Busted: SEC, and the United States New Jersey District Attorney’s Office Files Lawsuits Against Fraudulent ICO raising $30 million

On Friday, the U.S. Securities and Exchange Commission lodged civil lawsuit against Boaz Manor, business partner Edith Pardo and two companies (CG Blockchain Inc. and BCT Inc. SEZC) in connection with an allegedly fraudulent $30 million ICO raising.

“Learning about an individual’s or individual’s identity and background behind a venture is one of the first things we tell investors to do before trusting anyone with their money,” said Joseph G. Sansone, Chief of Market Abuse Unit at the SEC. “As alleged in our complaint, Manor’s brazen scheme to conceal his identity and criminal history deprived investors of essential information and allowed the defendants to take over $30 million out of the pockets of investors.”

In supposed effort to develop technologies for hedge funds and other investors in digital assets, the defendants marketed and sold digital asset securities according to the SEC.

Canadian Manor was reported to have darkened his hair, grown beard, and used aliases to hide his identity and conceal the fact that he had spent year in jail after pleading guilty to criminal charges arising from the collapse of Portus Alternative Asset Management – major Canadian hedge fund.

According to a report in the Financial Post, people who worked at Toronto’s Blockchain Terminal (BCT Inc.) and a related company, CG Blockchain, reactions ranged from “horrified” to “embarrassed” when they realized the red-haired, bearded man they knew as Shaun MacDonald, whom they described as a key player at the firm, was actually Boaz Manor, co-founder of Toronto-based Portus Alternative Asset Management Inc., a $730 million hedge fund that collapsed in 2005 amid a flurry of allegations about offshore accounts, diamonds and missing investor money.

In 2012, Manor received a four-year prison sentence in Canada for misappropriating $106 million from the Toronto-based hedge fund that he co-founded, according to Toronto news outlet The Star. The Globe and Mail announced in April that Manor agreed to repay about $8.8 million as insurance, and agreed to a financial industry life-long ban.

According to the lawsuit, Manor portrayed his New Jersey-based partner Edith Pardo as the business owner, and identified himself as hers employee named “Shaun MacDonald.” Manor reportedly confessed to some investors that he had hidden his identity because its exposure would result in “the company being ruined.”

The complaint alleges that the defendants claimed to have 20 hedge funds testing technology to record transactions on a distributed ledger or blockchain. In reality, the defendants had only sent a prototype to a dozen funds, and none of the funds used it or paid for it.

In a separate action, the U.S. Attorney’s Office for the District of New Jersey filed a criminal lawsuit against both Manor and Pardo. According to the office’s statement, both were charged with “one count of conspiring to commit wire fraud, three counts of wire fraud, and one count of securities fraud in connection with a blockchain technology company.”

An investigative report by Frank Chaparro published by The Block in December 2018 revealed Shaun MacDonald, who was pitching the token-based project to hedge funds and other investors, was an alias intended to conceal Manor’s true identity and his role in the collapse of the Canadian firm Portus Alternative Asset Management. Manor had previously served a year in prison after pleading guilty to charges in connection with Portus’s fall, as noted in the SEC statement.

Bob Bonomo, the former chief information officer at $500 billion asset manager AllianceBernstein, was titled president of CG Blockchain but allegedly had no power.

Chaparro did a solid job of digging up an attachment in an email sent by adviser Christian Ferri to a hedge fund manager in March showed that 20 crypto hedge funds were beta testing the product, including Dichotomy Capital, Three Bridges Capital, and Zega Financial.

Ferri told The Block:

“I was shocked to learn about the deception perpetrated by Shaun MacDonald. I applaud the work of investigative journalists and hope that any bad actors in the cryptocurrency space take note that they will not be allowed to operate in the dark with impunity. I have been and continue to be a strong and consistent voice for full transparency in the cryptocurrency space so that the many great advancements and innovations can be brought to the public.”

Unfortunately, a slew of A-list advisors got caught up in the maelstrom including:

  • Todd Ruppert – a venture partner at Greenspring Associates, a US-based venture capital firm w/ over $9.0 billion under management
  • Scott Walker – Angel Investor and Serial Entrepreneur
  • Chance Barnett – Advisor to numerous family offices
  • Crystal Rose -Forbes Top Woman in Blockchain
  • James Duplessie J.D. – Co-Founder Pangea Blockchain Fund
  • Joel Emery – CEO Tareo Capital Management LP
  • Ron Quaranta – Chairman, Wall Street Blockchain Alliance
  • Richard Titus – Former BBC heavyweight and Digital Transformation Specialist
  • Michael Terpin – Bitcoin luminary and Founder and CEO Transform Group
  • Christian Ferri – CEO of Blockstar

Pardo, acting as a lawyer for BCT and CG, emailed The Block contractor Larry Cermak a lawsuit purporting to seek $40 million dollars in unspecified damages after The Block story was originally published.  That’s not happening.