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DOJ Seizes Virtual Currencies Valued at $24M Assisting Brazil in Major Internet Fraud Investigation

November 5, 2020

The Department of Justice has seized virtual currency worth an estimated $24 million on behalf of the Brazilian government.

The seizure order was obtained pursuant to an official request from the government of Brazil, made under the Treaty between the United States of America and the Federative Republic of Brazil on Mutual Legal Assistance in Criminal Matters, for assistance in connection with a large cryptocurrency fraud scheme in a Brazilian federal police investigation called “Operation Egypto.” Brazilian authorities estimate that more than $200 million was obtained through this scheme through which more than tens of thousands of Brazilians may have been defrauded.

Brazilian federal prosecutors have charged several individuals in the case. The U.S. seizures were tied to Brazilian Marcos Antonio Fagundes’ alleged role in the scheme. As the United States alleged based on information provided by Brazilian authorities, Fagundes is charged with several criminal violations of Brazilian law, including, among other offenses, the operation of a financial institution without legal authorization, fraudulent management of a financial institution, misappropriation, and money laundering, as well as securities law violations. The Brazilian court issued a seizure order directing the seizure of virtual currency in the United States owned or controlled by Fagundes.

According to documents filed in the Brazilian criminal proceeding and the Brazilian court’s findings, during August 2017 to May 2019, Fagundes and other defendants solicited funds from prospective investors over the internet, sometimes in combination with telephone and other means, and held the funds received in a manner that subjected it to regulation as a financial institution under Brazilian law, with which Fagundes and the other defendants failed to comply. Solicitations referred to as innovative investment opportunities were made over the internet and in person, offering investments in cryptocurrencies. As alleged, the defendants solicited investors to give money to corporations they controlled, in the form of Brazilian currency or cryptocurrency, which the companies would then invest in a variety of virtual currency types. The Brazilian court found, however, that only a very small amount of funds were invested in cryptocurrencies as promised, and very little was returned to the investors. To carry out the scheme, the conspirators are alleged to have made false and inconsistent promises to investors about the way the funds were invested and exaggerated the rates of return.

In execution of the Brazilian request for assistance, an application to enforce the Brazilian seizure order was filed in the U.S. District Court for the District of Columbia pursuant to 28 U.S.C. § 2467, seeking to seize the virtual currency belonging to or controlled by Fagundes located in the United States. U.S. District Judge Trevor N. McFadden granted the U.S. government’s application and issued seizure orders directing the seizure of the virtual currency.

The U.S. Department of Justice’s Money Laundering and Asset Recovery Section (MLARS) International Unit and Office of International Affairs are working in close cooperation with the Brazilian authorities, the FBI Legal Attaché in Brasilia, the FBI in Boston, the FBI’s Virtual Currency Evolving Threat Working Group, and the U.S. Marshals Service to restrain the virtual currency and preserve it for forfeiture proceedings pending in Brazil to compensate the investors victimized in this fraudulent investment scheme. The forfeiture proceedings in the United States are being handled by MLARS International Unit Trial Attorney Jennifer Wallis.

The crypto currency firm holding the accounts cooperated with law enforcement authorities in executing this seizure.

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