February 4, 2023

Volume XIII, Number 35

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February 03, 2023

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February 02, 2023

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DOJ Announces $3.3 Billion Cryptocurrency Seizure and Fraud Conviction

Headlines that Matter for Companies and Executives in Regulated Industries

DOJ Announces $3.3 Billion Cryptocurrency Seizure and Fraud Conviction

On Friday, November 4, James Zhong pled guilty to committing wire fraud in September 2012, when he allegedly executed a scheme to defraud “Silk Road,” a now-defunct dark web marketplace that was shut down in 2013, and unlawfully obtained over 50,000 Bitcoin. According to the government, Zhong’s scheme involved creating about nine Silk Road accounts in order to conceal his identity, and then triggering over 140 transactions in rapid succession to trick Silk Road’s withdrawal system into releasing Bitcoin into Zhong’s various accounts. For example, in one set of transactions, Zhong allegedly deposited 500 Bitcoin into one of his Silk Road wallets, and then executed five separate withdrawals of 500 Bitcoin within one second, resulting in a net gain of 2,000 Bitcoin. Zhong is scheduled to be sentenced on February 23, 2023. He faces a maximum sentence of 20 years in prison.

The DOJ also announced that, in November 2021, a search warrant was executed on Zhong’s Georgia home that resulted in the seizure of over 50,000 illegally obtained Bitcoin. According to the DOJ, these Bitcoin were hidden in various places, including on a single-board computer hidden in a popcorn tin. The total value of the seized Bitcoin as of November 2021 was over $3.36 billion, making it the second largest financial seizure in DOJ history.

Read the DOJ’s press release here.

Former Excavator Sentenced to Five Years for Kickback Scheme

Mario Giannini, the owner of an Illinois excavation company, was sentenced to five years’ imprisonment following his June 2022 conviction on 14 counts of wire fraud. According to the government, between May 2012 and January 2020, Giannini and his wife, Debra Fazio, paid the Bloomingdale Township highway commissioner, Robert Czernek, a cut of payments that Giannini’s company received from the township. These kickback payments were in the form of checks and inflated invoices for work that Giannini never actually performed for the township. The government claims that, in exchange for the kickback payments, Czernek approved fraudulent invoices. In total, the highway commissioner allegedly received more than $280,000 as a result of the scheme.

The government also charged Fazio with 14 counts of wire fraud and 6 counts of money laundering, but her request for acquittal was granted at the close of her and Giannini’s three day trial. Czernek has admitted his role in the scheme and is scheduled to be sentenced in January 2023.

Former MoviePass Executives Charged with Securities Fraud

Mitchell Lowe, the former CEO of MoviePass Inc., and Theodore Farnsworth, the former Chairman and CEO of MoviePass’ parent company, Helios & Matheson Analytics Inc. (HMNY), were each charged with one count of securities fraud and three counts of wire fraud for their role in a scheme to defraud investors of HMNY through materially false and misleading statements designed to inflate the price of HMNY’s stock.

For example, the government claims that Lowe and Farnsworth represented to investors that MoviePass’ $9.95 plan that allowed new subscribers unlimited access to movie theaters was sustainable and profitable, when in reality it was a temporary marketing strategy that resulted in a net loss for MoviePass. In fact, Lowe and Farnsworth are alleged to have attempted to minimize losses resulting from the unlimited subscription plan by directing MoviePass employees to develop tactics designed to prevent subscribers from accessing their unlimited benefits. In addition, according to the indictment, Lowe and Farnsworth falsely represented that HMNY used sophisticated technologies to monetize MoviePass subscriber data even though it did not possess any such technologies.

Both men face up to 20 years’ imprisonment for each charged count.

Read the DOJ’s press release here.

© 2023 ArentFox Schiff LLPNational Law Review, Volume XII, Number 315

About this Author

D. Jacques Smith Attorney Litigation ArentFox Schiff Washington DC
Partner and Complex Litigation Practice Co-Leader

Jacques focuses his practice on government investigations and enforcement. Recognized as one of the top False Claims Act practitioners in the country, his clients largely encompass all branches of health care and life sciences. He has more than 30 years of experience handling jury, bench, and administrative trials in a variety of civil and criminal cases in state and federal courts throughout the country. Jacques excels at handling complex commercial disputes and internal investigations and responding to government inquiries. 

Jacques is...

Randall A. Brater Litigation Attorney ArentFox Schiff Washington DC

Randy routinely litigates high-stakes matters in state and federal courts, including preliminary injunctions, motions practice, jury and bench trials, arbitrations, and mediation.

Randy often handles matters related to investigations and the False Claims Act, municipal bond finance, and trademark litigation. Randy also has represented agricultural chemical manufacturers in numerous data compensation disputes arising under the Federal Insecticide, Fungicide and Rodenticide Act (FIFRA), environmental actions under CERCLA, employment, trade secret...

Mohammed T. Farooqui ArentFoxSchiff

Mohammed has conducted internal and external investigations to assess compliance with federal and state laws, advised companies on adopting strategies to ensure compliance with anti-bribery and anti-corruption laws and regulations, and defended companies and individuals in actions brought by the DOJ and SEC. 

His experience includes leading a team of ArentFox Schiff attorneys tasked with reviewing the practices and procedures of one of the largest law enforcement agencies in the United States. Mohammed's regulatory enforcement experience...

Apeksha Vora Civil and Commercial Litigation Attorney ArentFoxSchiff

Apeksha has experience handling a broad range of regulatory and civil and commercial litigation matters.  In addition, Apeksha has helped advise clients through internal investigations and Bank Secrecy Act/anti-money laundering matters.