BRADFORD, Pa. — Shane and Sean Hvizdzak have been indicted by a federal grand jury in Erie on charges of conspiracy to commit wire fraud, wire fraud and money laundering in connection with an alleged multimillion dollar cryptocurrency scheme.
Acting U.S. Attorney Stephen R. Kaufman announced the sweeping indictments of the brothers, who were born and raised in Bradford.
The 65-count indictment alleges Shane Hvizdzak, 33, of Bradford, and Sean Hvizdzak, 35, an attorney who lives in St. Marys, conspired to defraud investors in a limited partnership that was represented as an investment in cryptocurrency.
“Investor funds were not invested in the manner represented to investors but were rather diverted into the defendants’ personal accounts and provided to entities having nothing to do with cryptocurrency,” the U.S. Attorney’s press release stated. “The defendants also provided false information about the purported investment’s performance to induce new investors to become involved and also lull those investors who had already become involved into a false sense of security.
“The funds of subsequent investors were also provided to initial investors and misrepresented as returns on their investment,” the release stated.
Kaufman said law provides for a theoretical maximum total sentence of 810 years in prison, a fine of $12.5 million or both for Shane Hvizdzak and a maximum total sentence of 550 years in prison, a fine of $7 million or both for Sean Hvizdzak.
“Under the federal sentencing guidelines, the actual sentence imposed would be based upon the seriousness of the offenses and the prior criminal history, if any, of the defendant,” the press release stated.
Assistant U.S. Attorney Christian A. Trabold is prosecuting the case on behalf of the government.
The Federal Bureau of Investigation and Internal Revenue Service criminal investigators conducted the investigation leading to the indictment.
The case came to public light in June 2020, when the federal Securities and Exchange Commission filed a complaint against the Hvizdzaks, along with a company the two co-owned, High Street Capital LLC of Bradford. The complaint at the time alleged the two took money from investors, said it was being invested in digital assets and fabricated statements saying the investments were earning huge returns. However, the SEC alleges the brothers took about $31 million from investors, put it in their personal accounts and then moved it outside the United States.
Sean Hvizdzak has maintained his innocence, while Shane Hvizdzak has claimed his Fifth Amendment right against self-incrimination through filings in the the SEC case, which had been a civil matter.
This past June, Shane Hvizdzak’s attorney had requested a stay in the proceedings, acknowledging that a criminal case involving the same allegations was imminent. A deposition given in the civil case would have a detrimental impact on his Fifth Amendment rights in the criminal case, attorney Efrem Grail had argued.
On June 23, Sean Hzivdzak filed a joinder in request of a stay in the case, but noted his request was for a different reason than his brother’s. He alleged that testimony and documents from his brother are necessary to show his innocence in the matter, but his brother had invoked his Fifth Amendment rights, thereby depriving Sean Hvizdzak of information critical to his defense.
A federal judge granted a stay in the civil proceedings against the brothers over the objection of the SEC.
The SEC has indicated that of the $31 million that was allegedly bilked from investors — many of them from the Bradford area — some $7 million has been recovered.
SEC attorneys, in spelling out the alleged conspiracy, had originally indicated that Shane Hvizdzak was the primary actor, even though the hedge fund was in both brothers’ names.
Sean Hvizdzak’s attorney, David Berardinelli, had argued that his client resigned from the hedge fund and encouraged his brother to pay back investors when he saw what was happening. Berardinelli’s response to the SEC filing was there was no “giant securities fraud or Ponzi scheme… and certainly none that was knowingly or intentionally perpetrated by Sean Hvizdzak.”
However, in the amended filing, the SEC alleged a different story.
Both brothers allegedly diverted investors’ funds meant for their hedge fund into their personal accounts, lied to CNB Bank when questioned about the activity in a non-hedge fund account, directed investors to deposit funds into their personal accounts and misappropriated the money, the filing indicated.
The filing noted that Sean Hvizdzak had written checks to himself and his brother from the accounts where the investors’ money had been sent, and used the money for their personal investments. At times, the brothers used new investors’ money to pay out dividends to older investors.
On May 5, 2020, Sean Hvizdzak “recognized that (a non-fund account) had recently received fund investor money.” However, the SEC alleges, he still authorized payment of a credit card used for expenses related to building Shane Hvizdzak’s home on High Street.
The brothers frequently discussed the hedge fund, and the SEC alleged that Sean Hvizdzak “knew or was reckless in not knowing that Shane was fraudulently soliciting investors and diverting fund assets to personal accounts” at least by March 23, 2020. On that day, the SEC alleged, Sean Hvizdzak told another representative of the fund that he had concerns about what was occurring in the hedge fund.
He acknowledged that his brother had lied to investors about the audits on the fund in this communication, too, the complaint alleged.