Joshua David Nicholas pleads guilty to securities fraud in the crypto trading scam, which cost investors more than $40 million by promising guaranteed profits from an AI trading bot.
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Crypto Ponzi schemer Joshua David Nicholas has been sentenced to four years in federal prison following a guilty plea in the EmpiresX cryptocurrency platform scam.
The Department of Justice obtained the 51-month sentence for Nicholas, whom prosecutors called the key figure in the fraud, which inflicted losses of more than $41 million on retail investors. Nicholas and two alleged co-conspirators, Emerson Pires and Flavio Goncalves, reaped a total of about $100 million, they said.
As "head trader" of EmpiresX, "Nicholas admitted that he and others fraudulently promoted it by making numerous misrepresentations regarding, among other things, a purported proprietary trading bot and fraudulent 'guaranteed' returns to investors and prospective investors in the company," the DoJ said in September, when he pled guilty to conspiracy to commit securities fraud.
An artificial intelligence (AI) powered trading bot — as well as the company's traders' skills — would generate guaranteed returns for EmpiresX investors, they were told.
Instead, "Pires and Goncalves then laundered investors' funds through a foreign-based cryptocurrency exchange" and the trio paid old investors with funds provided by new ones, the DoJ alleged.
Calling them "sophisticated scammers seeking to capitalize on the relative novelty of digital currency," United States Attorney Juan Antonio Gonzalez said:
"As with any emerging technology, those who invest in cryptocurrency must beware of profit-making opportunities that appear too good to be true."
Tha said, EmpiresX was hardly the largest crypto Ponzi scheme. At least three, OneCoin, PlusToken and BitConnect — made famous by John Oliver on Last Week Tonight — reaped a total of $12.3 billion.
Fake Trading Bots and MLM
In June the U.S. Securities and Exchange Commission (SEC) and Commodity Futures Trading Commission (CFTC) also filed simultaneous lawsuits against the trio, alleging they amassed $41.6 million from 12,500 investors. That included 2,300 from the U.S., who invested $14.3 million.
Of that, only $1 million was ever deposited into trading accounts and used to invest in crypto futures and options, the CFTC alleged. The scheme ran from September 2020 until November 2021, when they stopped honoring withdrawal requests, it added.
The three "advertised that participants that contributed funds to the EmpiresX pools could, at the participants' election, be placed in a [commodity interest] pool directly managed by EmpiresX's head trader Nicholas, or in a pool traded by an auto-trader system" which did not exist, the agency alleged in its filing. It added:
"In addition, as part of their solicitation efforts, Defendants advertised EmpiresX as a multi-level marketing scheme that would reward participants for inducing others to send money to the EmpiresX pools and recruited promoters to produce and distribute video solicitations to prospective participants."
The trio "misappropriated" $5 million for things like a leased Lamborghini, shopping at Tiffany & Co. and buying property, the SEC alleged in June. It added:
"To assure investors of the safety of their investments, the defendants allegedly falsely told investors that EmpiresX had filed paperwork with the SEC to register as a hedge fund… [and] touted Nicholas as a licensed trader while concealing he was suspended by the National Futures Association from trading for misappropriating customer funds."
