Founder and Majority Owner of Cryptocurrency Exchange Pleads Guilty to Unlicensed Money Transmitting
A two-count indictment was unsealed today in federal court in Central Islip charging four men with conspiracy to commit securities fraud and money laundering conspiracy in connection with a scheme to steal millions of dollars from a global financial services company based in Menlo Park, California. The charges arise from a wide-ranging scheme by the defendants to create hundreds of sham brokerage accounts in order to access short-term cash advances which the defendants then stole through a complex options trading scheme. In total, the defendants recruited dozens of individuals to engage in their fraudulent scheme and stole more than $2 million.
Eduardo Hernandez was arrested today in Atlantic City, New Jersey and will be arraigned this afternoon in federal court in Brooklyn before United States Magistrate Judge Lois Bloom. Christopher Flagg and Daquan Lloyd were arrested earlier today on Long Island and will be arraigned this afternoon in federal court in Central Islip before United States District Judge Gary R. Brown. The fourth defendant, Corey Ortiz, remains at large.
Breon Peace, United States Attorney for the Eastern District of New York and James Smith, Assistant Director-in-Charge, Federal Bureau of Investigation, New York Field Office (FBI) announced the arrests and charges.
“The defendants are charged with stealing millions of dollars by creating fraudulent brokerage accounts and engaging in sham trading,” stated United States Attorney Peace. “For years, the defendants deceived others to line their own pockets. Today’s indictment shows that this Office will hold accountable anyone who tries to manipulate the financial system.”
U.S. Attorney Peace thanked the Securities and Exchange Commission for their assistance with the case.
“The defendants allegedly engaged in a sprawling multiyear complex financial fraud scheme, which saw more than 2 million dollars stolen. This type of scam is not only illegal, but weakens the public’s faith in our financial marketplace. The FBI will continue to ensure that anyone attempting to benefit from this type of fraud is punished in the criminal justice system,” said FBI Assistant Director-in-Charge Smith.
As alleged in the indictment, between 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.
The charges in the indictment are allegations, and the defendants are presumed innocent unless and until proven guilty. If convicted, the defendants face up to 25 years in prison.
In July 2022, Mr. Peace was selected as the Chairperson of the White Collar Fraud subcommittee for the Attorney General’s Advisory Committee (AGAC). As the leader of the subcommittee, Mr. Peace will play a key role in making recommendations to the AGAC to facilitate the prevention, investigation and prosecution of various financially motivated, non-violent crimes including mail and wire fraud, bank fraud, health care fraud, tax fraud, securities and commodities fraud, and identity theft.
The government’s case is being handled by the Business and Securities Fraud Section. Assistant United States Attorneys Jonathan P. Lax and Sara K. Winik are in charge of the prosecution with the assistance of Paralegal Specialist Jake Menz.
E.D.N.Y. Docket No. 23-CR-428 (GRB)
Danielle Blustein Hass
U.S. Attorney's Office