EmpiresX and its executives have been sued by the SEC for $40 million in securities fraud.
In addition to being fraudulent, Defendants’ offers and sales of EmpiresX securities violated the registration provisions of the federal securities laws.
The SEC brings this lawsuit to hold Defendants responsible for their fraud
The SEC’s lawsuit was filed on June 30th. EmpiresX, founders Emerson Pires and Flavio Goncalves, and head trader Joshua David are named as defendants.
BehindMLM reviewed and identified EmpiresX as a 1% a day Ponzi scheme in June 2021.
The SEC’s complaint reaffirms our findings;
Defendants lured investors with claims of “exponential” profits, expected investment returns of 1% per day, and the prospect of making millions of dollars “in a matter of months.”
Defendants told investors that EmpiresX would generate these outsized returns either through a proprietary trading “bot” or by manual trading performed by Defendant Nicholas.
But these statements were lies.
In reality, the bot was fake, Defendants traded only a fraction of the funds they took from investors, and that limited trading failed to earn anywhere near the expected returns Defendants touted to investors.
Empires Consulting Corp is a shell company incorporated in Florida in 2020.
Emerson Sousa Pires and Flavio Mendes Goncalves are EmpiresX’s co-founders. The pair are Brazilian citizens.
Pires and Goncalves were residing in Florida till they learned of the SEC’s investigation into EmpiresX. They then fled to Brazil.
Joshua David Nicholas is a US citizen and resident of Florida. He is credited as EmpiresX’s head trader.
Like every MLM Ponzi scheme, EmpiresX’s founders were the primary beneficiaries of the scam.
Defendants misappropriated large sums of investors’ money for personal uses such as luxury cars, real estate, and travel.
Pires diverted investor funds for personal expenditures including the following: $300,000 in travel expenses, $250,000 in home renovations,
$125,000 for a down payment on another home, $70,000 for the lease down payment for a Lamborghini Urus, $47,000 in apparel, $33,000 in meals and groceries, $19,000 in mortgage payments, and $15,000 in home décor.Pires also paid nearly $358,000 to another company he manages, and transferred over $250,000 to himself, relatives, and associates.
Goncalves received at least $421,000 of investor funds, and his relatives received at least an additional $99,000.
Goncalves used the investor money for personal uses including the following: $69,000 at luxury hotels, $43,285 in lease payments for a Ferrari 488 GTB, $7,000 to Jaguar Land Rover, $3,000 to Tiffany & Co., and on other personal expenditures, including grocery shopping and a gym membership.
In less than one year, between May 2021 and April 2022, Nicholas received at least $289,000 of investor funds, which he likewise spent on personal uses.
There’s a bit to unpack in the SEC’s Complaint so I’ll group points of interest in relevant headings below.
EmpiresX’s trading bot didn’t exist
The “go-to ruse” for MLM crypto Ponzis is having a trading bot.
To that end EmpiresX represented “Exbot” was generating affiliates 1% a day on invested funds.
Pires told investors that they and EmpiresX would engage in profit sharing, with EmpiresX receiving 20% of the investors’ returns and investors retaining the remaining 80%.
In various Zoom meetings with investors and prospective investors, Defendants falsely represented that the Exbot was connected to EmpiresX’s online account at Brokerage Firm A and showed the Exbot purportedly actively trading in that account.
The representations Defendants made to investors about the Exbot were lies.
The bot was not connected to an EmpiresX account at Brokerage Firm A. In fact, EmpiresX did not even have an account at Brokerage Firm A.
And, without any actual trading by the Exbot, the 1% daily returns were fictitious.
In reality, the online Brokerage Firm A account shown to investors during live Zoom meetings was fake.
Unbeknownst to investors, the Brokerage Firm A online account shown to investors was actually a website registered to a company owned by Goncalves, which was designed to simulate an actual online account at Brokerage Firm A.
Joshua Nicholas was terrible at trading
The other trading ruse EmpiresX pushed out was Joshua Nicholas purportedly being a “master trader”.
Goncalves and Nicholas showed investors EmpiresX’s investment performance as reflected in an online account at another major U.S. brokerage (“Brokerage Firm B”) belonging to EmpiresX.
Goncalves and Nicholas referred to the account as a “hedge fund” whose profits were derived from Nicholas’s selection of investments and timing of trades.
Nicholas claimed that the trading results in EmpiresX’s account at Brokerage Firm B outperformed the market. Pires added that no matter what happens to the market, EmpiresX still provides “amazing profits.”
As with the Exbot, Defendants’ representations about the private investments’ performance were lies.
Most of the funds in the account were not profits, but instead were approximately $1 million of pooled investor funds that EmpiresX deposited into the account between April 16, 2021 and June 4, 2021.
In reality, whatever manual trading Nicholas actually performed did not generate 1% daily profits. In fact, much of Nicholas’s trading resulted in significant losses.
By early 2022, Nicholas’s trading had lost nearly all of the money in the account.
BehindMLM uncovered Joshua Nicholas’ NFA suspension and trading ban in July 2021.
This is also brought up in the SEC’s Complaint;
Defendants touted to investors Nicholas’s background, trading experience, and securities licenses, yet failed to disclose Nicholas’s disciplinary history.
Only after online blogs publicized Nicholas’ disciplinary history, Nicholas acknowledged his NFA suspension in a July 30, 2021 Zoom meeting with investors.
Nevertheless, in subsequent investor meetings, Defendants would continue to promote Nicholas’s trading expertise without mentioning his suspension.
bUt I’m GeTtInG pAiD!
This is the reality for everyone in an MLM Ponzi scheme who thinks backoffice numbers means they’re getting paid:
For both the Exbot and private investors, Defendants used EmpiresX’s back office to materially and knowingly misrepresent the investors’ account balances.
Those online accounts purportedly showed investors their daily profits and commissions earned, which led investors to believe they were making money from their investments and recruitment of other investors.
Such representations led investors to reinvest their “profits,” thereby delaying the time when EmpiresX would have to pay investors their proceeds.
Various investors also invested fresh funds or recruited new investors based on the profits they believed were generated by their original investments.
In fact, the investor account balances were fictional and EmpiresX stopped honoring investor withdrawal requests after November 2021.
EmpiresX never filed anything with the SEC
In an effort to distract from recently imposed withdrawal restrictions, in October 2021 EmpiresX announced it had filed an “SEC license request”.
The SEC confirms this was baloney;
Defendants falsely told investors that EmpiresX had filed paperwork with the SEC to register as a hedge fund, and directed investors to the filings of an unaffiliated hedge fund with a name similar to EmpiresX that actually had registered with the SEC.
On a September 9, 2021 Zoom call, Nicholas showed investors a “Prospectus” for a purported hedge fund controlled by Empires X, which would issue approximately 80 million shares at a price of $25 per share.
Nicholas stated that this Prospectus would be filed with the SEC as soon as EmpiresX reached $100 million in assets under management, which Nicholas suggested to investors would occur in the coming days.
During that same presentation, Nicholas also showed investors contract documents that he claimed would be filed with the SEC.
Nicholas concluded the presentation by showing an official-looking SEC document – which was actually a SEC cease-and-desist order issued against an unrelated entity – and falsely stated that after the SEC finished its review of EmpiresX’s paperwork, the SEC would issue a similar document “verifying everything that we already have created.”
In an October 11, 2021 Zoom meeting with investors, Pires and Nicholas falsely told investors that EmpiresX had filed paperwork with the SEC, that the SEC provided feedback, and that EmpiresX had made a revised filing with the SEC.
In an October 21, 2021 Zoom meeting with investors, Goncalves similarly lied by stating that EmpiresX made a revised filing with the SEC.
Goncalves added that he was “pretty sure” that EmpiresX would receive “SEC approval.”
Nicholas also lied to investors about EmpiresX’s SEC registration status by directing them to the SEC filings of an unrelated company with a similar sounding name that contained the term “EmpireX.”
In particular, in the October 11, 2021 Zoom meeting, Nicholas told investors that they could check the status of EmpiresX’s filing with the SEC by going to sec.gov, searching for “EmpiresX,” and see the paperwork EmpiresX had filed.
After learning that EmpiresX was improperly directing investors to its SEC filings, the true filer with a similar name issued a press release that “den[ied] the statements of the … company ‘EmpiresX’ which has been illegally using our Name, Address, and Financial License from the United States to deceive people worldwide with fraudulent investment operations.”
The SEC never received any registration paperwork or filing from, and never provided feedback or suggestions to, EmpiresX.
EmpiresX’s collapse
Following a month and a half of withdrawal non-payment, BehindMLM called EmpiresX’s collapse on December 1st, 2021.
This was precipitated by Pires and Goncalves learning US authorities had opened an investigation into them.
After receiving subpoenas as part of the SEC’s investigation, Pires and Goncalves began winding down EmpiresX’s operations in the
United States.On information and belief, they have relocated to Brazil, where they are both citizens.
And that’s where things have stood, up until the SEC filed suit on June 30th.
Looking forward…
The SEC’s lawsuit levels seven counts of securities fraud against the EmpiresX defendants.
The regulator also seeks a permanent injunction, disgorgement of ill-gotten gains and a civil penalty.
The CFTC has simultaneously filed its own civil lawsuit against EmpiresX, Pires, Goncalves and David.
The trio have also been indicted on related criminal charges.
BehindMLM’s coverage of both the CFTC’s civil lawsuit and EmpiresX criminal charges is pending.