A company called EminiFX claimed it had developed a proprietary trading system that would invest people’s money in cryptocurrency and the foreign exchange markets, also known as forex.
When the Justice Department and Commodity Futures Trading Commission filed complaints against a suspected Ponzi scheme by the company, they believed the swindle amounted to $59 million.
But that turned out to be a gross underestimate, according to a preliminary report filed by David Castleman, a partner at Raines Feldman in New York, who has been appointed receiver for EminiFX.
The Justice Department and Commodity Futures Trading Commission alleged that EminiFX, owned by Eddy Alexandre of New York, was a Ponzi-like scheme that promised participants guaranteed returns of at least 5 percent every single week.
Castleman said his investigation found that $250 million was collected from investors from September 2021 until May 2022 and that there were 62,000 EminiFX user accounts. Emil Bove, an attorney for Alexandre, did not respond to requests for comment. Alexandre entered a plea of not guilty, according to the Justice Department.
Based on Castleman’s forensic look at EminiFX, the sophistication of the platform and its production of what appear to be phantom returns is astounding.
This is like no other case I’ve followed. Thousands of investors, many from Haiti, are standing behind Alexandre. Close to 14,000 EminiFX investors have already signed a change.org petition in support of the Haitian-born Alexandre, who many believe is a victim of racist prosecution.
“Together we will fight this,” one petition signer wrote. “When will we get a break with this discrimination? I’m sure things would have been way different if we were from a different race.” Another wrote, “The system is basically telling us (Black people) to stick to basketball, football and rap music if we ever want to get out of poverty.”
Several investors I interviewed are convinced the profits they saw in their online accounts from Alexandre were real. “He gave it to you every week,” said Markens Nicolas, who helped start the change.org petition. “So that makes it more believable.”
Here is how the platform worked, according to the investigation. EminiFX users deposited cash or cryptocurrency into the system. There was a multilevel marketing aspect of the platform where people could earn bonuses for recruiting others. Account balances were shown in U.S. dollars. Investors maintained funds in their “e-wallets” used for deposits or “trading wallets.”
“Every Friday, a weekly “ROI” or return on investment of between 5 percent and 9.99 percent was applied to every EminiFX user’s account balance, the same ROI for all users,” the report said.
Information from the EminiFX system showed positive returns every week, from a low of 5.01 percent to a high of 9.99 percent. “I haven’t found any investing activity to support those returns,” Castleman said in an interview.
An investor who deposited $10,000 in cash on Oct. 15, and elected to reinvest the supposed returns into a trading wallet, would have seen an account balance of over $77,000 by the time the company was shut down in May 2022, Castleman’s report indicated. That would have been an extraordinary and highly improbable return in such a short time frame.
Castleman’s investigation found over 22,000 withdrawal transactions from the EminiFX platform totaling nearly $35 million between November 2021 and May 2022. However, much more money was flowing into the operation. If the company took in more than $250 million, this could explain how investors never realized their gains weren’t real.
“Many users appear to never have withdrawn or redeemed funds,” according to Castleman’s report to the court. Generally, a Ponzi scheme involves people being paid not from investment returns but from money collected from other investors.
After investigating all possible investing activities, Castleman said he couldn’t trace how the weekly returns that were applied to EminiFX user accounts were generated. He was unable to locate any evidence for the existence of the proprietary trading system referred to as a Robo Assisted Adviser Account, or RA3, in any EminiFX file or anywhere in the code base.
The report said that none of the former employees understood how the weekly return on investments was earned, what the RA3 was, or how it worked. By the time Castleman took over the platform, the total balances of all the trading wallets were reportedly about $512 million.
But he could only find assets worth about $170 million. Included in that total are more than 3,650 bitcoins located in an Estonia cryptocurrency exchange valued at more than $85 million based on the July 20 trading price.
However, bitcoin’s price volatility from November 2021 to May 2022 could not have resulted in the consistently positive weekly returns that were being applied to the EminiFX user accounts. The price of bitcoin was falling sharply amid a sell-off in the stock market.
There was some trading going on, but it was in Alexandre’s personal brokerage account. The records show Alexandre invested $9 million, “almost exclusively in funds that are clearly traceable to EminiFX corporate accounts,” Castleman reported. And even then, Alexandre’s personal trading resulted in over $7 million in losses — not the healthy profits he kept claiming — by the time a receiver was appointed.
The receiver has shut down the EminiFX website and operations and has been searching for any and all assets. A dedicated website, eminifxreceivership.com, which is in English and French, has been set up to keep investors informed and eventually set up a claims process.
Although Alexandre has yet to go to trial, for the tens of thousands of people who put their faith in him, the hope of becoming wealthy by investing with EminiFX is not going to happen.
“Most of the investors are worried that their money is being held by a receivership they do not trust,” Nicolas said.