Fintech Entrepreneur Cops To Fraud In Pandemic Relief Rap

By Pete Brush
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Law360, New York (April 20, 2021, 4:43 PM EDT) -- A Taiwanese national who managed an online lending platform and a purported crypto token offering copped to fraud charges Tuesday, after the Manhattan U.S. attorney's office charged him with offenses including lying to get $7 million in pandemic relief loans.

Sheng-Wen Cheng, 24, of Manhattan pled guilty to four fraud counts at a virtual hearing before U.S. District Judge Alison J. Nathan, who set an Aug. 3 sentencing date. He faces a guidelines prison sentence in the range of seven years, according to a plea agreement, and a theoretical maximum of 80 years. The U.S. Securities and Exchange Commission filed a separate civil suit Tuesday accusing Cheng of lying to investors.

Cheng, who also goes by Justin Cheng and Justin Jung, was arrested in August and accused of sending fake employee and payroll numbers for his businesses — including Alchemy Marketplace, a peer-to-peer loan site — to the Small Business Administration.

"I knew I had provided false information," Cheng said Tuesday.

Cheng was behind bogus applications to five banks for loans from the Paycheck Protection Program and Economic Injury Disaster Loan program between May and August, the feds said. The program was set up to assist businesses hit hard by the COVID-19 virus.

The defendant listed more than 200 employees and monthly payrolls worth $1.5 million, when he in fact had only 14 employees, the feds said.

Banks sent Cheng $2.8 million, which he used on rent for a luxury condo, a luxury automobile and a Rolex watch, the feds said.

He also lied to would-be private investors about a crypto token offering, prosecutor Sagar Ravi said.

Cheng, who had described himself as a "serial entrepreneur" on LinkedIn before his arrest, entered the U.S. on a student visa that has since expired. He likely will face deportation to Taiwan upon serving any prison sentence, Judge Nathan said.

Counsel for Cheng had no immediate comment after the hearing.

In the SEC suit filed Tuesday, the agency alleges Cheng lied about his background and his companies to investors, then misused about $300,000 of the $404,000 he raised. Cheng pitched investors on a blockchain-based platform for student loans and other lending, but the platform was never operational, the SEC alleged.

"Cheng made material misstatements to [prospective investors] about guaranteed returns, the use of investor proceeds, and the amount of money raised," the complaint said. Moreover, "Cheng misappropriated at least $300,000 in investor proceeds for his personal use, including for the payment of personal expenses," the SEC alleged.

The SEC is seeking a court order permanently barring Cheng from participating in any offering of a "digital asset security," and requiring him to disgorge ill-gotten gains and pay civil penalties.

Cheng also faces a lawsuit from investors in Alchemy that accuses him of unjust enrichment, securities fraud and breach of contract, among other claims. The case is currently pending in New York federal court.

Cheng is represented by Peter Katz of the Law Offices of Peter Katz LLC.

The government is represented by Sagar Ravi of the U.S. Attorney's Office for the Southern District of New York.

The case is U.S. v. Cheng, case number 1:20-mj-08698, in the U.S. District Court for the Southern District of New York.

--Additional reporting by Elise Hansen. Editing by Adam LoBelia.

Update: This story has been updated with information about the SEC complaint.

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