SEC Lays Charges in US$30 Million Fake Cryptocurrency Scheme

In a case complete with disguises, aliases and a former convict, the US Securities and Exchange Commission (SEC) has charged two people who conducted a fake initial coin offering (ICO) that raised US$30 million.

On Friday (January 17), Boaz Manor, his business associate Edith Pardo and their two businesses, CG Blockchain and BCT, were charged with violating the anti-fraud and securities registration provision of the federal securities laws.

As a part of the charges, the federal agency is aiming to have Manor and Pardo repay the ill-gotten cash plus interest and wants to bar the pair from any future executive roles within public companies.

Manor was previously handed a four year prison term in 2011 following the 2005 collapse of Canadian hedge fund Portus Alternative Asset Management as part of a fraud and money-laundering case.

After he was released, Manor founded CG Blockchain and began to develop ComplianceGuard, a software designed to provide hedge funds with a blockchain-based auditing tool.

The complaint alleges that he and Pardo claimed to have 20 hedge funds that were beta testing ComplianceGuard. However, the defendants merely sent a prototype to a dozen funds; the prototypes were not used or paid for and were only accepted because Manor and Pardo promised the operators assistance in locking down US$200 million of investments into the funds, a condition that was never met.

Manor also failed to disclose his background in his new venture, which the SEC filing indicates involved selling digital assets in order to develop technologies for hedge funds and other investors in digital assets. These activities took place between August 2017 and September 2018.

As per the SEC, Manor darkened his hair, grew a beard and took on the name “Shaun MacDonald,” allegedly telling certain investors that revealing his identity would result in the company’s destruction.

Manor led investors to believe that Pardo was the owner of CG Blockchain, according to the complaint, concealing his role as the true head of the business.

Joseph G. Sansone, chief of the SEC’s Market Abuse Unit, said in a press release that learning the identity of the people behind a venture is a crucial step for investors to ensure their money is in reliable hands.

“As alleged in our complaint, Manor’s brazen scheme to conceal his identity and criminal history deprived investors of essential information and allowed the defendants to take over US$30 million from investors’ pockets,” Sansone added.

Thanks to the Securities Act of 1933, it’s illegal for any individual to sell securities using devices or schemes meant to defraud investors, to obtain funds using an untrue statement or by omitting crucial facts or to engage in “any transaction, practice, or course of business which operates or would operate as a fraud or deceit upon the purchaser.”

In addition to the indictment from the SEC, the US Attorney’s Office for the District of New Jersey filed its own criminal charges on Friday against Manor and Pardo, who is a resident of New Jersey. The state’s case is based on charges of conspiring to and committing wire fraud and committing securities fraud.

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Securities Disclosure: I, Danielle Edwards, hold no direct investment interest in any company mentioned in this article.