MIAMI – Three men raised tens of millions of dollars by convincing crypto investors that they had technology capable of generating guaranteed returns when they were actually running a Ponzi scheme out of Florida, according to a federal indictment.
The Securities and Exchange Commission accused the trio of using some of the investors’ money to lease a Lamborghini, shop at Tiffany & Co., make a payment on a second home, and cover other personal expenses.
Federal agents investigated Joshua Nicholas, of Stuart, and Brazilians Emerson Pires and Flavio Goncalves, of Port St. Lucie. George Piro, special agent in charge of FBI Miami, warned that although FinTech has changed, the type of crime hasn’t.
“What’s changing is they are now pushing their criminal activity into the cryptocurrency realm,” Piro said in a statement. “Investors beware. Conduct your due diligence before investing.”
Nicholas, 28, Pires, 33, and Goncalves, 33, were able to pool at least $41.6 million from investors, misappropriated at least $5 million, and only sent $1 million to a brokerage account, according to The Commodity Futures Trading Commission.
Carolyn Welshhans, the acting chief of the SEC enforcement division’s crypto assets and cyber unit, described their deceitful plot as “an unregistered offering with a slew of fraudulent statements designed to lure investors with the prospect of steady daily profits.”
In 2020, Pires and Goncalves registered Empires Consulting, and Pires registered EmpiresX as Florida profit corporations out of Fort Myers, state records show. Nicholas pretended to be the manager of a trading business that used finance automation tech, and they purported to run a hedge fund, according to prosecutors.
Investigators found the fraudsters showed fake screenshots of EmpiresX’s profitable account with a large, well-known electronic trading platform and created a fake website to mislead investors into thinking that EmpiresX was actually trading their funds, according to the CFTC.
Meanwhile, the National Futures Association had suspended Nicholas from trading after he was accused of misappropriating customer funds, the hedge fund wasn’t registered and the proprietary trading automated “Ex Bot” that generated 1% daily profits just didn’t exist, according to the SEC.
“As with any emerging technology, those who invest in cryptocurrency must beware of profit-making opportunities that appear too good to be true,” Juan Antonio Gonzalez, U.S. Attorney for the Southern District of Florida, said in a statement.
Pires and Goncalves laundered funds through a cryptocurrency exchange and Nicholas’ trading resulted in losses, according to prosecutors. They used the laundered funds to pay out early investors with newer investors’ money and their scheme began to collapse by November 2021, according to investigators.
“This case should serve as a warning to any individuals who look to illegally capitalize on the perceived ambiguity of the crypto market to take advantage of innocent investors,” Anthony Salisbury, special agent in charge of HSI Miami, said in a statement.
On Thursday, prosecutors announced their criminal case against Nicholas, Pries, and Goncalves based on evidence from the FBI and HSI. The SEC and the CFTC also announced separate civil enforcement actions.
The SEC’s complaint charges them with violating the registration and anti-fraud provisions of the Securities Act of 1933 and the Securities Exchange Act of 1934.
The CFTC’s complaint seeks full restitution to defrauded pool participants, disgorgement of any ill-gotten gains, civil monetary penalties, permanent trading and registration bans, and a permanent injunction against further violations of the Commodity Exchange Act.
The cases against them are in the U.S. District Court for the Southern District of Florida. Federal agents believe Pires and Goncalves left the U.S. earlier this year.