Federal prosecutors accused the founder of what was once one of the most highly valued financial startups in the U.S. of criminal fraud and money laundering, the latest sign of a crackdown on the activities of privately held technology companies.

Michael Liberty, the founder of Mozido LLC, was accused of misleading shareholders and diverting millions of dollars to pay for things like interior-decorating services and amounts he separately owed in a 2006 securities-fraud lawsuit, the U.S. Department of Justice said on Wednesday.

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The criminal charges follow a civil complaint the Securities and Exchange Commission filed against Mr. Liberty in April 2018 that accused him of lying to investors and looting Mozido of tens of millions of dollars to pay for a dairy cow farm and a movie produced by his then-girlfriend.

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Attorneys for Mr. Liberty didn’t respond to requests for comment. They have denied most of the previous SEC allegations against Mr. Liberty.

Mozido didn’t immediately respond to a request for comment.

Regulators and prosecutors have been ramping up scrutiny of startups and their disclosures in recent years. In June 2018, the Justice Department filed criminal charges against Theranos Inc. founder Elizabeth Holmes and Ramesh “Sunny” Balwani, former president and chief operating officer at the blood-testing company, saying they defrauded not only investors but also doctors and patients.

The executives have denied the charges and face a coming criminal trial.

The SEC has also issued dozens of subpoenas and information requests to tech companies and their advisers that were involved in raising money through the issuance of new cryptocurrencies.

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Mr. Liberty founded the company that would become Mozido in Austin, Texas, in 2008. Mozido raised hundreds of millions of dollars from investors, including hedge-fund manager Julian Robertson, asset manager Wellington Management Co. and Mastercard Inc., to build software that allowed individuals without bank accounts to transfer money through mobile phones. A 2014 fundraising round valued Mozido at around $2.4 billion.

Starting around 2010, Mr. Liberty and an associate, Paul Hess, deceived investors about where the money they thought they were investing in Mozido actually went, according to an indictment Wednesday. For instance, almost $16 million of one $18 million fundraising round for Mozido went toward Mr. Liberty’s personal expenses, despite an email to investors that nearly all of the proceeds would be used for the company, prosecutors said in the indictment.

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The Wall Street Journal reported in November 2016 that Mozido had missed its financial projections and struggled to meet employee payroll. Numerous investors reached out to Mr. Hess that year and in 2017 “in light of negative news items about [Mr. Liberty] and Mozido,” the indictment said.

Mr. Hess “reassured investors that they could expect returns on their investment in the near future,” according to the indictment.

Mr. Hess didn’t immediately respond to a request for comment.

In November 2016, Mr. Liberty pleaded guilty to making illegal contributions to a U.S. presidential campaign ahead of the 2012 election. He served four months in federal prison and was released in January 2018.

Write to Peter Rudegeair at [email protected]


https://www.thestar.com/wsj/markets/2019/02/27/mozido-founder-accused-of-fraud-money-laundering.html

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