The FBI says he ran a $59 million crypto Ponzi scam. It was much bigger.
A company called EminiFX claimed to have developed a proprietary trading system that would invest people’s money in cryptocurrency and foreign exchange markets, also known as forex.
When the Department of Justice and the Commodity Futures Trading Commission filed complaints against an alleged Ponzi scheme by the company, they estimated the scam to be worth $59 million.
But that turned out to be a gross understatement, according to a preliminary report filed by David Castleman, an associate of Raines Feldman in New York, who was appointed receiver of EminiFX.
The Department of Justice and the Commodity Futures Trading Commission alleged that EminiFX, owned by Eddy Alexandre of New York, was a Ponzi scheme that promised participants guaranteed returns of at least 5% each week.
Castleman said his investigation revealed that $250 million had been raised from investors from September 2021 to May 2022 and there were 62,000 EminiFX user accounts. Emil Bove, lawyer for Alexander, did not respond to requests for comment. Alexander has pleaded not guilty, according to the Justice Department.
Based on Castleman’s forensic look at EminiFX, the sophistication of the platform and its output of what appear to be phantom returns is staggering.
It’s like no other case I’ve followed. Thousands of investors, including many from Haiti, support Alexandre. Nearly 14,000 EminiFX investors have already signed a change.org petition in support of Haitian-born Alexandre, who many believe is the victim of racist prosecution.
“Together we will fight this,” wrote one petition signer. “When are we going to take a break from this discrimination? I’m sure things would have been much different if we were of a different race. Another wrote: “The system basically tells us (black people) to stick to basketball, football and rap if we ever want to get out of poverty.”
Several investors I interviewed are convinced that the profits they saw in their Alexander online accounts were real. “He gave it to you every week,” said Markens Nicolas, who helped start the change.org petition. “So that makes it more believable.”
Here’s how the platform performed, according to the survey. EminiFX users have deposited cash or cryptocurrency into the system. There was a multi-level marketing aspect of the platform where people could earn bonuses for recruiting others. Account balances were reported in US dollars. Investors kept funds in their “electronic wallets” used for deposits or “trading wallets”.
“Every Friday, a weekly ‘ROI’ or ROI of between 5% and 9.99% was applied to each EminiFX user’s account balance, the same ROI for all users,” says the report.
Information from the EminiFX system showed positive returns every week, from a low of 5.01% to a high of 9.99%. “I couldn’t find any investment activity to support these returns,” Castleman said in an interview.
An investor who deposited $10,000 in cash on Oct. 15 and elected to reinvest the supposed returns into a trading portfolio would have seen an account balance of more than $77,000 by the time the company closed in May 2022, says Castleman’s report. It would have been an extraordinary and highly unlikely comeback in such a short time.
Castleman’s investigation revealed over 22,000 withdrawal transactions from the EminiFX platform totaling almost $35 million between November 2021 and May 2022. However, significantly more money was flowing into the operation. If the company took in more than $250 million, that could explain why investors never realized their winnings weren’t real.
“Many users appear to have never withdrawn or redeemed funds,” Castleman’s court filing said. Typically, a Ponzi scheme involves people being paid not from investment returns, but from money collected from other investors.
After investigating all possible investment activity, Castleman said he could not trace how the weekly returns applied to EminiFX user accounts were generated. He could not find any evidence of the existence of the proprietary trading system called Robo Assisted Adviser, or RA3, account in any EminiFX file or anywhere in the code base.
The report says that none of the former employees understood how weekly ROI was achieved, what RA3 was, or how it worked. By the time Castleman took over the platform, the total balances of all trading portfolios were reportedly around $512 million.
But he could only find assets worth about $170 million. This total includes over 3,650 bitcoins located in an Estonian cryptocurrency exchange valued at over $85 million based on July 20 trading price.
However, bitcoin price volatility from November 2021 to May 2022 could not have resulted in the consistently positive weekly returns that were applied to EminiFX user accounts. Bitcoin price fell sharply amid a sell-off in the stock market.
There were trades going on, but it was in Alexander’s personal brokerage account. Records show Alexander invested $9 million, “almost exclusively in funds clearly traceable to EminiFX corporate accounts,” Castleman reported. And even then, Alexander’s personal trades resulted in losses of more than $7 million – not the substantial profits he kept claiming. — when a receiver has been appointed.
The receiver shut down EminiFX’s website and operations and searched for all assets. A dedicated website, eminifxreceivership.com, in English and French, has been set up to inform investors and possibly set up a complaints process.
Although Alexander has not yet been tried, for the tens of thousands of people who trusted him, the hope of getting rich by investing with EminiFX will not come true.
“Most investors worry that their money will be held in an escrow that they don’t trust,” Nicolas said.