Fintech CEO Sentenced to six Years in Jail for A number of Fraud Packages Together with $ 7 Million Covid-19 Pandemic Mortgage Fraud and Securities Fraud | USAO-SDNY

Audrey Strauss, US District Attorney for New York’s Southern District, announced today that SHENG-WEN CHENG, aka “Justin Cheng,” aka “Justin Jung,” has been sentenced to 72 months in prison for multiple attempts at fraud. In particular, CHENG participated in a program to fraudulently obtain over $ 7 million in government guaranteed loans aimed at providing relief to small businesses during the COVID-19 pandemic. CHENG also acquired and made investments in Alchemy Coin Technology Limited and affiliates controlled by CHENG through materially inaccurate and misleading statements and omissions. Finally, as part of an advance payment system, CHENG has fraudulently obtained due diligence fees from dozens of startups. CHENG was convicted before US District Judge Alison J. Nathan today.

US Attorney Audrey Strauss said, “Sheng-Wen Cheng fraudulently applied for over $ 7 million in government guaranteed loans under programs to help financially troubled small businesses hit by the COVID pandemic. In addition, Cheng committed securities fraud by lying to investors in its blockchain-based peer-to-peer lending platform and fraudulent by engaging in an advance fee system. Now Cheng has been sentenced to prison for his numerous crimes. “

According to the complaint, information, and other documents filed in Manhattan Federal Court:

The Coronavirus Aid, Relief, and Economic Security (“CARES”) Act is federal law passed March 29, 2020 and aims to provide emergency financial aid to millions of Americans suffering from the economic effects of the COVID-19 pandemic to grant. One source of relief under the CARES Act was the approval of hundreds of billions of dollars in forgivable loans to small businesses for job retention and certain other expenses through the SBA’s Paycheck Protection Program (“PPP”). According to the CARES Act, the amount of PPP funding a company can receive is determined by the number of employees in the company and their average wage costs. The CARES Act also expanded the separate Economic Injury Disaster Loan (“EIDL”) program, which provided small businesses with low-interest loans that can provide vital economic assistance to help with the temporary loss of income they suffered from COVID-19 suffer to overcome.

CHENG, a Taiwanese national entering the United States on a student visa, was a self-proclaimed “serial entrepreneur” attending Pennsylvania State University (“Penn State”). From at least April 2020 through at least August 13, 2020, CHENG used other people’s identities to submit online applications to the SBA and at least five financial institutions for a total of over $ 7 million in government-guaranteed loans through the PPP and SBA’s EIDL program for several CHENG-controlled companies, namely Alchemy Finance, Inc., Alchemy Guarantor LLC d / b / a “Celer Offer”, Celeri Network, Inc., Celeri Treasury LLC, Wynston York LLC, and Neo Bellum Industries Inc . (collectively the “Cheng Enterprises”). In connection with these loan applications, CHENG represented, among other things, that other persons are the sole owners of the Cheng companies and that the Cheng companies together employed over 200 people and paid a total of around 1.5 million US dollars in wages to these employees per month. In fact, the Cheng companies do not appear to have more than 14 employees in total.

To corroborate the misrepresentations in the loan applications about the number of employees and the wages paid by the Cheng companies, CHENG filed fraudulent and forged tax records that were never actually filed with the IRS and payrolls with the fake electronic signature of an employee a payroll accounting. CHENG also filed a payroll for one of its companies listing the names of more than 90 alleged employees, some of whom consisted of current and former athletes, artists, actors and public figures. For example, the list of alleged employee names included a co-host on Good Morning America, a former National Football League player, and a prominent former Penn State football coach who has now passed away.

Based on the fraudulent PPP loan applications submitted by CHENG, a total of more than 3.7 million was raised instead of using the PPP loan proceeds for labor, mortgage, rent and / or utility services for the alleged Cheng companies as required by the PPP , CHENG transferred over $ 1 million overseas, withdrew approximately $ 360,000 in cash and / or cashier’s checks, and spent at least approximately $ 279,000 in PPP loan proceeds on personal expenses. These personal expenses included buying an 18-karat gold Rolex watch for approximately $ 40,000, rent and move-in fees for a luxury condominium used by CHENG of $ 17,000 per month, approximately $ 50,000 for condo furnishings, a portion of the 2020 S560X4 Mercedes purchase, and approximately $ 37,000 total of purchases from Louis Vuitton, Chanel, Burberry, Gucci, Christian Louboutin and Yves Saint Laurent.

In addition to the COVID-19 pandemic loan fraud described above, from at least 2017 through at least 2019 or about 2019, CHENG committed securities fraud by soliciting and receiving investments of approximately $ 400,000 in Alchemy Coin Technology Limited and affiliates (“Alchemy Coin “), which is controlled by CHENG. These investments were driven by materially false and misleading statements and omissions regarding Alchemy Coin’s capital access, the use of investor proceeds, the product readiness of its supposedly blockchain-based peer-to-peer lending platform, and the registration of its tokens as part of an initial coin offering.

Finally, from at least 2018 or around 2018 to at least or around 2019, CHENG committed transfer fraud by fraudulently receiving around $ 380,000 in due diligence fees from dozens of start-up companies as part of an advance fee schedule. While searching for investors, CHENG falsely informed these companies that in exchange for a fully refundable due diligence fee, CHENG would conduct due diligence on the companies and review them for investments or otherwise assist them in obtaining funding. However, CHENG had no interest in or financial means to invest in any of the victim companies, did not return the allegedly refundable fees despite repeated requests from victims, and used the fees for personal expenses instead of performing due diligence. When CHENG was faced with fee repayment by victims after realizing no investments had been made, CHENG falsely told victims that he did not have the fees and that a third party due diligence company he hired had stolen the fees.

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CHENG, 25, of New York, New York, pleaded guilty on April 20, 2021, in a case of serious fraud against the United States, a case of bank fraud, a case of securities fraud, and a case of wire transfer fraud.

In addition to the prison sentence, CHENG was sentenced to three years’ supervised release and was instructed to confiscate luxury items, including a Mercedes, a Rolex watch and a diamond engagement ring, confiscated in connection with his arrest. The amount of compensation paid to the victims of the crime will be determined at a later date. CHENG also agreed to be deported from the United States upon his release from prison.

Ms. Strauss commended the investigative work of the Federal Bureau of Investigation, the Office of the Inspector General of the US Small Business Administration, and the Internal Revenue Service Criminal Investigation. Ms. Strauss also thanked the U.S. Securities and Exchange Commission, U.S. Customs and Border Protection, and the New York State Department of Labor for their assistance.

Law enforcement in this case is carried out by the Office’s Complex Fraud and Cybercrime Division. Deputy Attorney General Sagar K. Ravi leads the indictment.