UPDATE: USA To Gibralter To Cayman Islands Software Scam

September 19, 2014

This is an update of "USA To Gibralter To Cayman Islands Software Scam" (BrokeAndBroker.com Blog, March 17, 2014).

It's the stuff of Hollywood meets Silicon Valley meets Ponzi. We got music and movies. We got Internet and software. We got a Bernie Madoff/Jordan Belfort scamster. Then we got a hot trail of cash that flows from the USA to a number of small islands with ever-so friendly banking regulations. It's rip-off and intrigue.

A Little Diversion

From 2004 through November 2008, Robert Kelly, the Chief Executive Officer of software developer Wwebnet Inc. falsely solicited investors about his company's development of software for transmitting music, videos, and movies over the Internet. Instead of legitimately using at least $2.11 Million in investor proceeds, Kelly diverted a substantial portion of the money that he raised for his own financial benefit. 

Land Of Make-Believe

Not merely content to mislead his investors, Kelly falsely told Wwebnet's Chief Technology Officer that the start-up had some money shorts preventing him from allocating funds for the necessary software development. In time, when the buck came in, Kelly told the CTO that the project would be funded but, for now, the team was told to work only on software program demos --  prototypes to show off the look and feel of what investors thought was ready to roll out. Of course, you know, we don't exactly have to highlight the fact for our financial benefactors that the demos can't actually deliver any entertainment content at this time. In the future. When we get the hard cash. Let's just do what we can with what we got. For now.

Island Intrigue

Once Kelly got his victims' funds, the trail of those millions is the stuff of a Hollywood thriller. We start with the transfer from Wwebnet into a Gibralter bank account. From the island of Gibralter the dollars are sent to a Cayman Islands account. At this point, do the investors' funds get placed into the touted software development?  Not that it's a spoiler alert but waddya think? Surprise, surprise, surprise -- Kelly uses the funds in the Cayman Islands account for his own options and futures trading, which didn't go all that well because by May 2008, that account had a zero balance. 

IRS Gets Paid

Not merely content with ripping off his investors and converting their funds for his trading, Kelly also used his victims' money to pay his federal and state personal income taxes.  Hey, at least he feared the Internal Revenue Service. 

Crash And Burn

On October 02, 2012, pursuant to the unsealing of a criminal Complaint, Kelly was charged with one count of securities fraud and one count of wire fraud, each of which carries a maximum potential penalty of 20 years in prison. In addition, Kelly faces a maximum fine of $5 million or twice the gross gain or loss from the offense for the securities fraud count, and a maximum fine of $250,000 or twice the gross gain or loss from the offense for the wire fraud count. Kelly was subsequently indicted on November 28, 2012. USA v. Robert Kelly (SDNY, 12-CR-888 November 28, 2012).

On March 11, 2014, Kelly, 57, plead guilty in federal court in Manhattan to one count of securities fraud and one count of wire fraud. Also, Kelly agreed to forfeit $2,111,600 and pay $2,111,600 in restitution. Sentencing is scheduled for July 2014.

READ the full-text Indictment: USA v. Robert Kelly

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UPDATE

On September 18, 2014, Kelly was sentenced to 27 months in prison and three years of supervised release; and ordered to pay $2,111,600 in forfeiture and $2,111,600 in restitution, as well as a $200 special assessment fee.