Fintech CEO Sentenced to 6 Years in Prison for Multiple Fraud Schemes, Including $ 7 Million in Covid-19 Pandemic Loan Fraud and Securities Fraud | USAO-SDNY
Audrey Strauss, United States Attorney for the Southern District of New York, today announced that SHENG-WEN CHENG, aka “Justin Cheng”, aka “Justin Jung” has been sentenced to 72 months in prison for multiple ploys of fraud he perpetrated. In particular, CHENG has engaged in a scheme to fraudulently obtain more than $ 7 million in government-guaranteed loans intended to provide relief to small businesses during the COVID-19 pandemic. CHENG also solicited and obtained investments in Alchemy Coin Technology Limited and related companies controlled by CHENG through substantially false and misleading statements and omissions. Finally, CHENG fraudulently obtained due diligence fees from dozens of start-ups as part of an early payment program. CHENG was convicted earlier today before US District Judge Alison J. Nathan.
US lawyer Audrey Strauss said, “Sheng-Wen Cheng has fraudulently requested more than $ 7 million in government guaranteed loans under programs designed to provide relief to financially struggling small businesses affected by the COVID pandemic. 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 has been sentenced to prison for his multitude of crimes.
According to the complaint, information and other documents filed with Federal Court in Manhattan:
The Coronavirus Aid, Relief, and Economic Security (“CARES”) Act 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 pandemic. -19. . 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 Paycheque Protection Program ( “PPP”) of the SBA. According to the CARES Act, the amount of PPP funds a company can receive is determined by the number of employees employed by the company and their average salary costs. The CARES Act also expanded the separate Economic Disaster Lending Program (“EIDL”), which provided small businesses with low-interest loans that could provide vital economic support to help them overcome temporary loss of income. income they are experiencing as a result of COVID-19.
CHENG, a Taiwanese national who entered the United States on a student visa, was a self-proclaimed “serial entrepreneur” who attended Pennsylvania State University (“Penn State”). From at least April 2020 or around 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 of $ 7 million guaranteed by the government. SBA PPP and EIDL program loans for several companies controlled by CHENG, namely Alchemy Finance, Inc., Alchemy Guarantor LLC d / b / a “Celer Offer”, Celeri Network, Inc., Celeri Treasury LLC , Wynston York LLC, and Neo Bellum Industries Inc. (collectively, the “Cheng Companies”). In connection with these loan applications, CHENG claimed, 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 around 1.5 million. dollars in wages to these employees on a monthly basis. In fact, however, the Cheng companies appear to have had a total of 14 employees at most.
In order to substantiate the false statements in loan applications regarding the number of employees and salaries paid by the Cheng companies, CHENG submitted fraudulent and falsified tax records that were never actually filed with the IRS and payroll records containing the forged electronic signature of an employee of a payroll company. CHENG also submitted a payroll summary for one of its companies which listed the names of more than 90 alleged employees, several of whom were current and former athletes, artists, actors and public figures. For example, the list of alleged employee names included a Good Morning America co-presenter, 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 $ 3.7 million of PPP loans have been approved for Cheng companies and about $ 2.8 million of PPP loan products have been deposited. on bank accounts controlled only by CHENG. Instead of using the proceeds from the PPP loan for salary costs, mortgage interest, rent, and / or utilities for the so-called Cheng companies as required by the PPP, CHENG transferred over $ 1 million abroad, withdrew approximately $ 360,000 in cash and / or cashier’s checks, and spent at least approximately $ 279,000 on P3 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 pandemic loan fraud described above, from at least in or around 2017 until at least in or around 2019, CHENG committed securities fraud by soliciting and obtaining approximately 400 $ 000 in investments in Alchemy Coin Technology Limited and related companies (“Alchemy Coin”) controlled by CHENG. These investments were obtained through materially false and misleading statements and omissions regarding Alchemy Coin’s access to capital, use of investor income, preparation of proceeds from its purported peer lending platform -to-peer based on the blockchain and the registration of its tokens as part of an initial coin offering.
Finally, at least in or around 2018 until at least in or around 2019, CHENG committed electronic fraud by fraudulently obtaining a total of approximately $ 380,000 in so-called “due diligence charges” from dozens. start-ups as part of an advance. fee scheme. CHENG falsely told these investor-seeking firms that in return for a fully refundable due diligence fee, CHENG would perform due diligence on the firms and assess them for investments or otherwise assist them in get funding. However, CHENG had no interest or financial capacity to invest in any of the victim companies, failed to reimburse the allegedly reimbursable costs despite repeated claims from the victims, and used the costs for personal expenses instead of making proof of due diligence. When CHENG was confronted with victims to reimburse the costs after realizing that no investment was planned, CHENG falsely told the victims that it did not have the costs and that a third-party due diligence company that he had employed had stolen the charges.
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CHENG, 25, from New York, New York, pleaded guilty on April 20, 2021 to one count of major fraud against the United States, one count of bank fraud, one count of securities fraud and one count of wire fraud.
In addition to the prison term, CHENG was sentenced to three years of probation and ordered to confiscate luxury items seized in connection with his arrest, including a Mercedes, a Rolex watch and a diamond engagement ring. The amount of the restitution to the victims of the crime will be fixed at a later date. CHENG also consented to his deportation from the United States upon his release from prison.
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.