Portfolio Manager of "A.I." Investment Fund Arrested for Stealing Fund Assets

Earlier today, at the federal court in Brooklyn, an indictment was unsealed charging Kanen Flowers with securities fraud, wire fraud and money laundering.  He was arrested this morning in Tucson, Arizona and will be removed to the Eastern District of New York, at which time he will be arraigned on the indictment.

Breon Peace, United States Attorney for the Eastern District of New York and James E. Dennehy, Assistant Director in Charge, Federal Bureau of Investigation, New York Field Office (FBI) announced the charges.

“Flowers is charged with shamelessly lying to investors to get their money and capitalizing on disruptions in the cryptocurrency market to hide the fact that he had pilfered investor funds for his own benefit,” stated United States Attorney Peace.  “Be it through crypto or traditional banking, my Office is committed to rooting out fraud and protecting our investing public.”

“As alleged, Kanen Flowers masqueraded the true composition of his fund to deceive and steal from his investors before diverting the misappropriated assets for personal use. The alleged scheme Flowers engaged in manipulated the good faith placed upon him to selfishly pocket substantial amounts of investments. The FBI will continue to dismantle all fraudulent conspiracies to ensure invested monies are duly managed,” stated FBI Assistant Director in Charge Dennehy.

As alleged in the indictment, from 2020 to 2023, Flowers was the Portfolio Manager of an “A.I.” fund that used “proprietary algorithms to actively trade long and short positions” (the “Fund”).  He lied to investors and potential investors about the size of the Fund—claiming it was worth billions of dollars when it never had more than approximately $3.5 million in assets under management.  He lied to investors and potential investors about the Fund’s diversification efforts—claiming it was trading in equal parts futures, equities and cryptocurrency, when just months after its formation it was trading more than 50% cryptocurrency and, later, entirely cryptocurrency.  And he lied to investors about his alleged inability to liquidate the Fund when it ultimately shuttered—claiming cryptocurrency lenders and exchanges were capping withdrawals or had even confiscated Fund assets, when in fact Flowers had largely emptied the Fund’s accounts at those cryptocurrency lenders and exchanges months prior.

As further alleged in the indictment, Flowers stole Fund assets.  Among other things, in October 2021, he used $70,000 worth of cryptocurrency from a Fund account to pay off a personal loan.  Between December 2021 and January 2022, he transferred more than $200,000 worth of the Fund’s cryptocurrency to himself.  And in January 2022, he caused the Fund to purchase a non-fungible token or NFT for over $100,000, which he then kept.

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 plays a key role in making recommendations to the AGAC to facilitate the prevention, investigation and prosecution of various financially motivated, non-violent crimes including securities fraud, wire fraud and money laundering, as charged here.

The charges in the indictment are merely allegations and the defendant is presumed innocent unless and until proven guilty. If convicted of securities fraud and wire fraud, Flowers faces a 20-year statutory maximum sentence. If convicted of money laundering, Flowers faces a 10-year statutory maximum sentence.

The government’s case is being handled by the Office’s Business and Securities Fraud Section.  Assistant United States Attorney Tara McGrath is in charge of the prosecution, with the assistance of Paralegal Specialist Liam McNett.

The Defendant:

KANEN FLOWERS
Age:  54
Atlanta, Georgia

E.D.N.Y. Docket No. 24-CR-458