CEO sentenced to 6 years for COVID relief fraud, ICO fraud and more

The Justice Department said Wednesday that a former fintech CEO has been sentenced to six years in prison after pleading guilty to charges related to COVID-19 pandemic loan fraud and crypto investment fraud.

Justin Cheng, per the DOJ release, was sentenced "for multiple fraud schemes he perpetrated." Among the alleged crimes, Cheng raised $400,000 for a lending startup that used blockchain tech, dubbed Alchemy Coin. Prosecutors said that Cheng misled investors about the viability of the project and the legality of an initial coin offering held in connection with it.

As the DOJ release note:

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

Cheng also solicited millions of dollars in Paycheck Protection Program loans from a pandemic-focused relief program funded by the U.S. government. 

"Based on the fraudulent PPP loan applications submitted by CHENG, a total of more than $3.7 million in PPP loans were approved for the Cheng Companies and approximately $2.8 million in PPP loan proceeds were deposited into bank accounts solely controlled by CHENG," the DOJ said. "Instead of using the PPP loan proceeds for payroll costs, mortgage interest, rent, and/or utilities for the purported Cheng Companies as required by the PPP, CHENG transferred over $1 million abroad, 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."

Additionally, prosecutors said that Cheng "committed wire fraud by fraudulently obtaining due diligence fees from various start-up companies as part of an advance fee scheme through materially false and misleading statements regarding the purpose and refundability of the fees and his interest and ability to make investments in the start-up companies" between 2018 and 2019.

Cheng pleaded guilty to the charges in April. In addition to the prison term, he was sentenced to three years supervised release and will be forced to leave the United States following his exit from prison.