The Securities and Exchange Commission has filed an emergency action and obtained a temporary restraining order and asset freeze to stop what it claims is a fraudulent cryptocurrency scheme.
According to an SEC complaint filed Tuesday in the U.S. District Court, Western District of Pennsylvania, brothers Sean Hvizdzak and Shane Hvizdzak sold securities in a private fund that said it would invest in digital assets from at least July 2019 through May 2020.
For the venture, which involved three entitities, the Hvizdzak’s misrepresented fund performance, fabricated financial statements and forged audit documents.
The defendants “fraudulently raised and subsequently misappropriated millions of dollars from the sale of limited partnership interests in High Street Capital Fund USA,” a fund that they claimed would invest in digital asset for the benefit of fund investors, the complaint alleges.
In soliciting investments, the defendants “misrepresented key information to potential investors about the fund’s past performance and assets, and provided investors and/or their representatives with false financial statements and a forged audit report” for the fund, the SEC claimed.
“Once invested, defendants, without investor knowledge or consent, moved millions of dollars of investor funds from fund accounts into the personal bank accounts of Shane and Sean, where defendants further dissipated investor funds into personal digital asset accounts,” the regulator charged.
Details on the Diversion of ‘Millions’
For instance, the fund’s marketing materials said it earned 100.77% and 92.90% on its investments during the third and fourth quarters of 2019, respectively, when the fund actually lost money in those quarters, according to the SEC.
The regulator also alleged that the brothers diverted tens of millions of dollars from the fund to their personal accounts at banks and digital-asset trading platforms, and then transferred the assets to themselves and to others via multiple Blockchains.
The Hvizdzaks “touted exceptional, but false, performance to potential investors when offering their fund,” according to Adam S. Aderton, co-chief of the SEC’s Asset Management Unit. “Investors should be skeptical of claims that seem too good to be true.”
Shane Hvizdzak did not immediately respond to a request for comment Friday.
In addition to the Hvizdzaks, the complaint also named Hvizdzak Capital Management, High Street Capital and High Street Capital Partners as defendants and accused them all of violating the anti-fraud provisions of federal securities laws.
On Tuesday, the court ordered an accounting and expedited discovery and prohibited the destruction of documents.
A hearing is set for June 30 to consider continuing the asset freeze and the issuance of a preliminary injunction.