Articles Posted in Wire fraud

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Recently, Matthew Galluzzo obtained an excellent result for a client in federal court. One of four co-defendants in a conspiracy to ship stolen cars to Africa, our client was charged with violating 18 USC Section 2312. As alleged in the indictment, the group shipped millions of dollars of stolen and fraudulent-obtained cars to Africa (primarily Ghana). Galluzzo’s client pleaded guilty and faced a sentencing range of 10-16 months under the Federal Sentencing Guidelines (offense level 12 and Criminal History Category I).

Mr. Galluzzo submitted to the court a detailed sentencing memorandum describing the client’s difficult upbringing and hard work providing for his family. Mr. Galluzzo submitted character letters from the client’s family, friends and pastor in support of his good character and reputation. The court reviewed these submissions and, after a sentencing hearing in the Southern District of New York, decided not to impose an additional prison sentence upon him. The client will be on supervised release and able to continue with his current employment. (The client spent about six days in prison before arranging for the posting of his bail at the outset of the case and following his arrest.)

In addition, the client could have been subject to millions of dollars in restitution, meaning he might have been ordered to pay back money to the conspiracy’s victims to compensate them for the crimes. However, Mr. Galluzzo argued to the Court that such an award would have been unfair in his client’s case, given his minor role in the offense and his limited finances. The Court agreed not to impose any forfeiture or restitution penalties, as well.

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This week, American law enforcement officers arrested Aurelien Michel, a French national living in the UAE, as he passed through JFK International Airport in New York City. He has since been arraigned before a federal magistrate judge in the Eastern District of New York (Brooklyn) on federal wire fraud charges, pursuant to 18 USC Section 1343. A complaint unsealed in federal court alleges that Mr. Michel advertised and marketed a series of Mutant Ape NFTs (non-fungible tokens) and collected nearly three million dollars in sales of various cryptocurrencies from numerous buyers and investors. However, it is further alleged that Mr. Michel never delivered the NFTs to his investors, but instead transferred this money to various accounts controlled by him. The complaint alleges that he later apologized on the platform Discord for the “rug pull” (i.e. a slang term for failing to deliver after receiving funds) because the community had become too “toxic.”

It would appear from the complaint that Mr. Michel has an obvious defense that he did not intend to defraud anyone, and that he fully intended to give his customers their NFTs eventually. He may have received the funds and then encountered difficulty in acquiring the NFTs for his customers due to volatile market conditions or other issues.

It is always difficult to estimate sentencing exposure at this stage of a criminal case, but preliminary estimates might suggest the following for Mr. Michel:

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On December 14, federal prosecutors in Manhattan announced two new indictments against several individuals accused of conspiring to commit wire fraud and money laundering through alleged phony cryptocurrency schemes called Forcount and IcomTech. These cases present interesting challenges for both prosecutors and defense attorneys, however, because of the high volatility of the cryptocurrency market and the oftentimes lax regulation of the industry.

The allegations in these cases suggest that the defendants used the public enthusiasm and fervor around cryptocurrency investing to run what amounted to a Ponzi scheme with a crypto appearance. The defendants allegedly went to crypto conventions and investor events and flashed conspicuous wealth in order to persuade people to invest in their cryptocurrencies. The defendants allegedly used a software platform to allow investors to see their investments growing, but the defendants would not allow the investors to withdraw funds. Meanwhile, these defendants allegedly used the investor funds for their own purposes and spent the money lavishly.

The defendants might argue that there was in fact a real cryptocurrency investment that simply failed, as so many cryptocurrencies have. (Some reputable economists might even argue that the entire cryptocurrency industry is, at base, a Ponzi scheme in and of itself.) Prosecutors will use bank records and other evidence to show that these investor accounts ran dry because they were emptied by the defendants.

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Recently Manhattan federal prosecutors announced the arrests of 17 individuals for allegedly defrauding the federal government’s Small Business Administration (SBA) COVID-relief program called the Paycheck Protection Program. In a nutshell, these individuals are accused of wire fraud for purportedly applying for small business relief funds on behalf of small businesses (or sole proprietorships) that either did not exist or did not generate the revenues described in their loan applications.

For many small businesses, the SBA’s various COVID-relief programs, including the Paycheck Protection Program, were critical in helping those businesses survive the once-in-a-generation economic downturn created by the pandemic. However, the fraudulent abuses of the program have become almost legendary and have recently been the subject of many Congressional inquiries.

The Department of Justice this year launched a task force to prosecute – at the federal level – crimes involving abuse of the COVID relief programs. So, one should expect to see more such prosecutions launched against individuals in the near future.

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