SEC agrees $35M settlement with fraudulent digital asset hedge fund EmpiresX

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The U.S. Securities and Exchange Commission (SEC) has settled with digital asset hedge fund EmpiresX, whereby the defunct company agreed to pay $34,839,951 in disgorgement over charges of defrauding investors and violating Securities law.

Last June, the SEC announced fraud charges against EmpiresX, its co-founders Emerson Sousa Pires and Flavio Mendes Goncalves, and its “head trader” Joshua David Nicholas. The defendants were accused of “luring investors with false claims of one percent daily profits, but instead misappropriated large sums of investors’ money for personal uses.”

The case claimed that EmpiresX and its founders violated the registration and anti-fraud provisions of the Securities Act of 1933 and the Securities Exchange Act of 1934; with the regulator seeking injunctions against future securities law violations, disgorgement of the defendants’ ill-gotten gains, civil penalties, and officer and director bars against Pires and Goncalves.

The settlement, agreed Friday with the EmpiresX corporate entity only, imposes a disgorgement of $32,178,397, representing the profits gained as a result of the scheme. An additional $2,661,554 in interest brings the grand total to $34,849,951. EmpiresX is also permanently enjoined from future securities violations of the kind described in the SEC’s complaint and is permanently barred from purchasing, offering, or selling any security in the future.

The court had previously entered a final judgment against co-defendant Nicholas on April 19, handing down a fine of $300,000 to the trader and banning him from soliciting any new investors, accepting additional funds from existing investors, and issuing, purchasing, offering, or selling any security.

The remaining defendants in the SEC’s case, founders Pires and Goncalves, are currently fugitives on the run outside the United States.

The Ponzi’s story

EmpiresX, also known as Empires Consulting Corp, was a Florida-based digital asset hedge fund run by co-founders Pires and Goncalves and the platform’s head trader Nicholas.

However, in reality, from September 2020 until early 2022, the company operated as a Ponzi scheme, which the U.S. Department of Justice (DOJ) claimed “took in approximately $100 million” with false promises of “a trading bot that used artificial and human intelligence to maximize profitability for investors.”

Instead, in a classic Ponzi model, EmpiresX simply paid earlier investors with money obtained from later investors. The scheme was uncovered in early 2022 after the platform refused to honor customer withdrawals during an exodus caused by the Spring market downturn.

In the fallout, in June, the DOJ charged Pires, Goncalves, and Nicholas with conspiracy to commit international money laundering and wire fraud. Co-founders Pires and Goncalves managed to evade arrest by fleeing to Brazil, but Nicholas was less lucky.

Nicholas was arrested in September and pled guilty to the charges against him; his sentencing has yet to be scheduled, but he faces a maximum penalty of five years in prison.