Securities Industry Commentator by Bill Singer Esq

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The Coronavirus Aid, Relief, and Economic Security ("CARES") Act is a federal law enacted on March 29, 2020, designed to provide emergency financial assistance to the millions of Americans who are suffering the economic effects caused by the COVID-19 pandemic.  One source of relief provided by the CARES Act was the authorization of hundreds of billions of dollars in forgivable loans to small businesses for job retention and certain other expenses through the SBA's Paycheck Protection Program ("PPP").  Pursuant to the CARES Act, the amount of PPP funds a business is eligible to receive is determined by the number of employees employed by the business and their average payroll costs.  The CARES Act also expanded the separate Economic Injury Disaster Loan ("EIDL") Program, which provided small businesses with low-interest loans that can provide vital economic support to help overcome the temporary loss of revenue they are experiencing due to COVID-19.

CHENG, a Taiwanese national who entered the United States on a student visa, was a self-proclaimed "serial entrepreneur" who attended Pennsylvania State University ("Penn State").  From at least in or about April 2020 through at least on or about August 13, 2020, CHENG used the identity of other individuals to submit online applications to the SBA and at least five financial institutions for a total of over $7 million in government-guaranteed loans through the SBA's PPP and EIDL Program for several companies controlled by CHENG, namely Alchemy Finance, Inc., Alchemy Guarantor LLC d/b/a "Celer Offer," Celeri Network, Inc., Celeri Treasury LLC, Wynston York LLC, and Neo Bellum Industries Inc. (collectively, the "Cheng Companies").  In connection with these loan applications, CHENG represented, among other things, that other individuals were the sole owners of the Cheng Companies and that the Cheng Companies together had over 200 employees and paid a total of approximately $1.5 million in wages to those employees on a monthly basis.  In fact, however, the Cheng Companies appear to have had a total of no more than 14 employees. 

In order to support the false representations in the loan applications about the number of employees at and the wages paid by the Cheng Companies, CHENG submitted fraudulent and doctored tax records that were never actually filed with the IRS and payroll records containing the forged electronic signature of a payroll company employee.  CHENG also submitted a payroll summary for one of his companies that listed the names of more than 90 purported employees, several of which consisted of current and former athletes, artists, actors, and public figures.  For example, the list of purported employee names included a co-anchor on Good Morning America, a former National Football League player, and a prominent former Penn State football coach who is now deceased.

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.  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.  These personal expenses included the purchase of an 18-carat gold Rolex watch for approximately $40,000, rent and move-in fees for a $17,000 per month luxury condominium used by CHENG, approximately $50,000 of furnishings for the condominium, a portion of the purchase of a 2020 S560X4 Mercedes, and purchases totaling approximately $37,000 at Louis Vuitton, Chanel, Burberry, Gucci, Christian Louboutin, and Yves Saint Laurent.

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. 

Finally, from at least in or about 2018 through at least in or about 2019, CHENG committed wire fraud by fraudulently obtaining a total of approximately $380,000 in so-called "due diligence fees" from dozens of start-up companies as part of an advance fee scheme.  CHENG falsely told these companies seeking investors that, in exchange for a due diligence fee that was fully refundable, CHENG would perform due diligence on the companies and assess them for investments or otherwise assist them in securing funding.  However, CHENG had no interest in or financial ability to invest in any of the victim companies, did not return the purportedly refundable fees despite repeated requests from victims, and used the fees for personal expenses as opposed to performing any due diligence.  When CHENG was confronted by victims to return the fees after they realized that no investments were forthcoming, CHENG falsely told the victims that he did not have the fees and that a third-party due diligence company he had employed had stolen the fees.

• Securities Industry Commentator
• Bill Singer