Irfan Amanat Charged In Manhattan Federal Court With Schemes To Defraud Auditors And Investors In KIT digital And Maiden Capital

Preet Bharara, the United States Attorney for the Southern District of New York, William F. Sweeney Jr., the Assistant Director-in-Charge of the New York Field Office of the Federal Bureau of Investigation (“FBI”), and Philip R. Bartlett, Inspector-in-Charge of the New York Office of the U.S. Postal Inspection Service (“USPIS”), announced the unsealing of charges today against IRFAN AMANAT for his schemes to defraud the auditors and investors of KIT digital (“KITD”), a publicly traded technology start-up company based in New York and Prague, Czech Republic, and the investors of Maiden Capital LLC (“Maiden Capital”), an investment advisory firm based in North Carolina.

U.S. Attorney Preet Bharara said:  “As alleged, Irfan Amanat lied to auditors, investors, and the SEC about millions of dollars of KIT digital and Maiden Capital funds that were lost and misappropriated.  For his alleged deception, Irfan Amanat now faces multiple counts of federal fraud charges.”

FBI Assistant Director-in-Charge William F. Sweeney, Jr. said:  “Amanat allegedly engaged in a systematic scheme to scam investors and auditors alike.  He played cat and mouse with shareholders’ money, but couldn’t escape the final pursuit.  The FBI has dedicated a significant amount of resources to uncovering financial crimes targeted against individuals, businesses, and industries, and securities and commodities fraud remains at the top of our list of priorities.” 

USPIS Inspector-in-Charge Philip R. Bartlett said:  “Mr. Amanat allegedly participated in a scheme to mislead investors, while knowing the company Enable was totally insolvent.  He continued to solicit and receive investor funds and then lied on annual reports in an effort to conceal the misappropriation of funds from investors.  Postal Inspectors have no tolerance for these types of fraud schemes and will continue to dedicate resources to investigate and bring to justice those who participate in securities fraud.”

IRFAN AMANAT – the brother of Omar Amanat and an associate of Kaleil Isaza Tuzman (“Tuzman”), the former Chairman and CEO of KITD – was charged with securities fraud and conspiring to commit securities fraud, make false statements in annual and quarterly SEC reports filed by KITD, and make false statements to KITD’s auditors.  These charges relate to IRFAN AMANAT’s participation in a scheme to mislead KITD’s auditors and investors regarding KITD’s investment with Enable, an investment vehicle he at times controlled.  Instead of informing KITD’s auditors and investors that more than $2 million that KITD invested with Enable had been lost or fraudulently misappropriated, IRFAN AMANAT falsely represented that KITD’s investment with Enable was sound and earning steady interest.  IRFAN AMANAT was also charged with conspiracy to commit wire fraud, wire fraud, and aiding and abetting investment adviser fraud for participating in a scheme, along with Stephen Maiden (“Maiden”), to defraud investors in Maiden Capital, also regarding investments in Enable.  IRFAN AMANAT was arrested in Pine Brook, New Jersey, this morning and is expected to be presented today in federal court in Manhattan before a United States Magistrate Judge.

Maiden previously pled guilty to charges relating to his own involvement in manipulating the market in KITD shares, defrauding KITD shareholders concerning KITD’s investment in Maiden Capital, and defrauding Maiden’s investors concerning the Enable investment.  Maiden is cooperating with the Government in this investigation.

Tuzman was arrested in Colombia in September 2015 on market manipulation, accounting, and wire fraud charges and extradited to the United States in July 2016.  Omar Amanat was arrested in July 2016 on market manipulation and wire fraud charges, and for aiding and abetting Maiden’s fraud against his investment advisory clients.  Both Tuzman and Omar Amanat have been released on bail pending an October 2017 trial before the Honorable Paul G. Gardephe.           

According to the Complaint[1] unsealed today in Manhattan federal court:

Fraudulent Schemes Involving Enable

As alleged in the Complaint, between 2009 and 2012, IRFAN AMANAT engaged in two interrelated fraudulent schemes in which he falsely represented to auditors and investors that Enable maintained millions of dollars in accounts held for the benefit of KITD and Maiden Capital.  In truth, as IRFAN AMANAT well knew, KITD’s and Maiden Capital’s investments in Enable had long been lost, including through poor trading and misappropriations.

In 2008 and 2009, IRFAN AMANAT and Omar Amanat raised more than $10 million for a series of Amanat investment vehicles, including Enable, from more than 10 investors.  These funds included investments made by Tuzman, on behalf of KITD, and by Maiden, on behalf of Maiden Capital.  Of this money, IRFAN AMANAT lost more than $5.5 million through poor trading.  Omar Amanat, with the knowledge of IRFAN AMANAT, improperly diverted more than $3 million for his personal use. 

The Scheme to Defraud KITD’s Auditors and Investors

Between 2008 and 2012, KITD, a now-defunct but once publicly traded software company, was obligated to accurately report the nature of its purported assets, including whether assets were held in cash or otherwise.  As of on or about September 30, 2008, over 70% of KITD’s cash was invested with Enable.  By at least February 2009, however, Enable was insolvent.

Between 2009 until at least April 2012, IRFAN AMANAT, with the knowledge of Tuzman, Omar Amanat, and others, deceived KITD’s auditors and investors about KITD’s true financial health by misrepresenting that Enable maintained more than $2 million in liquid assets in an asset management account on behalf of KITD when, as IRFAN AMANAT well knew, the money had been lost or misappropriated.  In particular, IRFAN AMANAT misled KITD’s auditors by sending, or causing to be sent, balance confirmations, for the benefit of KITD’s auditors, falsely claiming that Enable maintained more than $2 million of KITD’s funds in an asset management account earning a steady interest rate.  IRFAN AMANAT made these misrepresentations knowing that they were material to the audit of KITD’s financial statements and, ultimately, to the investing public.  As a result of IRFAN AMANAT’s misrepresentations, various KITD annual financial filings were materially false.

The Scheme to Defraud Maiden Capital Investors

Maiden was the managing member of Maiden Capital, an unregistered investment advisory firm that managed portfolios of securities.  Clients empowered Maiden Capital and Maiden to make investment decisions on their behalf.  Maiden, in turn, was obligated to make such decisions based on the best interests of his clients.  In 2008, Maiden made a series of investments in Enable, for a total investment of more than $2 million.  In or about March 2009, Maiden learned that Enable was insolvent.

Between March 2009 until at least June 2012, IRFAN AMANAT, working with Maiden, Omar Amanat, and others, devised and carried out a scheme to hide the fact that Maiden Capital’s investment in Enable had been lost.  Rather than disclose the Enable losses to Maiden Capital’s investors, as he was legally obligated to do, Maiden concealed the Enable losses, thereby acting in his own self-interest and the interests of IRFAN AMANAT, his close associate, who did not want the Enable losses to be exposed.  IRFAN AMANAT aided and abetted Maiden’s investment advisory fraud by providing Maiden with fictitious account statements reflecting a positive Enable balance, knowing that the information in these statements would be provided to Maiden’s investors.  IRFAN AMANAT’s fraudulent assistance helped Maiden cover up the Enable losses for over three years.

IRFAN AMANAT, 45, is charged with one count of conspiracy to commit securities fraud, make false statements in annual and quarterly SEC reports, and make false statements to auditors, one count of securities fraud, one count of conspiracy to commit wire fraud, one count of wire fraud, and one count of aiding and abetting investment adviser fraud.  Counts Two, Three, and Four each carry a maximum sentence of 20 years in prison.  Counts One and Five each carry a maximum sentence of five years in prison.  Count Two carries a maximum fine of $5 million, or twice the gross gain or loss from the offense.  Counts One, Three, and Four each carry a maximum fine of $250,000 or twice the gross gain or loss from the offense.  Count Five carries a maximum fine of $10,000, or twice the gross gain or loss from the offense. 

The maximum potential sentences in this case are prescribed by Congress and are provided here for informational purposes only, as any sentencing of the defendant will be determined by the judge.

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Mr. Bharara praised the work of the FBI and the U.S. Postal Inspection Service, and thanked the Securities and Exchange Commission for their assistance.  He added that the investigation is continuing.

The charges were brought in connection with the President’s Financial Fraud Enforcement Task Force.  The task force was established to wage an aggressive, coordinated and proactive effort to investigate and prosecute financial crimes.  With more than 20 federal agencies, 94 U.S. attorneys’ offices, and state and local partners, it is the broadest coalition of law enforcement, investigatory and regulatory agencies ever assembled to combat fraud.  Since its formation, the task force has made great strides in facilitating increased investigation and prosecution of financial crimes; enhancing coordination and cooperation among federal, state and local authorities; addressing discrimination in the lending and financial markets; and conducting outreach to the public, victims, financial institutions and other organizations.  Since fiscal year 2009, the Justice Department has filed over 18,000 financial fraud cases against more than 25,000 defendants.  For more information on the task force, please visit www.StopFraud.gov.      

This case is being handled by the Office’s Securities and Commodities Fraud Task Force.  Assistant U.S. Attorneys Damian Williams and Andrea M. Griswold are in charge of the prosecution.  

The allegations contained in the Complaint are merely accusations, and the defendant is