Fintech CEO Pleads Guilty to Multiple Fraud Schemes, Including $ 7 Million in COVID-19 Loan Pandemic Fraud and Securities Fraud | USAO-SDNY
Audrey Strauss, United States Attorney for the Southern District of New York, today announced that SHENG-WEN CHENG, a / k / a “Justin Cheng”, a / k / a “Justin Jung”, has pleaded guilty major fraud against the United States. States, bank fraud, securities fraud and electronic fraud as part of multiple fraud schemes he has perpetrated. Specifically, CHENG has engaged in a scheme to fraudulently obtain more than $ 7 million in government-guaranteed loans aimed at providing relief to small businesses during the novel coronavirus / COVID-19 pandemic. CHENG also solicited and obtained investments in Alchemy Coin Technology Limited and related companies controlled by CHENG through materially false and misleading statements and omissions. Finally, CHENG fraudulently obtained due diligence fees from various start-ups under an advance fee system. CHENG pleaded guilty today before U.S. District Judge Alison J. Nathan and is expected to be sentenced on August 3, 2021 at 3:00 p.m.
US Attorney Audrey Strauss said, âAs he admitted, Sheng-Wen Cheng fraudulently requested more than $ 7 million in government-guaranteed loans under programs designed to alleviate financially troubled small businesses. the COVID pandemic. Cheng lied to the SBA and several banks about the ownership of his businesses, the number of people employed, and how the loan proceeds would be applied, using forged and fraudulent documents in the process. Cheng spent a large portion of the money on personal luxury items. In addition, Cheng committed securities fraud by lying to investors in his blockchain-based peer-to-peer lending platform, and wire fraud by engaging in an early fee scheme. Now, Cheng is awaiting sentencing for his multitude of crimes.
According to the complaint, information and other documents filed in Manhattan Federal Court:
The Coronavirus Relief, Relief and Economic Security Act (“CARES”) is a federal law enacted on March 29, 2020, designed to provide emergency financial assistance to the millions of Americans suffering the economic effects caused. by the COVID-19 pandemic. One source of relief provided by the CARES Act was the authorization of hundreds of billions of dollars in forgivable loans to small businesses for job maintenance and certain other expenses through the Paycheck Protection Program ( âPPPâ) of the SBA. Under the CARES Act, the amount of PPP funds a business is eligible to receive is determined by the number of employees employed by the business and their average salary costs. The CARES Act also expanded the separate Economic Damage Disaster Loans (âEIDLâ) program, which has provided small businesses with low-interest loans that can provide vital economic support to help them overcome. the temporary loss of income they suffer as a result of COVID-19.
CHENG, a Taiwanese national who entered the United States on a student visa, is a self-proclaimed “serial entrepreneur” who graduated from Pennsylvania State University (“Penn State”). Between at least or around April 2020 and at least on or around August 13, 2020, CHENG used the identity of others to submit online claims to the SBA and at least five financial institutions for a total of more than $ 7 million government guarantee. loans under the SBA PPP and EIDL program for several companies controlled by CHENG, namely Alchemy Finance, Inc., Alchemy Guarantor LLC d / b / a “Celer Offer”, Celeri Network, Inc., Celeri Treasury LLC and Wynston York LLC (collectively, the âCheng Companiesâ). In connection with these loan applications, CHENG represented, among other things, that other people were the sole owners of the Cheng companies and that the Cheng companies together had more than 200 employees and paid a total of about 1.5 million. in salary dollars to these employees on a monthly basis. In fact, however, the Cheng companies do not appear to have had more than 14 employees in total.
In order to support the false statements in loan applications on the number of employees and salaries paid by Cheng companies, CHENG submitted fraudulent and falsified tax records which were never actually filed with the IRS and payroll records containing the forged electronic signature of a payroll company employee. CHENG also submitted a payroll summary for one of its companies which lists the names of more than 90 alleged employees, many of whom are current or former athletes, artists, actors or public figures. For example, the list of alleged employee names included a co-host on “Good Morning America,” a former National Football League player and a former Penn State football coach who is now deceased.
Based on the fraudulent PPP loan applications submitted by CHENG, a total of over US $ 3.7 million of PPP loans have been approved for Cheng companies and about US $ 2.8 million of PPP loans have been deposited on bank accounts controlled only by CHENG. Instead of using the proceeds from the PPP loan for personnel costs, mortgage interest, rent, and / or utilities for the so-called Cheng companies as required by the PPP, CHENG transferred more than one million dollars abroad, withdrew about $ 360,000 in cash and / or cashier’s checks, and spent at least about $ 279,000 on PPP loan products for personal expenses. These personal expenses included the purchase of an 18k gold Rolex watch for approximately $ 40,000, rent and move-in costs for a $ 17,000 per month luxury condominium used by CHENG, approximately $ 50,000 of furniture for the condominium, part of the purchase of a 2020 Mercedes S560X4, and purchases totaling approximately $ 37,000 at Louis Vuitton, Chanel, Burberry, Gucci, Christian Louboutin and Yves Saint Laurent.
In addition to the COVID-19 loan pandemic fraud described above, between at least 2017 or around 2017 and at least around 2019, CHENG has committed securities fraud by soliciting and securing investments in Alchemy Coin Technology Limited and related companies (âAlchemy Coinâ)) controlled by CHENG. These investments were obtained through materially false and misleading statements and omissions regarding access to Alchemy Coin’s capital, use of investor proceeds, preparation of proceeds from its purported peer-to-peer lending platform based on the blockchain and registering its tokens as part of an initial coin offering.
Finally, from at least around 2018 or around 2019 until at least around 2019 or around 2019, CHENG has committed electronic fraud by fraudulently obtaining due diligence fees from various start-ups as part of a fee system. anticipated by means of materially false and misleading statements regarding the purpose and reimbursability of expenses and its interest and its ability to invest in start-ups.
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CHENG, 24, of New York, New York, pleaded guilty to one count of bank fraud, carrying a maximum sentence of 30 years in prison; one count of securities fraud and one count of wire fraud, each punishable by up to 20 years in prison; and one count of major fraud against the United States, carrying a maximum sentence of 10 years in prison. The potential maximum sentences are prescribed by Congress and are provided here for informational purposes only, as any conviction of the defendant will be determined by the judge.
Ms. Strauss praised the investigative work of the Federal Bureau of Investigation, the Office of the Inspector General of the US Small Business Administration and the Internal Revenue Service Criminal Investigation. Ms. Strauss also thanked the United States Securities and Exchange Commission, US Customs and Border Protection and the New York State Department of Labor for their assistance.
The prosecution of this case is being handled by the Office’s Complex Fraud and Cybercrime Unit. Deputy United States Attorney Sagar K. Ravi is in charge of the prosecution.