A Florida man pleaded guilty in federal district court Thursday to participating in a cryptocurrency-based Ponzi scheme that defrauded investors of approximately $100 million, the Justice Department announced today.
The department says Joshua David Nicholas of Stuart, Florida — population 16,000 — served for nearly two years as the so-called “principal trader” of EmpiresX, a cryptocurrency investment platform that promised investors daily profits of one percent thanks to the combined capabilities of a state- state-of-the-art “trading bot” and Nicholas’ manual trading knowledge.
In reality, the fine did not exist.
Nicholas, along with EmpiresX co-founders Emerson Sousa Pires and Flavio Mendes Goncalves, took the majority of the investors’ funds and leased a Lamborghini, bought a number of items from Tiffany & Co., and paid for a second home.
According to the Department of Justice, the small amount of users’ funds that Nicholas traded in the cryptocurrency market incurred significant losses.
Nicholas pleaded guilty today to one count of conspiracy to commit securities fraud and faces up to five years in federal prison. Nicholas was also initially charged in June with conspiracy to commit wire fraud, although that charge appears to have since been dropped.
Pires and Goncalves, meanwhile, fled to their native Brazil after freezing investor withdrawals earlier this year. They were nevertheless both charged in June with securities fraud and wire fraud, as well as conspiracy to commit international money laundering.
“The technology has changed, but the crime remains the same,” said George L. Piro, special agent in charge of the FBI in Miami. “Unscrupulous fraudsters are nothing new to the investment world – what is changing is that they are now pushing their criminal activity into the cryptocurrency space.”
“This case should serve as a warning to all individuals looking to illegally exploit the perceived ambiguity of the crypto market to take advantage of innocent investors,” added Anthony Salisbury, special agent in charge of Homeland Security Investigations in Miami.
In parallel with the DOJ’s criminal charges, the SEC filed a civil complaint in June against Nicholas, Pires and Goncalves. It alleged that the defendants violated both the Securities Act of 1933 and the Securities Exchange Act of 1934, in part for defrauding customers, but also for failing to register EmpiresX as a security.
The question of which cryptocurrency-related businesses the US government considers to be securities, and therefore in violation of federal law if unregistered as such, currently loom over the entire crypto space, not just Ponzi schemes.
Just today, SEC Chairman Gary Gensler made his faith clear that several cryptocurrencies, potentially including Bitcoin, should not be treated as securities, but as commodities, and therefore regulated by the Commodity Futures Trading Commission (CFTC).
However, where the SEC draws the line between crypto-securities and crypto-commodities remains unclear, and many in the crypto community have ridiculed the SEC to refrain from clarifying which businesses should be registered as securities, while they continue occasionally prosecute individual firms for failing to do so.
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