We are in one age where investors are tricked into thinking they can become millionaires by sinking their money into cryptocurrency-related companies or platforms.
The FBI says he ran a $59 million crypto Ponzi scam. It was much bigger.
A company called EminiFX claimed it had developed a proprietary trading system that would invest people’s money in cryptocurrency and the foreign exchange markets, also known as forex.
When the Department of Justice and the Commodity Futures Trading Commission filed complaints against a suspected Ponzi scheme by the company, they believed the fraud amounted to $59 million.
But that turned out to be a gross understatement, according to a preliminary report filed by David Castleman, a partner at Raines Feldman in New York, who has been appointed receiver for EminiFX.
The Department of Justice and the Commodity Futures Trading Commission alleged that EminiFX, owned by Eddy Alexandre of New York, was a Ponzi-like scheme that promised participants guaranteed returns of at least 5 percent every single week.
Castleman said his investigation found that $250 million was raised from investors from September 2021 to May 2022 and that there were 62,000 EminiFX user accounts. Emil Bove, a lawyer for Alexandre, did not respond to requests for comment. Alexandre pleaded not guilty, according to the Justice Department.
Based on Castleman’s forensic look at EminiFX, the sophistication of the platform and the production of what appear to be phantom returns is astounding.
This is like no other case I have followed. Thousands of investors, many from Haiti, stand behind Alexandre. Nearly 14,000 EminiFX investors have already signed a change.org petition in support of Haitian-born Alexandre, who many believe is a victim of racist prosecution.
“Together we will fight this,” wrote one signatory. “When will we get a break with this discrimination? I’m sure things would be completely different if we were of a different race.” Another wrote: “The system tells us (blacks) to stick to basketball, football and rap music if we ever want to get out of poverty.”
Several investors I interviewed are convinced that the profits they saw in their online accounts from Alexandre were real. “He gave it to you every week,” said Markens Nicolas, who helped start the change.org petition. “So that makes it more believable.”
This is how the platform worked, according to the investigation. EminiFX users deposited cash or cryptocurrency into the system. There was a multi-level marketing aspect to the platform where people could earn bonuses for recruiting others. Account balances were shown in US dollars. Investors maintained funds in their “e-wallets” used for deposits or “trading wallets.”
“Each Friday, a weekly ‘ROI’ or return on investment of between 5 percent and 9.99 percent was applied to each EminiFX user’s account balance, the same return for all users,” the report said.
Information from the EminiFX system showed positive returns every week, from a low of 5.01 percent to a high of 9.99 percent. “I have not found any investment activity to support these returns,” Castleman said in an interview.
An investor who deposited $10,000 in cash on Oct. 15 and chose to reinvest the assumed return in a trading wallet would have seen an account balance of more than $77,000 when the company shut down in May 2022, Castleman’s report indicated. That would be an extraordinary and highly improbable return in such a short time.
Castleman’s investigation found over 22,000 withdrawal transactions from the EminiFX platform totaling nearly $35 million between November 2021 and May 2022. However, much more money was flowing into the operation. If the company took in more than $250 million, this could explain how investors never realized their gains weren’t real.
“Many users appear to have never withdrawn or redeemed funds,” according to Castleman’s report to the court. Typically, a Ponzi scheme involves people not being paid from investment returns, but from money raised from other investors.
After investigating all possible investment activities, Castleman said he was unable to trace how the weekly returns spent on EminiFX user accounts were generated. He was unable to find any evidence of the existence of the proprietary trading system referred to as a Robo Assisted Adviser Account, or RA3, in any EminiFX file or anywhere in the code base.
The report said none of the former employees understood how the weekly return on investment was earned, what RA3 was, or how it worked. When Castleman took over the platform, the total balance of all trading wallets was reportedly around $512 million.
But he could only find assets worth about $170 million. Included in this total are more than 3,650 bitcoins located in a cryptocurrency exchange in Estonia worth more than $85 million based on the July 20 trading price.
However, bitcoin’s price volatility from November 2021 to May 2022 could not have resulted in the consistently positive weekly returns applied to the EminiFX user accounts. The price of bitcoin fell sharply during a sell-off in the stock market.
There was some trading going on, but it was in Alexandre’s personal brokerage account. The documents show Alexandre invested $9 million, “almost exclusively in funds clearly traceable to EminiFX company accounts,” Castleman reported. And even then, Alexandre’s personal trading resulted in over $7 million in losses – not the healthy profits he kept claiming — when a receiver was appointed.
The Receiver has shut down the EminiFX website and operations and has liquidated all assets. A dedicated website, eminifxreceivership.com, which is in English and French, has been set up to keep investors informed and ultimately set up a claims process.
Although Alexandre has yet to go to trial, for the tens of thousands of people who put their faith in him, the hope of getting rich by investing with EminiFX is not going to happen.
“Most of the investors are concerned that their money is being held by a housing association they don’t trust,” Nicolas said.
