Software Company CEO Charged In Manhattan Federal Court For $2 Million Securities Fraud Scheme
Preet Bharara, the United States Attorney for the Southern District of New York, and Mary Galligan, the Acting Assistant Director-in-Charge of the New York Field Office of the Federal Bureau of Investigation (“FBI”), announced today the arrest of ROBERT KELLY, the Chief Executive Officer of Wwebnet, Inc. (“Wwebnet”), a software development company, on securities and wire fraud charges. KELLY allegedly diverted for his own personal use over $2 million in investor proceeds that was intended for the development of a software program capable of transmitting music, videos, and movies over the Internet. He used the money to trade options, to pay his personal income taxes, and for other purposes unrelated to software development. KELLY was arrested yesterday afternoon in Raleigh, North Carolina, and was presented there in federal court this morning.
Manhattan U.S. Attorney Preet Bharara stated: “As alleged, Robert Kelly was simply an old-fashioned grifter touting a new technology opportunity in order to pick people’s pockets. He is the latest in a long line of defendants who allegedly lured unsuspecting investors with the allure of new technology only to be caught by law enforcement, but regrettably, probably not the last.”
FBI Acting Assistant Director-in-Charge Mary Galligan stated: “The audacity of this defendant’s alleged scheme was matched by its simplicity. He solicited and obtained millions of dollars from investors and simply pocketed the money for personal use. He told investors they were funding software development, then told his development team he hadn’t found investors. Taking investors’ money under false pretenses is essentially stealing it.”
According to the Complaint unsealed yesterday in Manhattan federal court:
From 2004 through November 2008, KELLY solicited investors to send money to various Wwebnet-related bank accounts by misrepresenting that the funds would be used to develop software for transmitting music, videos, and movies over the Internet. Instead of using the millions of dollars in investor proceeds that he obtained for legitimate business purposes, KELLY diverted a substantial portion of the money that he raised for his own financial benefit. For example, KELLY transferred at least $2.11 million in investor funds into his personal trading account in the Cayman Islands which he used to trade options. By May 2008, that account had a zero balance. KELLY also used money he received from investors to pay his federal and state personal income taxes. At the same time that he was using investors’ money for his own personal benefit, KELLY falsely told his software development team that he was unable to allocate adequate resources for software development and could do so only when he was able to raise money from investors.
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KELLY, 56, formerly of New York, New York, resides in Raleigh, North Carolina. He is charged with one count of securities fraud and one count of wire fraud, each of which carries a maximum potential penalty of 20 years in prison. In addition, KELLY faces a maximum fine of $5 million or twice the gross gain or loss from the offense for the securities fraud count, and a maximum fine of $250,000 or twice the gross gain or loss from the offense for the wire fraud count.
Mr. Bharara praised the investigative work of the FBI.
The case is being handled by the Office’s Securities and Commodities Fraud Task Force. Assistant U.S. Attorneys Eugene Ingoglia and Chi T. Steve Kwok are in charge of the prosecution.
This case was brought in coordination with President Barack Obama’s Financial Fraud Enforcement Task Force, on which Mr. Bharara serves as a Co-Chair of the Securities and Commodities Fraud Working Group. President Obama established the interagency Financial Fraud Enforcement Task Force to wage an aggressive, coordinated, and proactive effort to investigate and prosecute financial crimes. The task force includes representatives from a broad range of federal agencies, regulatory authorities, inspectors general, and state and local law enforcement who, working together, bring to bear a powerful array of criminal and civil enforcement resources. The task force is working to improve efforts across the federal executive branch, and with state and local partners, to investigate and prosecute significant financial crimes, ensure just and effective punishment for those who perpetrate financial crimes, combat discrimination in the lending and financial markets, and recover proceeds for victims of financial crimes.
The charges contained in the Complaint are merely accusations, and the defendant is presumed innocent unless and until proven guilty