Feds Arrest Alleged North Carolina Securities Scammer After SEC Sues Him; More Than $2 Million Allegedly Linked To WWebnet Lost After Being Transferred To Cayman Islands, Prosecutors Say; Robert Kelly Lied To Investors And Software-Development Team, FBI Says

“The audacity of this defendant’s alleged scheme was matched by its simplicity. He solicited and obtained millions of dollars from investors and simply pocketed the money for personal use. He told investors they were funding software development, then told his development team he hadn’t found investors.”FBI Acting Assistant Director-in-Charge Mary Galligan, Oct. 3, 2012

Robert Kelly of Wwebnet Inc. was running a scam in which millions of dollars were dissipated in the Cayman Islands, prosecutors said today.

A North Carolina man sued by the SEC in August in an alleged fraud scheme now has been arrested on criminal charges.

Robert Kelly, CEO of Wwebnet Inc., was arrested yesterday in Raleigh on charges of securities fraud and wire fraud. The criminal case was brought by the office of U.S. Attorney Preet Bharara of the Southern District of New York after a probe by the FBI.

Wwebnet was a software company developing a program “capable of transmitting music, videos, and movies over the Internet.” But Kelly effectively looted the firm to “trade options, to pay his personal income taxes, and for other purposes unrelated to software development,” prosecutors said.

“As alleged, Robert Kelly was simply an old-fashioned grifter touting a new technology opportunity in order to pick people’s pockets,” Bharara said. “He is the latest in a long line of defendants who allegedly lured unsuspecting investors with the allure of new technology only to be caught by law enforcement, but regrettably, probably not the last.”

Kelly is 56. He formerly lived in New York, prosecutors said.

At least some of the money made its way offshore and was dissipated, prosecutors said.

“[Kelly] transferred at least $2.11 million in investor funds into his personal trading account in the Cayman Islands which he used to trade options,” prosecutors said. “By May 2008, that account had a zero balance.”

From a statement by prosecutors (italics added):

From 2004 through November 2008, KELLY solicited investors to send money to various Wwebnet-related bank accounts by misrepresenting that the funds would be used to develop software for transmitting music, videos, and movies over the Internet. Instead of using the millions of dollars in investor proceeds that he obtained for legitimate business purposes, KELLY diverted a substantial portion of the money that he raised for his own financial benefit. For example, KELLY transferred at least $2.11 million in investor funds into his personal trading account in the Cayman Islands which he used to trade options. By May 2008, that account had a zero balance. KELLY also used money he received from investors to pay his federal and state personal income taxes. At the same time that he was using investors’ money for his own personal benefit, KELLY falsely told his software development team that he was unable to allocate adequate resources for software development and could do so only when he was able to raise money from investors.

Read the SEC’s August complaint.

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