Allegedly used a fake identity
The US Securities and Exchange Commission has charged convicted criminal Boaz Manor, Cayman special economic zone company BCT Inc. SEZC, his business associate and another business, CG Blockchain Inc., with raising more than $30 million in a fraudulent initial coin offering.
Manor, an Israeli-Canadian former hedge fund manager served jail time after the collapse of Portus Alternative Asset Management in 2005. He received a four-year prison sentence and was ordered to pay CAD$8.8 million in disgorgement after money was misappropriated from the Toronto-based hedge fund he co-founded.
The SEC and the Department of Justice, which filed separate criminal charges, allege that Manor darkened his hair, grew a beard, and used aliases, such as Shaun MacDonald, to hide his identity and conceal the fact that he had served about one year in prison after pleading guilty to criminal charges of money laundering and disobeying a court order arising from the collapse of Portus.
He also received a lifetime ban for most capital markets activity in Ontario.
According to the SEC complaint, Manor presented his New Jersey-based associate Edith Pardo as an independently wealthy investor who provided millions of dollars in seed money to CG Blockchain, while he held himself out as a consultant or employee of hers. In this way, Manor concealed from investors and business associates not only his name and criminal background but also that he controlled all aspects of the business.
“In fact, Pardo neither invested millions in the business nor exercised managerial authority over it, and instead acted merely as a front that concealed Manor’s true control over the business,” the SEC complaint said. “In addition, the purported President of the business did not have significant decision-making authority, and the purported ‘executive team’ consisted of hired consultants who similarly did not exercise senior managerial control.”
Manor allegedly admitted to certain investors that he concealed his identity because its disclosure would result in “the company being destroyed”, the SEC added.
“Learning about the identity and background of the individual or individuals behind a venture is one of the first things we tell investors to do before trusting anyone with their money,” said Joseph G. Sansone, chief of the SEC’s Market Abuse Unit, in a press statement. “As alleged in our complaint, Manor’s brazen scheme to conceal his identity and criminal history deprived investors of essential information and allowed the defendants to take over $30 million from investors’ pockets.”
The SEC complaint, filed in federal court in New Jersey, also charges Manor and Pardo with violating the antifraud and securities registration provisions of federal securities laws.
The defendants marketed and sold digital asset securities between August 2017 and September 2018, claiming they would develop technologies for hedge funds and other investors in digital assets.
The complaint alleges that the defendants made materially false or misleading statements to investors about the state of the technology products they were developing.
For instance, the defendants claimed that CG Blockchain and BCT Inc. SEZC had created technology that was “live in beta” and achieving “high traction” with numerous hedge fund clients, when in reality, “the defendants had only sent a prototype to a dozen funds, and none of the funds used it or paid for it,” the SEC said.
The hedge funds had only accepted the shipments because the defendants “had promised each of them assistance in securing up to $200 million of investments into their respective hedge funds, a condition that was never met and was never disclosed to token investors”, the complaint added.
The offer and sale of the tokens also “constituted an illegal offer and sale of securities for which no registration statement was filed with the Commission or was then in effect, and to which no exemption from registration applied”, the SEC said.
In the criminal indictment for the same scheme, Manor and Pardo have been indicted on one count of conspiracy to commit wire fraud, three counts of wire fraud, and one count of securities fraud.
The special economic zone company BCT Inc. SEZC, which was used in the fundraising, was formed in 2018.