Four Men Plead Guilty to Defrauding Global Financial Services Company of Over Two Million Dollars

Press Release

Defendants Created Hundreds of Fictitious Brokerage Accounts to Execute Complex Options Trading Scheme and Launder Proceeds

Between June 4, 2024 and today, in federal court in Central Islip, four defendants, Edward Hernandez, Christopher Flagg, Daquan Lloyd and Corey Ortiz pleaded guilty to money laundering conspiracy in connection with a scheme to steal millions of dollars from a global financial services company based in Menlo Park, California. The proceedings were held before United States District Judge Gary R. Brown. When sentenced, each defendant faces a maximum sentence of 20 years' imprisonment, restitution of up to $2,087,164, and forfeiture between $56,390 and $700,425.

Breon Peace, United States Attorney for the Eastern District of New York and <_w3a_sdt docpart="991F4B45287D40D9B7CDD5A6209556A5" dropdown="t" id="-437676849" sdttag="Agency head" title="Agency head"><_w3a_listitem datavalue="Bryan Miller, Special Agent in Charge, Bureau of Alcohol, Tobacco, Firearms and Explosives, New York Division (ATF)" listvalue="Bryan Miller, Special Agent in Charge, Bureau of Alcohol, Tobacco, Firearms and Explosives, New York Division (ATF)"> <_w3a_listitem datavalue="Ivan J. Arvelo, Special Agent-in-Charge, U.S. Department of Homeland Security, Homeland Security Investigations (HSI), New York" listvalue="Ivan J. Arvelo, Special Agent-in-Charge, U.S. Department of Homeland Security, Homeland Security Investigations (HSI), New York"> <_w3a_listitem datavalue="Daniel Brubaker, Inspector-in-Charge, United States Postal Inspection Service, New York Division (USPIS)" listvalue="Daniel Brubaker, Inspector-in-Charge, United States Postal Inspection Service, New York Division (USPIS)"> <_w3a_listitem datavalue="Edward Caban, Commissioner, New York City Police Department (NYPD)" listvalue="Edward Caban, Commissioner, New York City Police Department (NYPD)"> <_w3a_listitem datavalue="Teri L. Donaldson, Inspector General, Department of Energy (DOE)" listvalue="Teri L. Donaldson, Inspector General, Department of Energy (DOE)"> <_w3a_listitem datavalue="Anne T. Donnelly, District Attorney, Nassau County District Attorney (NCDA)" listvalue="Anne T. Donnelly, District Attorney, Nassau County District Attorney (NCDA)"> <_w3a_listitem datavalue="Thomas Fattorusso, Special Agent-in-Charge, Internal Revenue Service-Criminal Investigation, New York (IRS-CI)" listvalue="Thomas Fattorusso, Special Agent-in-Charge, Internal Revenue Service-Criminal Investigation, New York (IRS-CI)"> <_w3a_listitem datavalue="Patrick Freaney, Special Agent-in-Charge, United States Secret Service (USSS)" listvalue="Patrick Freaney, Special Agent-in-Charge, United States Secret Service (USSS)"> <_w3a_listitem datavalue="Eric Gonzalez, District Attorney, Kings County District Attorney (KCDA)" listvalue="Eric Gonzalez, District Attorney, Kings County District Attorney (KCDA)"> <_w3a_listitem datavalue="Steven G. James, Acting Superintendent, New York State Police (NYSP)" listvalue="Steven G. James, Acting Superintendent, New York State Police (NYSP)"> <_w3a_listitem datavalue="Melinda Katz, District Attorney, Queens County District Attorney (QCDA)" listvalue="Melinda Katz, District Attorney, Queens County District Attorney (QCDA)"> <_w3a_listitem datavalue="Sharon MacDermott, Special Agent-in-Charge, Social Security Administration, Office of the Inspector General (SSA-OIG)" listvalue="Sharon MacDermott, Special Agent-in-Charge, Social Security Administration, Office of the Inspector General (SSA-OIG)"> <_w3a_listitem datavalue="Michael McMahon, District Attorney, Staten Island District Attorney (SIDA)" listvalue="Michael McMahon, District Attorney, Staten Island District Attorney (SIDA)"> <_w3a_listitem datavalue="Michael Nestor, Inspector General, The Port Authority of New York and New Jersey, Office of the Inspector General (PANYNJ-OIG)" listvalue="Michael Nestor, Inspector General, The Port Authority of New York and New Jersey, Office of the Inspector General (PANYNJ-OIG)"> <_w3a_listitem datavalue="Patrick J. Ryder, Commissioner, Nassau County Police Department (NCPD)" listvalue="Patrick J. Ryder, Commissioner, Nassau County Police Department (NCPD)"> <_w3a_listitem datavalue="Kenneth J. Siegler, Resident Agent-in-Charge of the Defense Criminal Investigative Service (DCIS), New York Resident Agency" listvalue="Kenneth J. Siegler, Resident Agent-in-Charge of the Defense Criminal Investigative Service (DCIS), New York Resident Agency"> <_w3a_listitem datavalue="Sidney Simon, Special Agent-in-Charge, U.S. Department of Commerce (DOC), Office of Export Enforcement, New York Field Office" listvalue="Sidney Simon, Special Agent-in-Charge, U.S. Department of Commerce (DOC), Office of Export Enforcement, New York Field Office"> <_w3a_listitem datavalue="Christie M. Curtis, Acting Assistant Director in Charge, Federal Bureau of Investigation, New York Field Office (FBI)" listvalue="Christie M. Curtis, Acting Assistant Director in Charge, Federal Bureau of Investigation, New York Field Office (FBI)"> <_w3a_listitem datavalue="Frank A Tarentino III, Special Agent-in-Charge, Drug Enforcement Administration (DEA), New York Division" listvalue="Frank A Tarentino III, Special Agent-in-Charge, Drug Enforcement Administration (DEA), New York Division"> <_w3a_listitem datavalue="Raymond A. Tierney, District Attorney, Suffolk County District Attorney (SCDA)" listvalue="Raymond A. Tierney, District Attorney, Suffolk County District Attorney (SCDA)"> <_w3a_listitem datavalue="Robert Waring, Acting Commissioner, Suffolk County Police Department (SCPD)" listvalue="Robert Waring, Acting Commissioner, Suffolk County Police Department (SCPD)"> Christie M. Curtis, Acting Assistant Director in Charge, Federal Bureau of Investigation, New York Field Office (FBI) announced the <_w3a_sdt docpart="B83C5E2FE535400DA1DE066646D2F805" dropdown="t" id="-482921970" sdttag="Topics" title="Topics"><_w3a_listitem datavalue="charges" listvalue="charges"> <_w3a_listitem datavalue="deferred prosecution agreement" listvalue="deferred prosecution agreement"> <_w3a_listitem datavalue="extradition" listvalue="extradition"> <_w3a_listitem datavalue="extraditions" listvalue="extraditions"> <_w3a_listitem datavalue="guilty plea" listvalue="guilty plea"> <_w3a_listitem datavalue="guilty pleas" listvalue="guilty pleas"> <_w3a_listitem datavalue="investigation" listvalue="investigation"> <_w3a_listitem datavalue="sentence" listvalue="sentence"> <_w3a_listitem datavalue="sentences" listvalue="sentences"> <_w3a_listitem datavalue="settlement" listvalue="settlement"> <_w3a_listitem datavalue="verdict" listvalue="verdict"> <_w3a_listitem datavalue="verdicts" listvalue="verdicts"> guilty pleas.

"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," stated United States Attorney Breon Peace. "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."

Mr. Peace expressed his appreciation to the Securities and Exchange Commission for their assistance with the case.

Between December 2018 and January 2023, the defendants engaged in a scheme to defraud a global financial services company of millions of dollars of short-term cash advances, called "Instant Deposits." The Instant 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 established a multi-state recruitment network through which the defendants 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 repeatedly bought thinly traded and highly speculative stock options at above-market prices. Selecting these virtually worthless stock options enabled the defendants to match their bids in the Losing Accounts with offers to sell the same overpriced stock options initiated by other brokerage accounts, or "Winning Accounts," that were also controlled by the defendants and their conspirators. In effect, the defendants transferred the Instant Deposits from the Losing Accounts to the Winning Accounts by way of fraudulent securities transactions.

Meanwhile, the incoming wire transfers supposed to cover the Instant Deposits in the Losing Accounts had purposely been initiated by the defendants from bank accounts that had little or no balance. These wire transfers, therefore, 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.

In total, the defendants recruited dozens of individuals to engage in their fraudulent scheme and stole more than $2 million.

In July 2022, Mr. Peace was selected as the Chairperson of the White Collar Fraud subcommittee for the Attorney General's Advisory Committee (AGAC). As the leader of the subcommittee, Mr. Peace plays a key role in making recommendations to the AGAC to facilitate the prevention, investigation and prosecution of various financially motivated, non-violent crimes including securities fraud and money laundering.<_w3a_sdtpr>

The government's case is being handled by the Office's Business and Securities Fraud Section. Assistant United States <_w3a_sdt docpart="DEB15A8BDFA84BC7909E44076D38A7FA" dropdown="t" id="1719781811"><_w3a_listitem listvalue="Choose an item."> <_w3a_listitem datavalue="Attorney" listvalue="Attorney"> <_w3a_listitem datavalue="Attorneys" listvalue="Attorneys"> Attorneys Jonathan P. Lax and Sara K. Winik are in charge of the prosecution with the assistance of Paralegal Specialists Jacob Menz, Liam McNett and Sarah Burn.

The <_w3a_sdt docpart="4AE74D7C698141EEA0A2C961BEBB4D5F" dropdown="t" id="1174685880"><_w3a_listitem listvalue="Choose an item."> <_w3a_listitem datavalue="Defendant" listvalue="Defendant"> <_w3a_listitem datavalue="Defendants" listvalue="Defendants"> Defendants:

<_w3a_sdt docpart="12C12609A783480DA2477A097F8BD388" id="575010685">EDUARDO HERNANDEZ (also known as "Ghost")
Age: 33
Lindenhurst, <_w3a_sdt docpart="6E98679DBC13492EBFF48FE7A1D8BD92" id="1586800551">New York

<_w3a_sdt docpart="91621F4DA70D4757B7F49212A69A36E5" id="386064911">CHRISTOPHER FLAGG (also known as "Venus")
Age: 28
Copiague, <_w3a_sdt docpart="BAF30337F2EB48EB8D30360DCAA380CC" id="1932928695">New York

<_w3a_sdt docpart="E2144DA17A7541DF931794B4D12AAED3" id="1199359722">DAQUAN LLOYD (also known as "Payday")
Age: 29
Copiague, <_w3a_sdt docpart="42CF0A512EBD4488BAFDC99719D20BA5" id="1823084210">New York

<_w3a_sdt docpart="D1F45B146A794B209DBF7B64B88453DF" id="-38051548">COREY ORTIZ (also known as "Jefe")
Age: 29
Greensboro, <_w3a_sdt docpart="82AEB643387D4510A77C7C966BB91E91" id="-2141635290">North Carolina

E.D.N.Y. Docket No. 23-CR-428 (GRB)

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Updated July 18, 2024