‘Vast majority of funds’ recovered in EminiFX case

This reporting is sponsored by a grant from The McGraw Center for Business Journalism at the Craig Newmark School of Journalism at the City University of New York.

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NEW YORK — Five days after EminiFX CEO Eddy Alexandre pled guilty to commodities fraud, the receiver appointed to oversee the company’s assets said a claims process for returning any money may not be established for months. In the meantime, receiver David A. Castleman is also selling off $61 million worth of cryptocurrencies so cash from those sales may be kept in traditional bank accounts.

Castleman shared the details in a status report filed in the civil suit taking place alongside the criminal case.

“Based on the current information available to the receiver, it is likely that the vast majority of the funds that will be available for the receivership, for the eventual benefit of creditors and defrauded investors, have been recovered,” Castleman said in the report.

The report is the latest in the saga of EminiFX, which attracted some 62,000 mostly Haitian investors from across the U.S. and abroad — drawn by Alexandre’s promises to deliver returns of 5% and 9.99% every week. It comes after a guilty plea that stunned many supporters of Alexandre, 50, and left them wondering when their money might be returned. The filing and other court records also detail personal tidbits about Alexandre, a slew of big-ticket activities and web of transactions — such as 47 properties purchased on Long Island, poor trades made, and interactions with digital asset companies around the world — as millions flowed between company’s and Alexandre’s accounts.

“EminiFX maintained a massive database that did not distinguish between the actual money that investors contributed and the purported returns and bonuses that EminiFX paid,” Castleman writes in the court filing. “The Receiver and his team expect to use the coming months to continue their financial analysis of EminiFX, to propose a claims procedure to this Court, and to file a tax return for EminiFX.”

Fraudulent scheme recap

Prior to his arrest, Alexandre operated EminiFX between September 2021 and May 2022, attracting people with promises of weekly returns purportedly made off Robo-Advisor Assisted investments in cryptocurrency and foreign exchange trading. He promised they could live a “millionaire lifestyle” supported by the compounding interest of the 5% to 9.99% returns.

Alexandre, a former information security professional with HBO, instead showed investors fake returns in their EminiFX membership accounts. Prosecutors alleged that Alexandre used members’ funds to pay other investors who requested withdrawals “in a Ponzi-like fashion.” He also funneled at least $14.7 million to his personal bank account, using some of it for personal expenses.

Some funds did go into digital assets, and Alexandre used those to pay out withdrawals in cryptocurrencies such as Bitcoin, according to investors and court documents.

What little funds were invested in financial instruments did not do well enough to generate the returns that investors saw displayed in their EminiFX accounts, prosecutors said. In one instance in April 2022, Alexandre traded $9 million in individual equities and single-equity options on the Electronic Trading Platform. Those instruments are different from the cryptocurrency and forex he had promised — and he lost $6.2 million from those trades.

‘Misleading and wrong’ admission

Alexandre did not reveal these activities, which are against the law, to investors. During the plea appearance, Alexandre admitted that the software he told investors was his “trade secret” did not actually function. He also acknowledged that he knowingly and willfully told investors it did so they would join — something he knew was wrong. 

“I made them [misstatements] as part of my marketing strategy campaign to get them to join intentionally and willfully to get them to invest with EminiFX,” Alexandre said. “Truthfully, they didn’t need that to remain invested. They needed to join.”

“Yes, I knew this was misleading and wrong, your Honor,”Alexandre said, when Cronan asked him about the false statements.

Now that he’s pled guilty, Alexandre faces up to 10 years in prison, then deportation since he is not a U.S. citizen. He is currently at home on $3 million bail — secured by five people and three homes as collateral — while awaiting sentencing scheduled for July 12.

“Alexandre’s scam caused investors to lose millions of dollars, and this case should serve as yet another warning to cryptocurrency executives that the Southern District of New York is closely watching and ready to prosecute any and all misconduct in the crypto markets,” U.S. Attorney Damian Williams said in a statement after the plea hearing.

The judge and attorneys did not say in court what, if anything, is to become of the wire fraud count or whether it’s a moot point because of the guilty plea. Messages to the prosecutors’ office were not immediately returned.

Long Island real estate among assets recovered

Alexandre’s guilt, Castleman said, validates the prudence of closing down the platform’s operations. That initial decision was based on the lack of any legitimate investing activity that would support the EminiFX returns paid to investors, Castleman said.

In addition to the $61 million in digital assets, Castleman’s forensic accounting team tracked down another $63 million in assets traceable to EminiFX customers. The latter amount includes $60.9 million in frozen funds and another $2.4 million in deposits made to purchase 47 properties in the Long Island area.

Alexandre was purchasing the properties, 46 of them in foreclosure, through Bonaventura Realty Corp based in East Islip.

The receiver’s report does not mention the $248 million Alexandre agreed to forfeit in the criminal case. It remains unclear how the $124 million recovered and forfeited amount are related.

Digital currencies sale underway 

In January, Judge Valerie E. Caproni approved the sale of the cryptocurrencies recovered at the recommendation of Castleman and the Commodity Futures Trading Commission (CFTC), the federal agency bringing the civil suit.

“Because cryptocurrencies are highly volatile and because the holdings of the Estate will eventually need to be converted to currency to be distributed to investors, the most prudent approach is to divest from Bitcoin and other cryptocurrencies,” Caproni said in her order. 

“Neither the Court, the Receiver, nor the investors can know what the future will bring for the value of Bitcoin or the other cryptocurrencies from now until the Estate is distributed to the investors. The value could go up, down, or remain static,” Caproni said. “In contrast, the Estate’s high-yield money market accounts are highly unlikely to decrease in value and will pay interest.”

The non-Bitcoin assets were to be sold within 10 days of the Jan. 4 order. Bitcoin, the largest of the digital currency holdings, is being liquidated in batches to guard against the risk that price fluctuations on a particular trading day might cause Bitcoin’s value to decrease.

Steps for returning funds being determined

Setting up the claims process required to return cash, the main priority for investors, won’t be completed for months, Castleman said. Complicating matters is that EminiFX did not follow proper accounting methods, making it take longer for Castleman’s forensics accounting team to match more than 100,000 transactions from various bank accounts to about 62,000 EminiFX members.

In the coming months, the receiver’s team will continue analyzing EminiFX’s finances, propose a claims procedure for Caproni to approve and file a tax return for the company. By the end of March, the receiver plans to finish creating a general ledger to better understand the 100,000 or so transactions that have surfaced. Between April and July, the team hopes to finish selling any remaining Bitcoin, establish the claims process for EminiFX users and non-investors, and develop the plan for distribution of funds.

It is still unknown if or how much money EminiFX members will have returned to them after various creditors are satisfied. Whatever the amount may be, Castleman said, it will not be distributed outside the Court-approved claims and distribution process.

To recover their monies, investors and members should plan to file a claim whenever that procedure becomes available. The receiver’s website, www.eminifxreceivership.com, will detail the steps to take in English, Creole and French as they are approved.

In the meantime, EminiFX members who received withdrawals should ask their tax advisor about reporting those transactions when filing taxes for 2022.