The SEC filed charges against the Adam brothers, alleging they defrauded investors’ funds committed to a crypto-based lending pool.
The Gary Gensler-led Securities and Exchange Commission (SEC) confirmed leveling charges against two brothers involved in flash loan fraud. The accused were lying that the funds would be placed within the lending pool offering flash loans.
In a Monday, August 26 update, the SEC claimed the brothers were behind a scheme that defrauded over 80 investors for 12 months. The accused operated the $60M crypto Ponzi scheme.
The SEC imposed an emergency asset freeze order against the accused, Jonathan Adam, a Texas resident. His brother, Tanner Adam, who resides in Miami, Florida, is also charged. The complaint filed captures Triten Financial Group LLC alongside GCZ Global LLC as defendants per Monday’s statement.
Adam Brothers Mislead Investors on Potential Returns
The SEC filed the complaint charges in Georgia’s Northern District Court. It accuses the Adam brothers and their enterprises of contravening the provisions of federal securities law.
The SEC explains that the brothers offered misleading promises to the investors by providing 13.5% monthly returns. The securities watchdog reveals that the scheme ran from January 2023 till mid-2024. The accused would leverage a crypto trading bot to spot profitable arbitrage opportunities.
The SEC claims the duo orchestrated fraud despite misleading the investors that they would realize a considerable reap. Notably, they indicated that the funds collected from the investors would constitute a fund pool from which flash loans extended using smart contracts in the trades’ execution.
Flash loans enable individuals to borrow without collateral, provided the loan advance is repaid within the exact blockchain transaction. The brothers pitched the idea as a foolproof approach to earn money. Nonetheless, the SEC’s complaint discloses that the Adam brothers were fabricating the information conveyed to the investors regarding the existence of a lending pool.
The SEC illustrates that the brothers misinformed investors that they would wire their funds to the crypto exchange Kraken. Such will allow the conversion of the US dollars into Tether’s stablecoin USDT.
The Adam brothers informed the investors that they would quickly transfer the USDT to the crypto wallet. The funds would then be utilized in high-frequency trades.
Brothers Misappropriate Investors’ Contribution
The agency indicated that from the $61.5M the investor contributed, at least $53.9M was either misappropriated or allocated toward paying interests. The SEC alleges in its complaint that the accused channeled another portion to settle finders’ fees besides returning the principal to the existing investors.
The regulator claims the Adam brothers would instead siphon million-dollar contributions from the investors to fund the luxurious lifestyles.
Tanner Adam reportedly utilized the investor funds to remit installment payments on the $30M Miami condo. Simultaneously, the SEC complaint shows Jonathan Adam spent $480,000 to acquire luxury vehicles, including recreational vehicles, trucks, and cars.
The regulator filing reveals that the brothers still dissipated the assets in June. According to the complaint, the accused’s actions depleted the investors’ contributions, leaving barely a $400,000 balance in the bank accounts.
According to the complaint, the Adam Brothers continually depleted the investors’ funds in June this year. The rampant depletion left little if any of the tens of millions investors had contributed. The SEC pursues profit returns, civil penalties, and permanent injunctions.
SEC Enforcement Actions
Previous enforcement actions by the SEC have led to a settlement with the accused parties. The settlements have featured major crypto firms, including Kraken and Binance. Such were evident with crypto firm Abra revealing settling charges leveled by the SEC on Monday.
The complaint identified Abra as Plutus Lending LLC’s crypto investment platform that allegedly executed unregistered offers alongside crypto asset sales without fulfilling registration requirements.
Since then, Abra has agreed to settle the charges involving the company’s Abra Earn service. The statement from the firm has yet to specify the fine it intends to settle.
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