Feds Drop Fraud Case Against PE CEO Benjamin Wey

US prosecutors dropped criminal charges against a well-known promoter of Chinese reverse mergers after a federal judge threw out evidence obtained during a search of a New York apartment and office.

The US attorney’s office in Manhattan filed a motion with the court late on Tuesday indicating it would no longer proceed with the case against Benjamin Wey, the founder of New York Global Group.

“The government sought charges in this matter based in significant part on materials seized during those searches,” prosecutors said in a motion filed in court.

Because the government cannot rely on the evidence “[it] has decided to dismiss charges pending against Wey”, it said.

It is the latest legal rebuke of a government case in a wave of high-profile prosecutions on Wall Street.

Last year, a US judge allowed a civil lawsuit brought by David Ganek, the founder of hedge fund Level Global, to proceed against Preet Bharara, the then-US attorney for Manhattan, and others.

Mr Ganek, who has not been charged with any wrongdoing, alleged his civil rights were violated when Federal Bureau of Investigation agents raided the hedge fund’s offices as part of a sweeping insider trading investigation.

The government is appealing the ruling.

In July, Joon Kim, the acting US attorney for Manhattan, dropped criminal fraud charges against two former JPMorgan Chase traders accused of falsifying the bank’s books to hide its multi-billion dollar “London Whale” trading loss.

In a court filing prosecutors said it could no longer rely on the testimony of its main cooperator, Bruno Iksil, who has been dubbed the London Whale. Mr Iksil has publicly revised his version of events.

David Siegal, an attorney for Mr Wey, said: “This case should serve as a powerful reminder for years to come that the government must adhere to fundamental safeguards of our privacy and liberty when conducting searches.”

“I was wrongly charged in the first place,” Mr Wey said in a statement Tuesday. “The government’s case was built on fabricated allegations and false statements that grossly misled federal authorities. This ordeal devastated our employees and our families, has done irreparable harm to our lives and closed our prospering businesses.”

A spokesman for Mr Kim declined to comment beyond the motion.

Prosecutors charged Mr Wey in 2015 with fraud for allegedly making millions of dollars in illicit profits by taking ownership stakes in new companies that resulted from a reverse merger and then manipulating the price so he could sell at artificially high prices. Mr Wey’s clients included SmartHeat, Deer Consumer Products, and CleanTech Innovations.

In a reverse merger a non-US company acquires a US shell company to gain a listing on a US stock exchange, bypassing the regulatory scrutiny involved in a traditional initial public offering. Chinese reverse mergers are a legal but controversial practice and Mr Wey made a name for himself advising companies on the process.

Mr Wey challenged the government’s case based on the 2012 raid of his Manhattan apartment and New York Global’s offices, saying agents with the FBI executed an overly broad warrant that they used to take family medical records, pharmaceutical prescriptions, X-rays, and his children’s test scores.

In June, Judge Alison Nathan ruled the government could not rely on evidence it collected during the search. The judge did not find the agents acted with malice but concluded that they appeared to disregard constitutional principles when executing an “essentially limitless search”.

“That reflects, at the least, gross negligence or recklessness as to the potential for violation of the Fourth Amendment” which protects against unreasonable search and seizures, the judge said.

The allegations against Mr Wey were not his first brush with the law. In 2005, without admitting or denying the findings, Mr Wey agreed to be censured by the Oklahoma Department of Securities for allegedly advising a retired person to invest in a penny stock without revealing that he was a paid consultant to the company.

In 2015, a jury found in favour of Mr Wey’s former assistant in a sexual harassment and defamation lawsuit against him.

The Securities and Exchange Commission also filed civil charges against Mr Wey, his wife and several others involved in the alleged reverse merger scheme.

The SEC lawsuit is still pending.

On the SEC suit, Mr Siegal added: “We plan to defend that case as vigorously as we defended the criminal case.”

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