Indicted fraudsters had Cayman registered SEZC company

(CMR) The Securities and Exchange Commission today charged two men today, who raised $30 million through a fraudulent initial coin offering (ICO) of a Cayman Island exempted company in the Special Economic Zone.

In their press release, they have confirmed that convict Boaz Manor (46), his business associate, and two companies, CG Blockchain Inc. and BCT Inc. SEZC, with violating the antifraud and securities registration provisions of the federal securities laws. Manor is a dual citizen of Canada and Israel.

According to the SEC’s complaint, between August 2017 and September 2018, the defendants marketed and sold digital asset securities in a purported effort to develop technologies for hedge funds and other investors in digital assets.

Manor, a former Canadian hedge fund manager served jail time following the collapse of Portus Alternative Asset Management Inc. in 2005, a $730-million hedge fund that collapsed amid a flurry of allegations about offshore accounts, diamonds, and missing investor money. As reported by The Star, Portus misappropriated about $106 million and $8.8 million was sent to companies in Hong Kong to purchase diamonds. Those diamonds were picked up by Manor’s sister, according to court documents. Those diamonds are also now missing.

Manor pleaded guilty in Canada to laundering the proceeds of crime and disobeying a court order. He remained a fugitive for two years before returning to the country.

He was sentenced to four years in prison and served one year, prosecutors said. In 2012, he agreed to pay 8.8 million Canadian dollars, and the Ontario Securities Commission banned him from trading securities and managing investment funds.

After his prison release Manor founded a business, CG Blockchain Inc., and began creating a product called ComplianceGuard, which was purportedly designed to provide hedge funds with a blockchain-based auditing tool. To carry out his latest scheme Manor changed his appearance and used numerous aliases, including Shaun MacDonald, to hide his criminal past from his investors.  It is alleged that Manor borrowed the bulk of initial seed money from a family friend and used his co-accused as the source of the funds.

In 2017, CG Blockchain launched an “Initial Coin Offering” (ICO), and began marketing its new product – “Blockchain Terminal” – to potential investors. CG Blockchain described Blockchain Terminal as a computer terminal that allowed hedge funds and financial institutions to trade and manage cryptocurrency.

He falsely claimed that 20 hedge funds were paying a $1 million yearly fee to use the product. He also used his co-accused, New Jersey attorney, Edith Pardo (68) as bait for prospective investors. He claimed that Pardo was an independently wealthy investor who put $3 million in CG Blockchain.

Both Manor and Pardo are charged with conspiracy, wire fraud and securities fraud. They were also sued by the Securities and Exchange.

“Pardo neither invested millions in the business nor exercised managerial authority over it, and instead acted merely as a front that concealed Manor’s true control over the business,”

according to the SEC complaint.

“Defendants also made materially false or misleading statements about the state of the technology products they were developing.”

So-called initial coin offerings exploded in 2017 and collected billions in investor funds. According to Satis Group, a crypto consulting firm 80% of the projects were scams and never produced a working product. Governments around the world are cracking down on ICOs, with some, such as China, prohibiting them entirely.

The conspiracy and wire fraud counts in the indictment carry a maximum potential penalty of 20 years in prison and $250,000 fine, or twice the gross gain or loss from the offense. The securities fraud count carries a potential penalty of 20 years in prison and a $5 million fine.

The U.S. Securities and Exchange Commission (SEC) also filed a civil complaint against Manor and Pardo today based on the same conduct.

Manor is a dual citizen of Canada and Israel. Pardo, who is licensed as an attorney in New York, is an Israeli citizen. Pardo was arrested Friday and she is scheduled to appear in federal court in Newark. Manor remains at large.