The SEC is suing Shane and Sean Hvizdzak for fraud. According to an SEC complaint, the two brothers fraudulently raised millions of dollars from investors. They illegally sold limited partnerships in three crypto investment funds and later misappropriated the funds.
According to the complaint, the brothers sold limited partnerships in High Street Capital Partners, High Street Capital, and Hvizdzak Capital Management. The brothers claimed that the three firms invested in the crypto industry. After an investigation, the SEC filed a motion to freeze the assets of the three funds, which are based in Pennsylvania.
It is claimed that the brothers raised and misappropriated tens of millions of dollars from investors. The SEC’s motion was granted and their funds were frozen. Besides that, the SEC was granted accounting, and expedited discovery as well as an order barring the destruction of any documents related to the three firms.
How the Scam Worked
To entice investors, the SEC says that the brothers misrepresented their regulatory status as well and the performance of their business. For instance, the Hvizdzaks presented fake financial statements and forged audit documents to the investors.
In marketing materials for the three funds, the two brothers said that their fund earned 100.77% and 92.90% in the third and fourth quarters of 2019. However, investigations found that the funds lost money during the period. Investigations also revealed that some of the funds were never invested. The brothers diverted tens of millions of dollars to their personal accounts at crypto exchanges and banks.
In one example, a couple sent around $10 million from their brokerage account to one of the crypto funds on May 28, 2020. At the time, the fund’s account contained around $37,500. On the same day, the defendants wired $8 million to the personal account of Shane. The other funds, except $625,000 were sent to entities and individuals that were not digital custodians or crypto exchanges. In the complaint, it is noted that none of the couple’s $10 million went to the investment fund.
In the complaint, the SEC is also requesting that the court permanently enjoin the Hvizdzaks from committing any more violations of federal securities laws. Besides that, the SEC is seeking that the two be ordered to pay prejudgment interest, disgorgement, civil penalties, and other relief.
SEC is Cracking Down on Crypto Fraud
It is not the first time the SEC is going after fraudsters in the crypto sector. They have consistently been cracking down on the crypto sector, which it views are breaking various federal laws. Since the crypto sector emerged about a decade ago, various crypto funds have emerged. Some of them are genuine but fraudsters have also exploited victims and stole from them.
Investing in any fund is always a risk. However, when investing in crypto funds, it is important to take extra precautions. A sign that a fund might be out to steal your cash is reports of exceptionally good returns. For instance, the Hvizdzaks claimed they made over 100% profit in one quarter during 2019. Such a claim should raise questions, and investors should conduct intensive investigations before trusting such a claim.
Image Source: Pixabay