Software Company Ceo Pleads Guilty In Manhattan Federal Court To $2 Million Securities Fraud Scheme
Preet Bharara, the United States Attorney for the Southern District of New York, announced that ROBERT KELLY, the Chief Executive Officer of Wwebnet, Inc. (“Wwebnet”), a software development company, pled guilty today in Manhattan federal court to securities and wire fraud charges. KELLY 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 or other legitimate business expenses. KELLY was originally charged in September 2012, and he pled guilty today before United States District Judge Paul A. Crotty.
Manhattan U.S. Attorney Preet Bharara stated: “Robert Kelly took more than $2 million of investor money, obtained through promises that it would be invested in his company’s new technology and in growing the business, and instead, used it to make unsuccessful options trades and to pay for his own personal income taxes. With today’s plea, Kelly has admitted to stealing and spending innocent investors’ money.”
According to the charging documents and related court proceedings:
From 2004 through November 2008, KELLY solicited investors to send money to Wwebnet, Inc., and related companies 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 million in investor funds into his personal trading account in the Cayman Islands, which he used to make a series of unsuccessful options trades. KELLY also used nearly $100,000 that 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. As a result, Wwebnet lacked the necessary funds to develop its core product and the company ultimately failed.
KELLY, 57, formerly of New York, New York, resides in Raleigh, North Carolina. He pled guilty to one count of securities fraud and one count of wire fraud, which together carry a total maximum term of 40 years in prison. KELLY also agreed to forfeit $2,111,600 and, separately, pay $2,111,600 in restitution. The sentencing before U.S. District Judge Paul A. Crotty is scheduled for July 17, 2014, at 3:00 p.m. The maximum potential sentence is prescribed by Congress and is provided here for informational purposes only, as any sentencing of the defendant will be determined by the judge.
Mr. Bharara praised the investigative work of the Federal Bureau of Investigation and also thanked the Securities and Exchange Commission for its assistance.
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. The task force was established to wage an aggressive, coordinated and proactive effort to investigate and prosecute financial crimes. With more than 20 federal agencies, 94 U.S. Attorneys’ offices and state and local partners, it’s the broadest coalition of law enforcement, investigatory and regulatory agencies ever assembled to combat fraud. Since its formation, the task force has made great strides in facilitating increased investigation and prosecution of financial crimes; enhancing coordination and cooperation among federal, state and local authorities; addressing discrimination in the lending and financial markets and conducting outreach to the public, victims, financial institutions and other organizations. Over the past three fiscal years, the Justice Department has filed nearly 10,000 financial fraud cases against nearly 15,000 defendants including more than 2,900 mortgage fraud defendants. For more information on the task force, please visit www.StopFraud.gov.
The case is being handled by the Office’s Securities and Commodities Fraud Task Force. Assistant U.S. Attorneys Benjamin Naftalis and Zachary Feingold are in charge of the prosecution.