Three Long Islanders were among the four charged in federal court Tuesday in an alleged $2 million securities fraud and money laundering scheme, officials said.
The charges surrounded a scheme to steal the funds from a global financial services company based in Menlo Park, California, according to Breon Peace, U.S. attorney for the Eastern District of New York and James Smith, assistant director-in-charge of the Federal Bureau of Investigation, New York Field Office.
Officials said in a news release that the defendants’ scheme involved creating “hundreds of sham brokerage accounts in order to access short-term cash advances which the defendants then stole through a complex options trading scheme.”
The defendants include Eduardo Hernandez of Lindenhurst, Christopher Flagg of Copiague, Daquan Lloyd of Copiague and Corey Ortiz of Greensboro, North Carolina, who remains at large.
LIBN was unable to immediately reach their attorneys.
“The defendants are charged with stealing millions of dollars by creating fraudulent brokerage accounts and engaging in sham trading,” Peace said in a statement. “For years, the defendants deceived others to line their own pockets. Today’s indictment shows that this Office will hold accountable anyone who tries to manipulate the financial system.”
“The defendants allegedly engaged in a sprawling multiyear complex financial fraud scheme, which saw more than 2 million dollars stolen,” Smith said in a statement. “This type of scam is not only illegal, but weakens the public’s faith in our financial marketplace. The FBI will continue to ensure that anyone attempting to benefit from this type of fraud is punished in the criminal justice system.”
Officials said that between December 2018 and January 2023, the defendants allegedly engaged in a scheme called “instant deposits.” Those deposits were intended to enable legitimate investors to immediately trade in their brokerage accounts without having to wait for an incoming wire transfer to clear. To gain access to millions of dollars of instant deposits, which were typically capped at $5,000 per account, the defendants allegedly established a multi-state recruitment network through which the they allegedly opened hundreds of fraudulent accounts held in the names of straw account holders, or “losing accounts.”
Using the instant deposits available to the losing accounts, the defendants allegedly repeatedly bought “thinly traded and highly speculative stock options at above market prices,” according to the DOJ. The scheme enabled the defendants to match their bids in the losing account with offers to sell the same overpriced stock options initiated by other brokerage accounts, or “winning accounts,” that the defendants and their conspirators allegedly controlled, according to the DOJ.
The defendants allegedly transferred the instant deposits from the losing accounts to the winning accounts by way of fraudulent securities transactions. Meanwhile, the incoming wire transfers that were supposed to cover the instant deposits in the losing accounts had purposely been initiated by the defendants from bank accounts that had little or no balance, officials said.
These wire transfers, therefore, failed to clear, but not before the defendants drained the instant deposits, leaving the accounts with negative balances and worthless options. The defendants then laundered the stolen funds through multiple electronic banking platforms, officials said.
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