Listen to this articleFour people, including three Long Islanders, have pleaded guilty in federal court in Central Islip to defrauding a global financial services firm of more than $2 million, officials said Thursday.
Between June 4 and July 18, the four people pleading guilty included Edward Hernandez of Lindenhurst, Christopher Flagg of Copiague, Daquan Lloyd of Copiague and Corey Ortiz of Greensboro, North Carolina, according to U.S. Attorney for the Eastern District of New York Breon Peace.
They pleaded guilty to money laundering conspiracy in connection with a scheme to steal millions of dollars from a firm based in Menlo Park, California. Now, they face a sentence of 20 years in prison each, restitution of up to an estimated $2.08 million and forfeiture between $56,390 and $700,425.
“Each defendant was convicted of their roles in a sprawling and complex nationwide scheme organized from Long Island to steal millions of dollars that were intended for legitimate investors and launder the proceeds of their crime,” Peace said in a news release about the guilty pleas. “Today’s guilty plea demonstrates how this Office will swiftly bring to justice those who fraudulently manipulate the financial system, no matter how complex the scheme.”
Officials say that between December 2018 and January 2023, the defendants engaged in the fraud scheme, which involved short-term cash advances, 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 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 were deliberately initiated by the defendants from bank accounts that had little or no balance, officials said.
As a result, these wire transfers 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, according to the DOJ.
Officials said that “dozens” of individuals had been recruited by the defendants to take part in the scheme.