EmpiresX and its executives have been sued by the SEC for $40 million in securities fraud.
Along with being fraudulent, Defendants’ provides and gross sales of EmpiresX securities violated the registration provisions of the federal securities legal guidelines.
The SEC brings this lawsuit to carry Defendants accountable for their fraud
The SEC’s lawsuit was filed on June thirtieth. EmpiresX, founders Emerson Pires and Flavio Goncalves, and head dealer Joshua David are named as defendants.
BehindMLM reviewed and recognized EmpiresX as a 1% a day Ponzi scheme in June 2021.
The SEC’s grievance reaffirms our findings;
Defendants lured traders with claims of “exponential” earnings, anticipated funding returns of 1% per day, and the prospect of creating hundreds of thousands of {dollars} “in a matter of months.”
Defendants instructed traders that EmpiresX would generate these outsized returns both by way of a proprietary buying and selling “bot” or by guide buying and selling carried out by Defendant Nicholas.
However these statements had been lies.
In actuality, the bot was pretend, Defendants traded solely a fraction of the funds they took from traders, and that restricted buying and selling didn’t earn wherever close to the anticipated returns Defendants touted to traders.
Empires Consulting Corp is a shell firm included in Florida in 2020.
Emerson Sousa Pires and Flavio Mendes Goncalves are EmpiresX’s co-founders. The pair are Brazilian residents.
Pires and Goncalves had been residing in Florida until they discovered of the SEC’s investigation into EmpiresX. They then fled to Brazil.
Joshua David Nicholas is a US citizen and resident of Florida. He’s credited as EmpiresX’s head dealer.
Like each MLM Ponzi scheme, EmpiresX’s founders had been the first beneficiaries of the rip-off.
Defendants misappropriated massive sums of traders’ cash for private makes use of equivalent to luxurious automobiles, actual property, and journey.
Pires diverted investor funds for private expenditures together with the next: $300,000 in journey bills, $250,000 in house renovations,
$125,000 for a down fee on one other house, $70,000 for the lease down fee for a Lamborghini Urus, $47,000 in attire, $33,000 in meals and groceries, $19,000 in mortgage funds, and $15,000 in house décor.Pires additionally paid practically $358,000 to a different firm he manages, and transferred over $250,000 to himself, relations, and associates.
Goncalves acquired at the very least $421,000 of investor funds, and his relations acquired at the very least an extra $99,000.
Goncalves used the investor cash for private makes use of together with the next: $69,000 at luxurious accommodations, $43,285 in lease funds for a Ferrari 488 GTB, $7,000 to Jaguar Land Rover, $3,000 to Tiffany & Co., and on different private expenditures, together with grocery procuring and a gymnasium membership.
In lower than one yr, between Might 2021 and April 2022, Nicholas acquired at the very least $289,000 of investor funds, which he likewise spent on private makes use of.
There’s a bit to unpack within the SEC’s Grievance so I’ll group factors of curiosity in related headings beneath.
EmpiresX’s buying and selling bot didn’t exist
The “go-to ruse” for MLM crypto Ponzis is having a buying and selling bot.
To that finish EmpiresX represented “Exbot” was producing associates 1% a day on invested funds.
Pires instructed traders that they and EmpiresX would interact in revenue sharing, with EmpiresX receiving 20% of the traders’ returns and traders retaining the remaining 80%.
In varied Zoom conferences with traders and potential traders, Defendants falsely represented that the Exbot was related to EmpiresX’s on-line account at Brokerage Agency A and confirmed the Exbot purportedly actively buying and selling in that account.
The representations Defendants made to traders in regards to the Exbot had been lies.
The bot was not related to an EmpiresX account at Brokerage Agency A. In actual fact, EmpiresX didn’t even have an account at Brokerage Agency A.
And, with none precise buying and selling by the Exbot, the 1% day by day returns had been fictitious.
In actuality, the web Brokerage Agency A account proven to traders throughout dwell Zoom conferences was pretend.
Unbeknownst to traders, the Brokerage Agency A on-line account proven to traders was really a web site registered to an organization owned by Goncalves, which was designed to simulate an precise on-line account at Brokerage Agency A.
Joshua Nicholas was horrible at buying and selling
The opposite buying and selling ruse EmpiresX pushed out was Joshua Nicholas purportedly being a “grasp dealer”.
Goncalves and Nicholas confirmed traders EmpiresX’s funding efficiency as mirrored in a web based account at one other main U.S. brokerage (“Brokerage Agency B”) belonging to EmpiresX.
Goncalves and Nicholas referred to the account as a “hedge fund” whose earnings had been derived from Nicholas’s collection of investments and timing of trades.
Nicholas claimed that the buying and selling ends in EmpiresX’s account at Brokerage Agency B outperformed the market. Pires added that it doesn’t matter what occurs to the market, EmpiresX nonetheless supplies “wonderful earnings.”
As with the Exbot, Defendants’ representations in regards to the non-public investments’ efficiency had been lies.
A lot of the funds within the account weren’t earnings, however as an alternative had been roughly $1 million of pooled investor funds that EmpiresX deposited into the account between April 16, 2021 and June 4, 2021.
In actuality, no matter guide buying and selling Nicholas really carried out didn’t generate 1% day by day earnings. In actual fact, a lot of Nicholas’s buying and selling resulted in vital losses.
By early 2022, Nicholas’s buying and selling had misplaced practically the entire cash within the account.
BehindMLM uncovered Joshua Nicholas’ NFA suspension and buying and selling ban in July 2021.
That is additionally introduced up within the SEC’s Grievance;
Defendants touted to traders Nicholas’s background, buying and selling expertise, and securities licenses, but didn’t disclose Nicholas’s disciplinary historical past.
Solely after on-line blogs publicized Nicholas’ disciplinary historical past, Nicholas acknowledged his NFA suspension in a July 30, 2021 Zoom assembly with traders.
However, in subsequent investor conferences, Defendants would proceed to advertise Nicholas’s buying and selling experience with out mentioning his suspension.
bUt I’m GeTtInG pAiD!
That is the truth for everybody in an MLM Ponzi scheme who thinks backoffice numbers means they’re getting paid:
For each the Exbot and personal traders, Defendants used EmpiresX’s again workplace to materially and knowingly misrepresent the traders’ account balances.
These on-line accounts purportedly confirmed traders their day by day earnings and commissions earned, which led traders to imagine they had been getting cash from their investments and recruitment of different traders.
Such representations led traders to reinvest their “earnings,” thereby delaying the time when EmpiresX must pay traders their proceeds.
Numerous traders additionally invested recent funds or recruited new traders based mostly on the earnings they believed had been generated by their authentic investments.
In actual fact, the investor account balances had been fictional and EmpiresX stopped honoring investor withdrawal requests after November 2021.
EmpiresX by no means filed something with the SEC
In an effort to distract from not too long ago imposed withdrawal restrictions, in October 2021 EmpiresX introduced it had filed an “SEC license request”.
The SEC confirms this was baloney;
Defendants falsely instructed traders that EmpiresX had filed paperwork with the SEC to register as a hedge fund, and directed traders to the filings of an unaffiliated hedge fund with a reputation much like EmpiresX that really had registered with the SEC.
On a September 9, 2021 Zoom name, Nicholas confirmed traders a “Prospectus” for a purported hedge fund managed by Empires X, which might subject roughly 80 million shares at a worth of $25 per share.
Nicholas said that this Prospectus can be filed with the SEC as quickly as EmpiresX reached $100 million in property underneath administration, which Nicholas advised to traders would happen within the coming days.
Throughout that very same presentation, Nicholas additionally confirmed traders contract paperwork that he claimed can be filed with the SEC.
Nicholas concluded the presentation by exhibiting an official-looking SEC doc – which was really a SEC cease-and-desist order issued in opposition to an unrelated entity – and falsely said that after the SEC completed its assessment of EmpiresX’s paperwork, the SEC would subject the same doc “verifying the whole lot that we have already got created.”
In an October 11, 2021 Zoom assembly with traders, Pires and Nicholas falsely instructed traders that EmpiresX had filed paperwork with the SEC, that the SEC offered suggestions, and that EmpiresX had made a revised submitting with the SEC.
In an October 21, 2021 Zoom assembly with traders, Goncalves equally lied by stating that EmpiresX made a revised submitting with the SEC.
Goncalves added that he was “fairly positive” that EmpiresX would obtain “SEC approval.”
Nicholas additionally lied to traders about EmpiresX’s SEC registration standing by directing them to the SEC filings of an unrelated firm with the same sounding title that contained the time period “EmpireX.”
Particularly, within the October 11, 2021 Zoom assembly, Nicholas instructed traders that they may examine the standing of EmpiresX’s submitting with the SEC by going to sec.gov, trying to find “EmpiresX,” and see the paperwork EmpiresX had filed.
After studying that EmpiresX was improperly directing traders to its SEC filings, the true filer with the same title issued a press launch that “den[ied] the statements of the … firm ‘EmpiresX’ which has been illegally utilizing our Title, Handle, and Monetary License from the US to deceive individuals worldwide with fraudulent funding operations.”
The SEC by no means acquired any registration paperwork or submitting from, and by no means offered suggestions or options to, EmpiresX.
EmpiresX’s collapse
Following a month and a half of withdrawal non-payment, BehindMLM known as EmpiresX’s collapse on December 1st, 2021.
This was precipitated by Pires and Goncalves studying US authorities had opened an investigation into them.
After receiving subpoenas as a part of the SEC’s investigation, Pires and Goncalves started winding down EmpiresX’s operations within the
United States.On info and perception, they’ve relocated to Brazil, the place they’re each residents.
And that’s the place issues have stood, up till the SEC filed swimsuit on June thirtieth.
Wanting ahead…
The SEC’s lawsuit ranges seven counts of securities fraud in opposition to the EmpiresX defendants.
The regulator additionally seeks a everlasting injunction, disgorgement of ill-gotten positive factors and a civil penalty.
The CFTC has concurrently filed its personal civil lawsuit in opposition to EmpiresX, Pires, Goncalves and David.
The trio have additionally been indicted on associated prison prices.
BehindMLM’s protection of each the CFTC’s civil lawsuit and EmpiresX prison prices is pending.