Two People Indicted For $30 Million Dollar Fraud Scheme Involving Blockchain Technology Company
NEWARK, N.J. – An Essex County, New Jersey, woman and a Canadian man were indicted today for their roles in a securities fraud scheme that induced victims to invest $30 million worth of cash and cryptocurrency based on fraudulent misrepresentations, U.S. Attorney Craig Carpenito announced.
Edith Pardo, 68, of Bloomfield, New Jersey, and Boaz Manor, 46, of Toronto, Canada, are each charged with one count of conspiring to commit wire fraud, three counts of wire fraud, and one count of securities fraud in connection with a blockchain technology company. Pardo was arrested today by special agents of the FBI and is scheduled to appear this afternoon before U.S. Magistrate Judge Steven C. Mannion in Newark federal court. Manor remains at large.
According to the indictment:
In 2003, Manor co-founded and managed a hedge fund based in Toronto, Canada. In connection with his work at that hedge fund, Manor pleaded guilty in Canada to one count of transferring monies in breach of trust and one count of disobeying a court order. He was sentenced to four years in prison.
Following his release from prison, Manor founded a business, CG Blockchain Inc., and began creating a product called ComplianceGuard, which was purportedly designed provide hedge funds with a blockchain-based auditing tool. While raising money for CG Blockchain, Manor hid his true identity and criminal past from investors and others by using a variety of aliases, including “Shaun MacDonald.” He also changed his appearance by darkening his hair and growing a beard.
Manor secured a significant portion, if not all, of the initial seed money in CG Blockchain from a close family member. In order to conceal the source of this money, Manor recruited Pardo to act as a conduit for the money. The defendants misrepresented to potential CG Blockchain investors that Pardo was an independently wealthy investor who provided millions of dollars in seed money to CG Blockchain.
The defendants also misrepresented that 20 hedge funds were using ComplianceGuard and were each paying CG Blockchain a $1 million yearly fee. In reality, none of the 20 hedge funds paid fees to CG Blockchain, and many of the hedge funds did not receive or use ComplianceGuard at all.
In 2017, CG Blockchain launched an “Initial Coin Offering” (ICO), and began marketing its new product – “Blockchain Terminal” – to potential investors. CG Blockchain described Blockchain Terminal as a computer terminal that allowed hedge funds and financial institutions to trade and manage cryptocurrency. Manor actively marketed the token to investors, while failing to disclose his true identity or his role at CG Blockchain. The defendants also misrepresented to ICO investors that the Blockchain Terminal had “Actual Clients” and was “installed at 20 hedge funds.”
In 2018, CG Blockchain publicly announced that it had raised $30 million from its ICO. Following the ICO, CG Blockchain investors learned of Manor’s true identity and criminal past. When confronted by an investor, Manor admitted that he had hidden his real identity and criminal past because disclosure of that information would have resulted in “the company being destroyed.”
The conspiracy and wire fraud counts in the indictment carry a maximum potential penalty of 20 years in prison and $250,000 fine, or twice the gross gain or loss from the offense. The securities fraud count carries a potential penalty of 20 years in prison and a $5 million fine.
The U.S. Securities and Exchange Commission (SEC) also filed a civil complaint against Manor and Pardo today based on the same conduct.
U.S. Attorney Craig Carpenito credited special agents of the FBI, under the direction of Special Agent in Charge Gregory W. Ehrie in Newark, with the investigation leading to today’s charges. He also thanked the SEC for the assistance provided by its Enforcement Division.
The government is represented by Assistant U.S. Attorneys Vijay Dewan and Catherine R. Murphy of the U.S. Attorney’s Office Economic Crimes Unit.
The charges and allegations contained in the indictment are merely accusations, and the defendants are presumed innocent unless and until proven guilty.