Ukrainian passport to flee prosecution (DOJ Release)
https://www.justice.gov/usao-ma/pr/former-stockbroker-sentenced-more-five-years-prison-penny-stock-securities-fraud-scheme
In the United States District Court for the District of Massachusetts, Joseph A. Padilla, 54, pled guilty to one count of conspiracy to commit securities fraud, two counts of securities fraud and one count of attempting to cause the production of an identification document without lawful authority; and he was sentenced to 66 months in prison plus one year of supervised release, and ordered to forfeit $3 million and pay restitution in an amount to be determined. As alleged in part in the DOJ Release:

Padilla is a former stockbroker who was barred from the securities industry in 2012 by the U.S. Securities and Exchange Commission (SEC). Between 2020 and 2022, Padilla conspired with others to commit securities fraud by facilitating and participating in market manipulation schemes involving the concealed-control of the shares of penny-stock companies.

Specifically, between in or about January and July 2021, Padilla participated in a market manipulation scheme involving the shares of Oncology Pharma, Inc., a thinly traded company that traded on the over-the-counter securities market under the ticker symbol ONPH. As part of the scheme, a co-conspirator allegedly caused nearly all of ONPH’s free-trading shares to be transferred to multiple brokerage accounts for the benefit of Padilla’s clients at the Cayman Islands broker Valor Capital, with which Padilla had a close, unofficial association. Padilla then engaged in manipulative trading in ONPH designed, at least in part, to artificially drive up the company’s stock price. Padilla then began dumping the ONPH shares, which were under common control, to unsuspecting investors in Massachusetts and throughout the United States during a promotional campaign, generating illicit proceeds in the tens of millions of dollars.

Additionally, between February 2021 and April 2021, Padilla participated in a similar scheme involving the shares of Charlestowne Premium Beverages Inc., a thinly traded company that traded on the over-the-counter market under the ticker symbol FPWM. As part of the scheme, Padilla orchestrated an effort designed, at least in part, to artificially increase Charlestowne’s stock price. He then facilitated the sale of millions of Charlestowne’s shares during a promotional campaign to unsuspecting investors in Massachusetts and throughout the United States, generating illicit proceeds in the millions of dollars.

Padilla was arrested on a criminal complaint in August 2022 and released on pre-trial conditions, which included surrendering his passport and not obtaining another passport. While on pre-trial release, Padilla attempted to acquire a fraudulent Ukrainian passport so that he could flee prosecution. Padilla was arrested in January 2023 for violating his terms of release and his pre-trial release was revoked. 

Former Investment Banker Sentenced To 36 Months For Insider Trading And Obstruction Of Justice / Brijesh Goel Stole Non-Public Information About Mergers and Acquisitions and Destroyed Evidence (DOJ Release)
https://www.justice.gov/usao-sdny/pr/former-investment-banker-sentenced-36-months-insider-trading-and-obstruction-justice
In the United States District Court for the Southern District of New York, former Goldman Sachs investment banker Brijesh Goel was convicted of insider trading and obstruction of justice after a seven-day jury trial, and he was sentenced to 36 months in prison plus three years of supervised release and ordered to pay a $75,000 fine, forfeit $85,000, and pay restitution in an amount to be determined. As alleged in part in the DOJ Release:

BRIJESH GOEL was an investment banker at Goldman Sachs in New York, New York.  In that position, GOEL received confidential internal emails directed to Goldman Sachs’ Firmwide Capital Committee and Credit Markets Capital Committee, which contained detailed information and analysis about potential merger-and-acquisition transactions that Goldman Sachs was considering financing.  In violation of the duties that he owed to Goldman Sachs, GOEL misappropriated that confidential information and tipped a friend, Akshay Niranjan, who worked at another investment bank in New York, New York, with the names of potential target companies from those internal emails during in-person meetings such as when the two met at the New York Health and Racquet Club.  Niranjan then used that confidential information to trade call options, including short-dated, out-of-the-money call options, in brokerage accounts that were in the name of Niranjan’s brother.  GOEL and Niranjan agreed to split the profits from their trading.  Between approximately 2017 and 2018, GOEL tipped Niranjan on at least six deals in which Goldman Sachs was involved, yielding total illegal profits of approximately $280,000. 

Between approximately May and June 2022, GOEL also obstructed investigations by a grand jury in the Southern District of New York and the U.S. Securities and Exchange Commission (“SEC”).  Specifically, GOEL deleted and asked Niranjan to delete text messages regarding the insider trading scheme, including during an in-person meeting that Niranjan consensually recorded.

Founders and Executives of Digital-Asset Company Charged in Multi-Million Dollar International Fraud Scheme / Defendants Allegedly Misappropriated Millions of Dollars of Investors’ Funds for Their Own Use, Including the Purchase of Luxury Vehicles, Real Estate, and Personal Investments (DOJ Release)
https://www.justice.gov/usao-edny/pr/founders-and-executives-digital-asset-company-charged-multi-million-dollar
In the United States District Court for the Eastern District of New York, an Indictment https://www.justice.gov/d9/2023-11/23-cr-433_indictment.pdf was filed charging Braden John Karony, Kyle Nagy, and Thomas Smith with conspiracy to commit securities fraud, conspiracy to commit wire fraud and money laundering conspiracy. As alleged in part in the DOJ Release:

Background on SFM

As alleged, SFM tokens were digital assets first issued in March 2021 by SafeMoon LLC on a public blockchain.  Through the operation of SFM’s smart contracts, every transaction in SFM was automatically subject to a 10% tax, meaning, for example, that if a holder of SFM transferred 10 SFM to another user, 1 SFM would automatically be retained from the transfer as a tax, and the remaining 9 SFM would be received by the other party.  As marketed to SFM investors, the proceeds of SFM’s 10% tax were split into two 5% tranches, the proceeds of which were supposed to benefit holders of SFM in specific ways.  The first 5% tranche of the tax proceeds would be “reflected” back to, and distributed among, all SFM holders, in proportion to their current SFM holdings and thereby increase the total quantity of SFM held by every SFM investor automatically.  The remaining 5% tranche of SFM tax proceeds would be deposited into designated SFM liquidity pools. The larger the SFM liquidity pool, the greater the liquidity in the market for SFM.  In the months after its launch in March 2021, SFM grew to have more than one million holders and a market capitalization of more than $8 billion.

The Defendants’ Fraudulent Scheme

As alleged, the defendants misrepresented to investors various material aspects of the SFM offering, including that SFM relied on “locked” liquidity pools that would automatically increase in size due to a 10% tax imposed on every SFM transaction; that the “locked” SFM liquidity pool prevented the defendants and other insiders at SafeMoon from being able to “rug pull”—a type of crypto fraud—SFM investors by removing liquidity from the SFM liquidity pool; that tokens in the liquidity pool would not be used to enrich the SafeMoon developers, including the defendants; that the defendants would manually add token pairs to the SFM liquidity pool when transactions of SFM occurred on specific centralized exchanges; and that the developers were not holding and trading SFM for their benefit.

In reality, the defendants allegedly retained access to the SFM liquidity pools and they used that access to intentionally divert and misappropriate millions of dollars’ worth of tokens from the SFM liquidity pools for their personal benefit.  In addition, although they publicly denied that they personally held or traded SFM, the defendants repeatedly bought and sold SFM for their personal benefit, including at the height of SFM’s market price, which generated millions of dollars in profits.  The defendants masked their movement of the fraudulent proceeds via numerous private un-hosted crypto wallet addresses, complex transaction routing, and pseudonymous centralized exchange accounts.  The defendants used some of these proceeds to purchase luxury vehicles and real estate in New Hampshire, Utah, and Florida. Smith, for example, using cryptocurrency addresses he controlled, sent 2,900 Binance Coin (BNB) worth more than approximately $860,000 and traceable to the SFM liquidity pool to a third party’s cryptocurrency address in order to purchase a custom Porsche 911 sportscar and non-fungible token. 

Also see: SEC Charges Crypto Company SafeMoon and its Executive Team for Fraud and Unregistered Offering of Crypto Securities (SEC Release) 

Four Men Indicted for Defrauding Global Financial Services Company Based in Menlo Park, California of Over Two Million Dollars / Defendants Allegedly Created Hundreds of Fictitious Brokerage Accounts to Execute Complex Options Trading Scam (DOJ Release)
https://www.justice.gov/usao-edny/pr/four-men-indicted-defrauding-global-financial-services-company-based-menlo-park
In the United States District Court for the Eastern District of New York, an Indictment was filed charging Eduardo Hernandez, Christopher Flagg, Daquan Lloyd and Corey Ortiz with conspiracy to commit securities fraud and money laundering conspiracy. As alleged in part in the DOJ Release:

[B]etween December 2018 and January 2023, the defendants engaged in a scheme to defraud a global financial services company of millions of dollars of short-term cash advances, called “Instant Deposits.”  The Instant Deposits were intended to enable legitimate investors to immediately trade in their brokerage accounts without having to wait for an incoming wire transfer to clear.  To gain access to millions of dollars of Instant Deposits, which were typically capped at $5,000 per account, the defendants established a multi-state recruitment network through which the defendants opened hundreds of fraudulent accounts held in the names of straw account holders, or “Losing Accounts.”

Using the Instant Deposits available to the Losing Accounts, the defendants repeatedly bought thinly traded and highly speculative stock options at above-market prices.  Selecting these virtually worthless stock options enabled the defendants to match their bids in the Losing Account with offers to sell the same overpriced stock options initiated by other brokerage accounts, or “Winning Accounts,” that were also controlled by the defendants and their conspirators.  In effect, the defendants transferred the Instant Deposits from the Losing Accounts to the Winning Accounts by way of fraudulent securities transactions.

Meanwhile, the incoming wire transfers supposed to cover the Instant Deposits in the Losing Accounts had purposely been initiated by the defendants from bank accounts that had little or no balance.  These wire transfers, therefore, failed to clear, but not before the defendants drained the Instant Deposits, leaving the accounts with negative balances and worthless options.  The defendants then laundered the stolen funds through multiple electronic banking platforms.  

In total, the defendants recruited dozens of individuals to engage in their fraudulent scheme and stole more than $2 million.

Also see: SEC Charges Four Long Island Men with Perpetrating $2 Million “Free-Riding” Scheme (SEC Release)

SEC Charges Royal Bank of Canada with Internal Accounting Controls Violations (SEC Release)
https://www.sec.gov/news/press-release/2023-232
Without admitting or denying the findings in an SEC Order https://www.sec.gov/files/litigation/admin/2023/34-98849.pdf that it violated the internal accounting controls and books and records provisions of the Securities Exchange,, the Royal Bank of Canada agreed to cease and desist from committing or causing any violations or any future violations of these provisions; and to pay a $6 million civil penalty, offset by amounts paid to Canadian regulatory authorities as a result of the same conduct. The SEC considered Royal Bank of Canada’s remedial acts in determining to accept the settlement.  As alleged in part in the SEC Release:

[F]rom 2008 through 2020, Royal Bank of Canada’s accounting controls failed to ensure that the firm accurately accounted for its internally developed software project costs. The order finds that, for a portion of its internally developed software projects, Royal Bank of Canada applied a single rate to determine how much of those projects’ costs to capitalize, but it lacked a reliable method for determining the appropriate rate to apply, in part because it could not adequately differentiate between capitalizable and noncapitalizable costs. This resulted in, among other things, the bank using the same capitalization rate each year without a sufficient basis and capitalizing certain costs that were ineligible under the appropriate accounting methodology.

SEC Charges President/CCO of Prophecy Asset Management Advisory Firm with Multi-Year Fraud (SEC Release)
https://www.sec.gov/news/press-release/2023-231
In the United States District Court for the District of New Jersey, the SEC filed a Complaint that charged John Hughes (President/ Chief Compliance officer of registered investment adviser Prophecy Asset Management LP) with violations of the antifraud provisions of the federal securities laws. Parallel criminal charges were filed against Hughes. As alleged in part in the SEC Release:

Prophecy Asset Management advised multiple hedge funds and reported more than $500 million in assets under management. The SEC’s complaint alleges that Hughes and his associates at Prophecy Asset Management misled the funds’ investors, auditors, and administrator about the funds’ trading practices, risk, and performance – all while collecting more than $15 million in fees.

According to the SEC’s complaint, Hughes led investors to believe that their investments were protected from loss, telling them the funds’ capital was shared among dozens of sub-advisers who traded in liquid securities and posted cash collateral to offset any trading losses they incurred. In reality, most of the funds’ capital went to one sub-adviser, who incurred massive trading losses that far exceeded the cash collateral he had contributed. In addition, Hughes caused the funds to invest in highly illiquid investments, which also resulted in substantial losses to the funds. Hughes concealed these losses by fabricating documents and engaging in a series of sham transactions to cover-up the true financial condition of the funds. The complaint also alleges that Hughes deceived investors about the diversification and trading strategies in two other funds. By 2020, after losses in funds that Prophecy Asset Management managed amounted to more than $350 million, Hughes and Prophecy Asset Management indefinitely suspended redemptions by investors.

Also see: Former Top Executive of Investment Fund Admits $294 Million Securities Fraud Conspiracy (DOJ Release) 

SEC Charges Crypto Company SafeMoon and its Executive Team for Fraud and Unregistered Offering of Crypto Securities (SEC Release)
https://www.sec.gov/news/press-release/2023-229
In the United States District Court for the Eastern District of New York, the SEC filed a Complaint https://www.sec.gov/files/litigation/complaints/2023/comp-pr2023-229.pdf that charges SafeMoon LLC, its creator Kyle Nagy, SafeMoon US LLC, and the companies’ Chief Executive Officer, John Karony, and Chief Technology Officer, Thomas Smith with violating the registration and anti-fraud provisions of the Securities Act and the anti-fraud provisions of the Securities Exchange Act. As alleged in part in the SEC Release:

[I]n marketing the SafeMoon Token, Nagy assured investors that funds were safely locked and could not be withdrawn by anyone, including the Defendants, while held in SafeMoon’s liquidity pool, a collection of investor funds that provides liquidity to facilitate trading in the asset. However, as alleged, large portions of the liquidity pool were never locked, and the Defendants misappropriated millions of dollars to purchase McClaren cars, extravagant travel, luxury homes, and other things.

. . .

The SEC’s complaint alleges that SafeMoon skyrocketed in price by more than 55,000 percent from March 12 to April 20, 2021, and reached a market capitalization exceeding $5.7 billion before its price plummeted by nearly 50 percent when the public learned, on April 20, 2021, that SafeMoon’s liquidity pool was not locked as claimed. After this plunge, Karony and Smith allegedly used misappropriated assets to make large purchases of SafeMoon to prop up its price and manipulate the market. Karony also allegedly used an account he opened on a trading platform to buy and sell SafeMoon to create the impression of market activity, a practice known as wash trading.

Also see: Founders and Executives of Digital-Asset Company Charged in Multi-Million Dollar International Fraud Scheme / Defendants Allegedly Misappropriated Millions of Dollars of Investors’ Funds for Their Own Use, Including the Purchase of Luxury Vehicles, Real Estate, and Personal Investments (DOJ Release)