Home Banks & Credit Cards The fintech ‘genius’ accused in $165m fraud

The fintech ‘genius’ accused in $165m fraud

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Shortly after the UK voted to leave the EU in 2016, a curious little start-up made headlines. WB21, which claimed to be a fintech company, announced it was upping sticks from London to Berlin. Its chief executive, Michael Gastauer, declared that the legal uncertainty of Brexit had driven his business to Germany. Last Wednesday, the US Securities and Exchange Commission unveiled a civil lawsuit against Mr Gastauer, accusing him of aiding and abetting the fraudulent sale of $165m worth of shares in microcap stocks.

WB21 was not an innovative new bank, claimed the SEC, it was a vehicle for a massive fraud. The story of Mr Gastauer is not just about alleged wrongdoing in the financial markets; it shows how an accused fraudster might sell himself and his fantastical story using the modern tools of the internet age. The lawsuit filed against Mr Gastauer last week is only the latest trouble for the 43-year-old German citizen. In 2010, he was given an 18-month suspended sentence by a court in Switzerland for commercial fraud and counterfeiting.

 

Around the same time, a British gambling company sued him in London for allegedly taking millions of pounds from it. He had set up a payments processor, the company claimed, but kept the payments.

In 2011, the High Court ruled against Mr Gastauer. Neither incident prevented Mr Gastauer from bouncing back into polite society. In September 2016, The Wall Street Journal published his claim that he was moving WB21’s European headquarters from London to Berlin. Soon after, Mr Gastauer made a splash in Germany.

Hans Recker, the former Bundesbank board member, spoke at WB21’s launch event in Berlin. Weber Shandwick, the press relations firm, helped sell Mr Gastauer to German media.

These mainstream marketing efforts were underpinned by an online identity that relied on community-created posts in publications like Huffington Post, Business Insider and Forbes. One author of an effusive piece on Mr Gastauer, when asked by the Financial Times why it was identical to a post on a different site, said: “Client send you the same article which is sending me.” He said he had a flat-rate fee for all clients: $100. But it is on social media where Mr Gastauer’s marketing prowess truly shone.

 

He has a verified account on Instagram and 1.2m followers. His bio: “Entrepreneur, Investor, Genius.” On YouTube, WB21 has posted slickly created videos of an hitherto unheard of event in Frankfurt called “Banker Award 2018”, which he apparently won. On Twitter, where he is also verified and has over 210,000 followers, he posted a picture of his acceptance speech: “A banking tycoon explains the world [sic] how he build his empire”.

In reality, WB21 Group was not a registered bank, and Gastauer’s ‘solution’ was actually a circumvention of banking regulations designed to disguise his clients’ [ . . .] identities SEC in a civil lawsuit According to the SEC, there is no banking empire.

Mr Gastauer has touted WB21 as a high-flying start-up with millions of customers and a novel, but only vaguely described, technology that allowed it to make international money transfers more quickly and cheaply than the old, establishment banks. “In reality, WB21 Group was not a registered bank, and Gastauer’s ‘solution’ was actually a circumvention of banking regulations designed to disguise his clients’ [ . . .] identities,” the SEC said in a civil lawsuit filed in Boston.

 

The first defendant named in the SEC’s case is Roger Knox, a British citizen who lives in France. According to the SEC, Mr Knox was a client of Mr Gastauer who ran a Swiss asset manager called Silverton, later named Wintercap. The SEC alleged that between 2015 and 2018 Mr Knox — who is also known as “Rocket” Knox — ran an operation to enable corporate insiders at public companies to fraudulently sell their stock.

Mr Gastauer set up a US entity for WB21 in 2015 and then three bank accounts in the company’s name, according to the SEC. The US regulator alleged Mr Gastauer had “repeatedly lied” to financial institutions, telling banks WB21 US Inc was a software company that counted Apple and Google as “major suppliers”. Over time, Mr Gastauer came to control more than 20 bank accounts in the US, all used to “knowingly or recklessly” facilitate Mr Knox’s alleged fraud, the SEC claimed.

The alleged scheme fell apart last week as the SEC obtained an asset freeze against Mr Gastauer and Mr Knox. On Wednesday, the US Attorney’s office for the District of Massachusetts arrested Mr Knox, who has been detained following an initial court appearance in Boston. Mr Knox’s attorneys did not return a request for comment. Mr Gastauer has not been criminally charged. Amish Patel, WB21’s global head of litigation, said in a statement on behalf of “WB21 (US) Inc NA” and Mr Gastauer: “WB21 (US) and its CEO is not part of any scheme or fraud as alleged against Wintercap S.A. [ . . .] We have not been aware of any illegal activity by Wintercap SA and its directors, however, we are taking the matter seriously and will assist the authorities, as necessary and to the extent required, in order to investigate the case.” Corporate records in the UK indicate that entities of WB21 had been operating from 1 Canada Square in London’s Canary Wharf, before moving recently to nearby South Quay.

 

British residents are barred from opening accounts on the WB21 website, although entries on the Trustpilot online review platform indicate it has drawn deposits from customers as far afield as Brazil and Thailand. The SEC credited assistance from authorities from Argentina to Canada, Cyprus, Germany, Hong Kong, Mauritius, Mexico, Latvia and New Zealand. The UK Financial Conduct Authority declined to comment.

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