Barred Broker Who Did Merrill Stint Indicted in $100M Crypto Scam

A barred broker who was employed by Merrill Lynch for seven months in 2020 was one of three people indicted by a federal grand jury in Miami on Thursday for their alleged roles in a global cryptocurrency fraud scam that operated much like a Ponzi scheme.

Joshua David Nicholas, 28, of Stuart, Florida, and Emerson Pires, 33, and Flavio Goncalves, 33, both of Brazil, generated about $100 million in revenue from investors they scammed, according to an indictment filed by the Justice Department in U.S. District Court for the Southern District of Florida.

The indictment charged all three defendants with one count each of conspiracy to commit wire fraud and one count each of conspiracy to commit securities fraud. Pires and Goncalves were also charged with conspiracy to commit international money laundering.

"Given this didn't involve Merrill, we don't have a comment," a Merrill spokesman told ThinkAdvisor on Tuesday.

Nicholas joined Merrill in January 2020 and became a registered broker with the wirehouse one month later, according to his report on the Financial Industry Regulatory Authority's BrokerCheck website.

Nicholas was allowed to voluntarily resign from Merrill in July 2020 after an allegation that he forged a client document, according to a disclosure on his report.

There were also allegations that he made unsuitable investment recommendations, sold away and omitted material facts in February 2020, according to the report. Merrill settled with the client for $275,000.

The only other firm for which Nicholas was registered as a broker was Midtown Partners, for just one month, in August 2016.

Phony Trading Bot

According to the indictment, Pires and Goncalves founded EmpiresX, a crypto investment platform and unregistered securities offering. They, along with Nicholas, billed as the company's "head trader," fraudulently promoted EmpiresX.

In the process, they allegedly misled investors about, among other things, a purported proprietary trading "bot" they claimed could generate guaranteed returns to investors in EmpiresX, according to the indictment.

Pires and Goncalves then allegedly laundered investors' funds via a foreign-based crypto exchange and paid out early EmpiresX investors with money obtained from later investors in their Ponzi-style scheme, according to the indictment.

"Our office is committed to protecting investors from sophisticated scammers seeking to capitalize on the relative novelty of digital currency," Juan Antonio Gonzalez, U.S. attorney for the Southern District of Florida, said in a statement. "As with any emerging technology, those who invest in cryptocurrency must beware of profit-making opportunities that appear too good to be true."

SEC, CFTC Complaints

In separate civil complaints filed in the same court as the criminal complaint on Thursday, the Securities and Exchange Commission and Commodity Futures Trading Commission made similar allegations against the same defendants and their firm.

The SEC complaint said the defendants raised at least $40 million by luring investors with false claims of 1% daily profits but instead misappropriated large sums of investors' money for personal uses.

The defendants allegedly misappropriated investors' money to lease a Lamborghini, shop at Tiffany & Co., make a payment on a second home and more, according to the SEC.

By early this year, Pires and Goncalves allegedly started winding down EmpiresX's operations and had left the U.S. to relocate to Brazil, according to the SEC complaint.

The CFTC complaint, meanwhile, said the defendants "accepted and pooled at least $41.6 million from over 12,500 individuals, including at least $14.3 million from over 2,300 individuals" in the U.S.

They "commingled at least some participant funds" with the defendants' funds, deposited about $1 million of participant funds into trading accounts in the name of Empires Consulting (another name used by EmpiresX) and "used those funds to trade futures and options, among other products," according to the CFTC complaint.

Empires, Pires and Goncalves also "misappropriated at least $5 million in participant funds for improper, non-investment purposes, including luxury travel, dining, car leases, shopping, and cash withdrawals," the CFTC alleged.