United States v. Scott

• Docket Number: 17-cr-630 (ER)
• Decision Date: 14 September 2023
• Parties: UNITED STATES OF AMERICA v. MARK S. SCOTT, Defendant.
• Court: U.S. District Court — Southern District of New York

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UNITED STATES OF AMERICA v. MARK S. SCOTT, Defendant.

No. 17-cr-630 (ER)

United States District Court, S.D. New York

September 14, 2023

OPINION & ORDER

EDGARDO RAMOS, U.S.D.J.

Mark Scott was convicted on November 21, 2019 of conspiracy to commit bank fraud and conspiracy to commit money laundering. Before the Court are Scott's motions for a new trial pursuant to Federal Rules of Criminal Procedure 29 and 33. For the reasons set forth below, the motions are DENIED.

I. FACTUAL BACKGROUND & PROCEDURAL HISTORY

A. The OneCoin Scheme

OneCoin was founded in 2014 by Ruja Ignatov (“Ruja”) and Sebastian Greenwood. Doc. 244 at 9. It is headquartered in Sofia, Bulgaria and began operating in the United States in or around 2015. Id. at 7. OneCoin markets and sells a purported digital cryptocurrency by the same name. Id. Approximately 3.5 million people have invested in OneCoin cryptocurrency packages, and OneCoin has taken in over $2 billion in proceeds. Id. It is undisputed that OneCoin is a fake cryptocurrency: it is in fact a global multi-level marketing pyramid scheme. See Doc. 477 (Apr. 25, 2022 Hr'g Tr.) at 4:12-21; Trial Tr.^[1] at 1904:17-18 (Def. Summation) (“OneCoin is a scam. We're not going to fight that battle.”).

In other words, OneCoin was an elaborate fraud premised on innumerous misrepresentations. For instance:

• OneCoin claimed that the cryptocurrency was “mined,” and its value was based on market supply and demand: as more members joined OneCoin, demand for the tokens, and therefore their price, grew. Doc. 244 at 8. The purported value of a OneCoin grew steadily, without ever decreasing, from €0.50 to approximately €29.95 in January 2019. Id. In fact, OneCoins were not mined, but were instead auto-generated and distributed to members as needed. Id. at 9-10. Moreover, the value of OneCoin was set internally, not based on market supply and demand. Id. at 9.

• OneCoin alleged that it had a private “blockchain” (i.e., digital ledger of tokens and transactions), which had even been externally audited. Id. at 8. In fact, the audit report was fake and had been created by OneCoin employees. Id. • OneCoin also purported that it would have public and foreign exchanges to allow investors to buy, sell, or trade OneCoins for fiat currency and that it would have an investment fund where investors could invest OneCoin in real assets. Id. at 10. In fact, none of these representations were true. Id.

B. Scott's Involvement with OneCoin

As financial institutions around the world began to recognize OneCoin as a fraud, they grew unwilling to provide banking services to OneCoin, preventing the organization from opening bank accounts in its name. Id. at 11. OneCoin needed to conceal the origin of its funds, as well as the purpose of the transfers into and out of its bank accounts. Id. Gilbert Armenta, Ruja's boyfriend and a money launderer for OneCoin, introduced Scott to Ruja as someone who could provide a solution to OneCoin's banking troubles in 2015. Id. Scott, a corporate lawyer who was then a partner at an internationally recognized law firm, had extensive experience representing private equity funds, and he leveraged that experience to construct an elaborate, sophisticated money laundering operation for OneCoin. Id.

In April 2016, before Scott received any OneCoin funds, Irina Dilkinska, OneCoin's chief money launderer, sent Scott an email of an article by a U.S.-based certified public accountant who detailed many indicia that OneCoin was a fraudulent pyramid scheme. Doc. 412 at 10-11. Scott was also informed that banks around the world had blocked OneCoin's accounts and that the City of London Police were investigating OneCoin. Id. at 11. Nonetheless, Scott agreed to work with OneCoin.

1. Scott Set Up the Fenero Funds and Concealed All Traces of OneCoin Involvement

From late 2015 to early 2016, Scott set up a series of investment funds in the British Virgin Islands and Cayman Islands (collectively, “the Fenero Funds”), each with its own offshore bank account in the Cayman Islands. Doc. 244 at 11-12. From May to October 2016, the Fenero Funds received wire transfers of €364 million and $10 million in alleged “investments.” Id. at 13. 'Hie transfers originated from approximately ten different bank accounts, all for various shell corporations owned by OneCoin co-conspirators, held at banks in Singapore, Germany, Hong Kong, the United Kingdom, and the United States. Id. On paper, the shell corporations were “investors” in the Fenero Funds, but the money they transferred into the Fenero Funds was in fact all money derived from OneCoin. Id. In total, Scott laundered approximately $400 million of OneCoin proceeds through the Fenero Funds. Id. at 6.

Scott worked to meticulously conceal from the banks any connection between OneCoin and the purported investors in the Fenero Funds. Id. at 15. He knew that any reference to OneCoin would, in his words, “kill this for us.” Doc. 412 at 9. Indeed, when a series of loans and suspicious transactions triggered Apex Group Ltd. (“Apex”)-an investment fund administrator that Scott hired, which was responsible for conducting anti-money laundering and “Know Your Customer” checks-to conduct enhanced due diligence on the Fenero Funds in July and August 2016, Scott repeatedly lied to hide the connection between OneCoin and the Fenero Funds. Doc. 244 at 15-16. When Apex sought additional information on the source of wealth for the investors in the Fenero Funds, Scott drafted fraudulent letters of comfort for two other attorneys to put on their letterhead and sign, created and sent backdated wire instruction letters, and forged a series of agreements to attempt to justify the large volume of transfers to and from the Fenero Funds. Id. at 16-17. Scott went so far as to instruct Dilkinska to sign the documents with different pens and e-sign others to hide the forgeries. Id. at 17. Apex concluded the documents Scott provided were fraudulent and created to conceal the relationship with OneCoin. Id. Apex also held a series of emergency meetings and began to notify government agencies concerning OneCoin's involvement. Id. at 16. When Apex continued to refuse Scott's request to transfer funds out of the Fenero Funds, Scott demanded a phone call with Apex, during which he continued to lie to Apex about the source of the money in the Fenero Funds. Id. at 17-18.

2. Sc Scott Lied to U.S. Federally Insured Banks to Effectuate Transfers of OneCoin Proceeds Into and Out of the Fenero Funds

Three sets of fraudulent transactions were particularly relevant because of the involvement of U.S. federally insured banks.

a. The CryptoReal Loan (July 2016)

In July 2016, Scott disguised the transfer of OneCoin funds by “loaning” $30 million from the Fenero Funds to CryptoReal Investments Trust Ltd. (“CryptoReal”). Id. at 18. Scott and another lawyer, Martin Breidenbach, represented to Apex that Breidenbach was the ultimate beneficial owner of CryptoReal (though the transfer was in fact of Ruja's funds and on her behalf), and that the loan was for CryptoReal to purchase an oil field in Madagascar from Barta Holdings Ltd. (“Barta”). Id. Because Apex transferred the funds in U.S. dollars (“USD”) between CryptoReal's DMS Bank account in the Cayman Islands and Barta's DBS Bank account in Hong Kong, the transfer used a USD correspondent account at Bank of New York Mellon (“BNY Mellon”) in Manhattan. Id. at 18-19. While neither Apex, DMS Bank (Cayman), or DBS Bank (Hong Kong) are federally insured, BNY Mellon is. Doc. 218 at 26.

b. The Armenta Investment Transactions (June & September 2016)

In June 2016, Scott received transfers totaling approximately $5 million into the Fenero Funds from a U.S. Morgan Stanley account in the name of “Fates Group LLC,” which was controlled by Gilbert Armenta. Doc. 244 at 19; see also Doc. 160, Ex. B (Gov't Oct. 7, 2019 Letter in Response to Scott's Request for Particulars).^[2] Similarly, in September 2016, Scott received a transfer into the Fenero Funds of approximately $5 million from an account at U.S. Sabadell also in the name of “Fates Group LLC.” Id. These transfers purported to be investments in the Fenero Funds, and Armenta represented to Morgan Stanley and Sabadell that the Fenero Funds were a private equity firm that invested in, among other things, renewable energy enterprises like windmills. Doc. 244 at 19. Despite knowing that his Fenero Funds were not legitimate investment funds, Scott had Armenta sign an investment agreement purporting that the transfers to the Fenero Funds were for investment purposes. Id. at 37 (citing GX^[3] 1140). 'he Government alleged that Scott was aware of and complicit in Armenta's misrepresentations and knew that the funds were in fact OneCoin proceeds, not legitimate investments. Id.

C. Indictment and Arrest

On August 21, 2018, Scott was charged in a one count indictment for conspiracy to commit money laundering, and an arrest warrant was issued the same day. Docs. 6, 8. He was arrested on September 5, 2018. Doc. 11.

By superseding indictment, Scott was further charged with conspiracy to commit bank fraud on October 8, 2019. Doc. 143. Count Two read in full:

From at least in or about September 2015 through in or about 2018, in the Southern District of New York and elsewhere MARK S. SCOTT, the defendant, and others known and unknown, willfully and knowingly did combine conspire, confederate, and agree together and with each other to commit bank fraud, in violation of Title 18, United States Code, Section 1344.

It was part and object of the conspiracy that MARK S. SCOTT, the defendant, and others known and unknown, willfully and

knowingly, would and did execute and attempt to execute a scheme and artifice to defraud a financial

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