Fintech Entrepreneur Denies $7M Pandemic Relief Fraud

By Jody Godoy
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Law360 (August 18, 2020, 6:16 PM EDT) -- A man who ran online lending platforms pled not guilty on Tuesday to charges of seeking $7 million in pandemic relief loans based on inflated payrolls and fake employees, Manhattan federal prosecutors said Tuesday.

Sheng-Wen Cheng, 24, also known as Justin Cheng and Justin Jung, is charged with fraudulently filing for $7 million in loans from Small Business Administration programs meant to bolster small companies during the COVID-19 pandemic. Prosecutors allege Cheng faked employee numbers for his businesses, including Alchemy Marketplace, a small loan and private debt investment site.

Cheng allegedly also filed for relief loans on behalf of Alchemy Finance and Celeri Network, which are also described as lending platforms on their websites, as well as three of his other companies.

According to the government, Cheng was behind applications made in others' names to five banks for loans from the Paycheck Protection Program and Economic Injury Disaster Loan Program between May and August.

Prosecutors say the applications collectively listed more than 200 employees and monthly payrolls worth $1.5 million when Cheng's companies only had 14 employees.

The banks disbursed $2.8 million in loan funds, of which prosecutors claim Cheng transferred more than $880,000 abroad, withdrew $360,000 and spent more than $275,000, including on rent for a luxury condo and buying a Mercedes and a gold Rolex.

Acting U.S. Attorney Audrey Strauss said in a statement that Cheng's "paid vacation" is over.

"At a time when so many small businesses and their employees are facing dire financial straits, Sheng-Wen Cheng allegedly saw not an emergency lifeline but a gravy train," she said.

Cheng faces seven charges, including wire fraud, bank fraud and aggravated identity theft, which carries a mandatory minimum sentence of two years in prison. He was ordered detained pending trial on Tuesday.

Ali Najmi represents Cheng and told Law360 on Tuesday that his client maintains his innocence. 

"We are reviewing the charges and the government's allegations. Mr. Cheng is entitled to a presumption of innocence," Najmi said.

The criminal charges are not the only fraud allegations Cheng faces in Manhattan court.

An investor sued Cheng, Alchemy Marketplace and other companies over the summer claiming Cheng solicited a quarter-million-dollar investment in an unregistered "Alchemy token" based on false representations.

According to the suit by Rishan Bhagowat, Cheng claimed to have "built a functional blockchain-based peer-to-peer lending platform that would tokenize collateral debt obligations" and said he had raised $30 million from investors. Bhagowat claims those representations were false. Alchemy and Cheng have until Aug. 28 to answer the complaint in the case.

An attorney who represents Cheng in the civil case did not immediately reply to a request for comment Tuesday.

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

Cheng is represented by solo practitioner Ali Najmi.

The criminal case is U.S. v. Cheng in the U.S. District Court for the Southern District of New York. The case number was not available Tuesday.

--Editing by Alyssa Miller.

For a reprint of this article, please contact reprints@law360.com.

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