10 takeaways from EminiFX crypto Ponzi scheme, $153M recovered

NEW YORK — David Castleman, the court-appointed receiver tasked with recovering and returning funds seized from EminiFX crypto Ponzi scheme, explained in great detail last week what the company did that made it fraudulent. In a live town hall via YouTube held Sept. 6, Castleman also shared how his team recovered $153.7 million now available to return to duped investors.

Those affected, most of the estimated 25,000 being Haitian, must follow the court-approved process that entails verifying how much they contributed directly or through EminiFX recruiters. He also answered key questions many people in the Haitian community have been asking since the operation closed in May 2022 — the most common being “when will I get my money back?”

Before going into the details, here’s a recap of the case first.

EminiFX case recap 

The FBI arrested Alexandre, 51, in May 2022 after finding that his cryptocurrency and foreign exchange investment platform was a Ponzi-like pyramid scheme. Investigators said he advertised that he had a “trade secret” robot-assisted trading software that could yield high weekly returns and millionaire status in two to three years. In reality, Alexandre showed investors fictitious returns. He also used investor funds for some payouts to reward top performers and to buy real estate and luxury goods. 

Many participants stood by Alexandre, whom they knew of through shared Seventh-day Adventist Church networks. They rejected the Ponzi scheme accusation even after he pled guilty in February 2023. U.S. District Judge John P. Cronan sentenced Alexandre in July, calling the operation a “massive Ponzi scheme.” He ordered Alexandre to serve 108 months in prison and to make restitution of nearly $214 million. 

Alexandre went to FCI Allenwood Low, a low-security federal correctional facility in Allenwood, Pa. in late August. 

Meanwhile, in the federal civil case brought by the Commodities and Futures Trading Commission (CFTC), Judge Valerie Caproni appointed Castleman to oversee, track down and craft a plan to return monies recovered to the participants.

Following are 10 key updates culled from a transcript of the YouTube town hall. They are in Castleman’s own words, with slight edits for clarity and length. 

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What EminiFX did with the money

No profits, no positive returns on investments

The investment returns that appeared in your EminiFX dashboard are not real. The balance displayed on the dashboard was not actually reflected in assets that were in EminiFX. What was remaining when I was appointed was only a third of the dashboard balances.

There were no profits, no positive returns on investments.

One EminiFX user wrote to me that ‘Every Friday was like Christmas morning.’ It’s not surprising that some users have said they thought they could become millionaires in a year. The problem is that none of those increases were real.

How EminiFX moved around investor funds  

There were three basic categories of investment: securities and derivatives via an online brokerage account, real estate investments and three, cryptocurrency holdings.

1. [The brokerage account] that was an account in Eddie Alexandre’s name [was] funded with $9 million of money from the corporate bank accounts. So it was ultimately funded with the contributions of the users…. In just over four months of trading, over $7 million was lost, a decline of approximately 80%. The account never turned a profit.

2. Second, there were also real estate investments. EminiFX was in contract to purchase 46 different foreclosure properties in Long Island… but none of those properties had actually been purchased. There were no takers, no buyers, so we did not go through with any of the purchases.

3. Finally, the third category was cryptocurrency. I did not find a lot of active investment in cryptocurrencies. However, most of the funds contributed by users came in via the CoinPayments system and were held in that account as Bitcoin. That means that EminiFX was at least passively investing in Bitcoin. If Bitcoin went up or down, the value of EminiFX went up or down.  

Losses and expenses incurred

In 2022, the price of Bitcoin was on a downward trajectory, with a big crash in early May. By the time I was appointed, there were over $40 million in losses in the Bitcoin held in the CoinPayments account. So there was no positive ROI from the EminiFX exposure to the price of Bitcoin. 

“I cannot promise anyone exactly how much they will get. The timing of future distributions is also uncertain at this time.”

$6 million spent in just few months

The company spent about $6 million in operating costs in just a few months, most of that was spent on salaries, rent, office equipment, and vehicles. 

$300 million in losses

So let’s add it all up. We have millions of dollars in losses in the brokerage account, no real gains in real estate, tens of millions of dollars of losses in Bitcoin and millions of dollars in costs. We have no gains anywhere. That’s how we know that the ROI was fiction. Because even though there were only actual losses and costs, the dashboard kept showing gains week after week after week.

[By May 2022], the total difference between what the EminiFX dashboard said all of your accounts were worth and the money that EminiFX actually had in its various accounts and other assets — that shortfall was over $300 million, given the losses in the trading and looking at the price of the Bitcoin, since there was no reasonable path to ever make up that shortfall. In fact, it was just getting worse when I was appointed week after week after week.

Ponzi withdrawals totaled $33 million 

What made the fund a Ponzi

When you withdrew from Emini FX, you were not being paid with profits, because no profits existed. Rather, you were being paid with the contributions of other users. And that’s how a Ponzi scheme genuinely works. 

When a user or contributors with a Ponzi scheme withdraws their money, then the promoter of that scheme uses the money that other users invested in order to make the payment to the withdrawing user. And that’s what happened here. 

How people were able to withdraw

• First, we know that withdrawals were made from the EminiFX CoinPayments account. Even though users withdrew in dollars, almost all withdrawals were paid in Bitcoin via CoinPayments. We also know the CoinPayments account was funded with user contributions.

• Once Bitcoin hit the CoinPayments system, it became one part of one large EminiFX account, like pouring a glass of water into a big lake. So when a user withdrew, it was like taking a small little glass of water from that very big lake. 

• However, the lake in this analogy was made up of contributions only. So when users withdrew over $33 million, as they did, that $33 million came from the CoinPayments account. And it came not from any trading profits, but from the $182 million that other users have contributed via CoinPayments. 

Status of funds, assets recovered

More than $153 million recovered 

At the end of the last fiscal quarter, on June 30 2023, the receivership had a total of $153.7 million under its control, all interest bearing accounts. Right now, that interest is about $400,000. Each month, we have had costs as well.

Now, my primary goal is to get what money we can back to EminiFX users and other people impacted by the EminiFX scheme. I do expect to be able to return a significant amount of funds that users contributed to EminiFX. 

Exact amounts to return to claimants still unknown

Although I do expect to return a significant amount at this stage. However, I cannot promise anyone exactly how much they will get. The timing of future distributions is also uncertain at this time. 

User portal key to making claims

We have a lot of information on what users contributed and what users withdrew. We’ve looked at bank records, cryptocurrency exchange records and EminiFX internal data to come up with a preliminary transaction list for around 100,000 transactions. 

The User Portal is going to allow users to confirm the transactions we have attributed to them based on the data that we have. It is also going to allow users to add transactions, correct transaction details, and to let us know if any of their transactions also included funds for other EminiFX users.

Timing for giving money back to investors 

So for the rest of 2023, and honestly in early 2024, [my team] and I will be working hard on the transaction reconciliation and the claims process. That may take longer, depending on the responses. There’s a substantial amount of uncertainty as to the timing of that process. 

After that we will begin formulating a distribution plan. But that will also be the subject of a separate motion before the court. 

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*Stretto is the claims agent that serves as the primary point of contact for the receivership. Users can reach Stretto at EminiFX@Stretto.com, 855-228-3721 (toll-free) or 1(949) 407-5078 (international).