Head trader of alleged Ponzi scheme in US pleads guilty to securities fraud

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Prosecutors from the United States Justice Department have obtained a guilty plea from a Florida man charged with conspiracy to commit securities fraud. Joshua David Nicholas, 28, was calling the shots on EmpiresX, a platform that claimed to offer “guaranteed returns to investors.”

The scheme led to losses exceeding $100 million from unsuspecting investors within two years of operations, authorities said. Information obtained from court documents revealed that Nicholas and his co-founders allegedly misappropriated investors’ funds to lease a Lamborghini, make payments on a second home, and splurge on several luxury items.

Investors were roped into the fraud through EmpiresX’s claims that they used state-of-the-art bots to make profitable trades, complemented by expert human traders. Lured by the guarantee of daily profits, hundreds of investors sunk in funds, which Nicholas used to pay other investors. Investigations revealed that there was no advanced trading bot and the few trades resulted in massive losses.

Apart from running a Ponzi scheme, the Justice Department noted that EmpiresX was never registered nor took steps to be registered with the Securities and Exchange Commission (SEC). Nicholas faces up to five years in federal prison and will be sentenced at a later date.

“This case should serve as a warning to any individuals who look to illegally capitalize on the perceived ambiguity of the crypto market to take advantage of innocent investors,” said Anthony Salisbury, a special agent from Homeland Security Investigations.

Emerson Sousa Pires and Flavio Mendes Goncalves, co-founders of EmpiresX, evaded arrest by fleeing to Brazil. Nevertheless, they were slammed with conspiracy charges to commit international money laundering and wire fraud.

US SEC’s attempts to regulate the space

The U.S. securities regulator has increased its surveillance over the fledgling digital assets industry with the protection of investors as a core reason, even outside Ponzi schemes. To achieve this, the Gary Gensler-led commission has claimed that a large number of digital assets are securities, and firms engaged in their offerings must be registered with the commission.

Despite the seemingly noble goals of the SEC, industry participants believe the securities watchdog is adopting the wrong strategies. They cite the lack of information specifying the firms that should be registered and the arbitrary lawsuits slammed on companies for failing to register.

The long-running legal debacle with Ripple Labs since 2020 and the threat to sue Coinbase (NASDAQ: COIN) over its proposed lending product are examples of the Commission’s attempt to control the industry.

Follow CoinGeek’s Crypto Crime Cartel series, which delves into the stream of groups from BitMEX to Binance, Bitcoin.com, Blockstream, ShapeShift, Coinbase, Ripple, 
Ethereum, FTX and Tether—who have co-opted the digital asset revolution and turned the industry into a minefield for naïve (and even experienced) players in the market.