Irfan Amanat Charged- Defraud Auditors And Investors In KIT digital And Maiden Capital

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https://www.justice.gov/usao-sdny/pr/irfan-amanat-charged-manhattan-federal-court-schemes-defraud-auditors-and-investors-kit

Department of Justice
U.S. Attorney’s Office
Southern District of New York

FOR IMMEDIATE RELEASE
Monday, December 5, 2016

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.
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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.
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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.
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