United States v. Kwok

1

UNITED STATES OF AMERICA, v. HO WAN KWOK and YANPING WANG, Defendants.

No. 23 Cr. 118 (AT)

United States District Court, S.D. New York

April 2, 2024

ORDER

ANALISA TORRES, UNITED STATES DISTRICT JUDGE

On January 3, 2024, a Manhattan grand jury returned a superseding indictment (“S2”) charging Defendant Ho Wan Kwok, with twelve counts of wire fraud, securities fraud, and unlawful monetary transactions, as well as conspiring to commit racketeering offenses, wire and bank fraud, money laundering, and securities fraud. S2, ECF No 215. Kwok now moves to dismiss S2 in its entirety.^[1] ECF No. 238; see Def. Mem., ECF No. 240. For the reasons stated below, the motion is DENIED.

BACKGROUND

I. Factual Allegations^[2]

Kwok and two co-defendants, Kin Ming Je and Yanping Wang, are charged with operating a scheme from 2018 to March 2023 to defraud thousands of investors of more than $1 billion, laundering the proceeds through foreign and domestic entities, and misappropriating the funds for their own use. S2 ¶ 1. S2, the operative indictment, describes Kwok as an “exiled Chinese businessman who fled to the United States in or about 2015” and “garnered a substantial online following” by “claiming to advance a movement against the Chinese Communist Party.” Id. ¶ 9(a). Je “served as the financial architect and key money launderer” to Kwok, and Wang “operated as a ‘chief of staff' for Kwok.” Id. ¶¶ 10, 11. S2 alleges that Defendants “took advantage of Kwok's prolific online presence and hundreds of thousands of online followers to solicit investments in various entities and programs by promising outsized financial returns and other benefits.” Id. ¶ 2. In reality, it alleges, “the scheme allowed Kwok, Je, and Wang to enrich themselves, their family members, and their co-conspirators, and to fund Kwok's extravagant lifestyle.” Id.

S2 names more than 40 “interrelated and overlapping entities that form the Kwok Enterprise.” Id. ¶ 3(a). The Kwok Enterprise “engaged in criminal activity, [] includ[ing] wire fraud, bank fraud, money laundering, and securities fraud,” in service of “the objectives of the enterprise.” Id. ¶ 3(b). One such objective was to “[e]nrich[] the members and associates of the enterprise”: the indictment alleges that with “fraudulently obtained victim money,” Kwok purchased “a $26.5 million . . . mansion in New Jersey,” at least two luxury vehicles and a $37 million yacht, and “two approximately $36,000 mattresses,” among other things. Id. ¶¶ 5, 7. Another objective was to “[c]onceal[] and launder[] fraud proceeds”: S2 alleges that the Defendants transferred “money into and through more than approximately 500 accounts held in the names of at least 80 different entities or individuals,” including accounts in the Bahamas, Switzerland, and the United Arab Emirates. Id. ¶¶ 4, 7.

A. The GTV Private Placement

The indictment describes four alleged fraud schemes. First, between April and June 2020, Defendants “obtained more than $400 million in victim funds through an illegal private stock offering related to” GTV Media Group, Inc. (“GTV”), Kwok's “news-focused social media platform” for which Wang was an executive director. Id. ¶¶ 13, 16. On April 21, 2020, Kwok posted a video on social media announcing an offering of GTV common stock via a private placement (the “GTV Private Placement”). Id. ¶ 16(a). A memorandum describing the terms of the GTV Private Placement stated that GTV planned to use the proceeds “to expand and strengthen the business,” and included a chart detailing how the funds would be spent. Id. ¶ 16(d).

The GTV Private Placement raised approximately $452 million from more than 5,500 investors located in the United States. Id. ¶ 16(e). The “vast majority of the proceeds” were used not to grow GTV, but were “deposited directly into bank accounts held in the name of Saraca, GTV's parent company, which is beneficially owned by” one of Kwok's “close family members.” Id. ¶¶ 5, 16(f). Defendants also “misappropriated approximately $100 million raised from investors,” placing those funds into a high-risk hedge fund (“Fund-1”) for the benefit of Saraca and Kwok's family member. Id. ¶ 16(h). The GTV Private Placement “was not made pursuant to a registration statement filed with the U.S. Securities and Exchange Commission.” Id. ¶ 16(g).

B. The Farm Loan Program

Around June 2020, domestic banks “began to freeze and close GTV-associated bank accounts,” in part because transfers to the accounts “referenced an unregistered stock offering.” Id. ¶ 17(a). Defendants continued to solicit funds from the GTV Private Placement investors. Around July 22, 2020, Kwok posted a video on social media announcing the “Farm Loan Program,” through which investors could loan money to informal “Farms” in the “Himalaya Farm Alliance.” Id. ¶ 17. Kwok promised that the loans “would be convertible into GTV common stock at a conversion rate of one share per dollar loaned.” Id. ¶ 17, 17(c). Kwok also stated, in an August 2, 2020 social media video, that GTV had “a market value of 2 billion U.S. dollars,” even though it was in fact “a new business that generated no revenue.” Id. ¶ 17(d).

Thousands of people sent money to the Farms. Id. ¶ 17(e). And, although the loan agreements stated that the funds were to be used for a Farm's “general working capital purposes,” Kwok transferred millions of dollars to his family members, including to pay for a flight crew on a private jet and maintenance expenses on a yacht. Id. ¶ 17(f).

C. G|CLUBS

On June 20, 2020, Kwok posted a video on social media encouraging viewers to purchase a “G Club . . . membership card.” Id. ¶ 18(a). A few months later, in October 2020, Kwok launched G|CLUBS, an “exclusive, high-end membership program offering a full spectrum of services.” Id. ¶ 18(b). G|CLUBS memberships began at $10,000, with top-tier memberships running up to $50,000. Id. ¶ 18(c). By August 2021, G|CLUBS documents “reflected approximately 5,900 active members.” Id. ¶ 18(d).

G|CLUBS “provided its members few to no discernable membership benefits.” Id. ¶ 18(e). Instead, Kwok told his online followers that “their purchase of G|CLUBS memberships would entitle them to stock in Kwok-affiliated entities, such as GTV and G|Fashion.” Id. ¶ 18(f). On July 30, 2021, for example, Kwok stated that he “ha[d] to promise that anyone who buys G-Club membership before September 17 must be allotted shares, which is exactly the same.” Id.

Defendants used G|CLUBS money to purchase luxury automobiles (including a “custombuild Bugatti sports car”) and the New Jersey mansion (including “extravagant renovations” and assorted expensive decorations). Id. ¶ 18(h).

D. Himalaya Exchange

From April 2021 to March 2023, Kwok and Je operated the “Himalaya Exchange,” a “purported cryptocurrency ‘ecosystem.'” Id. ¶ 19. The Himalaya Exchange hosted both a “purported stablecoin called the Himalaya Dollar” (“H Dollar”), which Defendants claimed had a “fixed 1-to-$1 value backed by reserves,” and a “trading coin called Himalaya Coin” (“H Coin”), valued based on supply and demand. Id.

Kwok “trumpeted the prosects and valuation” of H Dollar and H Coin online. Id. ¶ 19(a). In a video posted on October 20, 2021, for example, Kwok stated that “[i]f anyone loses money, I can say that I will compensate 100%,” and that he could “sell the H Coin in the market in one minute and get it back to my H Dollar, and back to your fiat money unit.” Id. The initial coin offering of both H Coin and H Dollar occurred around November 1, 2021. Id. ¶ 19(b).

In fact, H Coin and H Dollar were not “real cryptocurrencies”: they were “recorded in an internal database,” not on a publicly accessible blockchain, and could not be traded anywhere other than the Himalaya Exchange. Id. ¶ 19(e), (f). White papers on the Himalaya Exchange website provided, “in fine print,” that H Coin and H Dollar “were merely ‘Credits'” that could only be used on the Himalaya Exchange and did “not carry any right to require their exchange for fiat currency or crypto-assets.” Id. ¶ 19(f).

In April 2022, Kwok and Je arranged for the transfer of approximately $37 million in Himalaya Exchange funds to an escrow account, which was used to guarantee the cost of a yacht that Kwok had purchased. Id. ¶ 19(g).

II. Charges

S2 contains thirteen counts. Count One charges all Defendants with Racketeer Influenced and Corrupt Organizations (“RICO”) Act conspiracy in violation of 18 U.S.C. § 1962(c) and (d), predicated on acts indictable under several federal statutes^[3]and spanning from 2018 to March 2023. Id. ¶¶ 1-26. Count One does not specify who agreed to commit which acts, or when each act was committed, but does state that each Defendant agreed that a conspirator would commit at least two predicate acts. Id. ¶ 25.

Kwok refers to Counts Two and Four as the “Bank Fraud Counts.” Count Two charges all Defendants with conspiracy to commit wire fraud and bank fraud, in violation of 18 U.S.C. § 1349. S2 ¶¶ 27-30. Count Four charges all Defendants with conspiracy to commit securities fraud and to provide false statements to a financial institution, in violation of 18 U.S.C. § 371 Id. ¶¶ 36-40. Specifically, Count Four alleges that the Defendants “agreed to fraudulently induce investors to participate in the GTV Private Placement, the Farm Loan Program, and G|CLUBS by providing materially false and misleading information and representations in connection with purported shares of GTV common stock and purported companies affiliated with GTV.” S2 ¶ 38. The count cites several of Kwok's statements as overt acts, including his representations that the Farm Loan Program “is a loan, and then you can ask for stocks”; that GTV had “a market value of $2 billion U.S. dollars”; and that ...