The Securities and Exchange Commission has filed a lawsuit to freeze the assets of two brothers allegedly engaged in “an offering fraud” and in misappropriating investor funds.
Sean Hvizdzak and Shane Hvizdzak, according to a press release Friday (June 19), offered securities in a private fund which “purported to invest in digital assets by misrepresenting fund performance, fabricating financial statements, and forging audit documents.” The complaint was filed in the U.S. District Court for the Western District of Pennsylvania and charged them with violating antitrust laws.
The brothers’ fund allegedly pumped up its earnings numbers, claiming to have earned 100.77 percent and 92.90 percent on its investments in the last two quarters of 2019 when it lost money during that time, the SEC alleged.
The SEC also alleges the two brothers of diverting millions from the fund into their personal accounts, then transferring them on several blockchains to themselves and others.
Adam S. Aderton, co-chief of the SEC’s Asset Management Unit, is quoted in the release as saying that the Hvizdzak brothers touted exemplary data to possible investors that turned out to be fraudulent.
“Investors should be skeptical of claims that seem too good to be true,” he said, according to the SEC.
There will be a hearing on June 30 to discuss continuing the asset freeze and issuing a preliminary injunction.
Fraud relating to cryptocurrency has been on the rise in recent years as the form has become more mainstream.
In a similar recent case reported by PYMNTS, the SEC moved to freeze the assets of a multi-level marketing scheme involving numerous defendants who had lied to investors and misappropriated funds, in the end reportedly scamming $12 million from 2,000 investors. The defendants allegedly quit paying out as promised in November of 2018, using the money from investors for personal items.
In all, fraud, hacking and theft relating to cryptocurrency netted criminals $1.4 billion in just the first five months of 2020. By the end of the year, the number could be higher than last year’s total of $4.5 billion, according to a report by crypto intelligence company CipherTrace.