The head trader of EmpiresX pled guilty to conspiracy to commit securities fraud. The charges involve leading a crypto fraud scheme across international borders—one that led to about $100 million in losses for investors who are now encouraged to let the DOJ know about how they were injured. The DOJ remains committed to combating all types of crypto fraud.
Facts Behind the Ponzi Scheme
According to a DOJ press release, the head trader of EmpiresX pled guilty to conspiracy to commit securities fraud regarding “a global cryptocurrency-based Ponzi scheme that took in approximately $100 million from investors.” This case was even mentioned on the DOJ’s Criminal Division’s Twitter account. In a tweet, the DOJ wrote,
Mr. Joshua David Nicholas—28 years old—was the head trader of EmpiresX. His scheme—to which he admitted to—involved making fraudulent statements to promote EmpiresX. These misrepresentations involved a proprietary trading bot and fraudulent guaranteed returns. The false statements were made to investors/prosecutive investors to attract them to the company.
One of the issues, in this case, involved the company’s trading bot. Nicholas and his co-conspirators told the public that the trading bot used artificial and human intelligence to maximize the profits that investors could generate.
However, this was far from the truth. Instead of guaranteeing investors high returns, EmpiresX operated a Ponzi scheme in a traditional sense—”by paying earlier investors with money obtained from later EmpiresX investors.”
Further, despite representations made, EmpiresX never registered nor attempted to register its investment program as a “security” with the Commission. Neither did the company qualify for an exemption from registration.
The Pleas and Next Steps for the Victims
Nicholas pled guilty to one count of conspiracy to commit securities fraud. He faces a maximum imprisonment term of five years, though the sentencing date has not been scheduled as of yet.
The investors lured to the EmpiresX scheme are encouraged—as clearly mentioned on the DOJ’s press release—to visit a crypto enforcement DOJ website, read and follow the information on the page, and complete a Victim Impact Statement for the case. This Statement should describe how they and their family members have been affected by this crime.
An Increase in Crypto-Related Investigations
This case is significant because it was one of four cases that the DOJ brought against six individuals in July in four crypto cases.
These cases all represent different kinds of crypto-related fraud, including, according to the DOJ press release, “the largest known Non-Fungible Token (NFT) scheme charged to date, a fraudulent investment fund that purportedly traded on cryptocurrency exchanges, a global Ponzi scheme involving the sale of unregistered crypto securities, and a fraudulent initial coin offering,” the Ponzi scheme of which refers to the fraud perpetrated by EmpiresX.
The attorneys prosecuting the cases indeed voiced their opinions. Assistant Attorney General Kenneth A. Polite, Jr. of the Justice Department’s Criminal Division made clear that the focus of the DOJ is on protecting individuals against bad actors:
The Department of Justice and our partners are dedicated to using every available tool to protect consumers and investors from fraud and manipulation . . . . These indictments reflect our deep commitment to prosecuting individuals involved in cryptocurrency fraud and market manipulation.
U.S. Attorney Juan Antonio Gonzalez for the Southern District of Florida continued this overall position of the Justice Department by adding that new technologies will not be exempt from the law and that crypto-related fraud will be rooted out:
Our office is committed to protecting investors from sophisticated scammers seeking to capitalize on the relative novelty of digital currency . . . . As with any emerging technology, those who invest in cryptocurrency must beware of profit-making opportunities that appear too good to be true.
The DOJ will not waste any time investigating and prosecuting individuals and entities for violations of federal law involving crypto projects. Its investigation against the head trader of EmpiresX demonstrates this position. In addition to its study against the head trader—Nicholas—the DOJ had quite a busy July, which involved charges against six individuals in four different crypto fraud cases. Its arsenal of tools to investigate crypto fraud will likely increase.