Eduardo Hernandez, Christopher Flagg and Daquan Lloyd charged with stealing $2M from Silicon Valley financial services company

Three Long Island men were arrested Tuesday for helping to steal more than $2 million from a Silicon Valley financial services company in what federal officials described as a “sprawling multiyear complex financial fraud scheme,” according to the United States Attorney’s Office for the Eastern District of New York.

Eduardo Hernandez, 33, of Lindenhurst; Christopher Flagg, 28, of Copiague; and Daquan Lloyd, 29, of Copiague were each charged with conspiracy to commit securities fraud and money laundering conspiracy for running a four-year scheme to create phony brokerage accounts to access short-term cash advances through a complex options trading scheme, federal officials alleged in a two-count indictment unsealed Tuesday. A fourth defendant, Corey Ortiz, 29, of Greensboro, North Carolina was also indicted but remains at large, prosecutors said.

“For years the defendants deceived others to line their own pockets,” Breon Peace, U.S. Attorney for the Eastern District of New York, said in a statement.

The indictment alleges that between December 2018 and January 2023, the defendants opened hundreds of straw accounts enabling them to receive millions of dollars in small cash advances known as “instant deposits” from a Menlo Park, California financial services firm. Those types of advances are intended to allow legitimate companies to receive cash before a wire transfer clears, the U.S. Attorney’s Office said.

The co-defendants then used the advances to repeatedly buy “thinly traded and highly speculative stock options” at above-market rates, while matching their bids with offers to sell the “overpriced stock options” using separate accounts they also controlled, according to the indictment.

“In effect, the defendants transferred the instant deposits from the losing accounts to the winning accounts by way of fraudulent securities transactions,” the U.S. Attorney’s Office said.

Additionally, the instant deposits were set up with bank accounts that had little or no balance, prosecutors said.

“These wire transfers, therefore, failed to clear, but not before the defendants drained the instant deposits, leaving the accounts with negative balances and worthless options,” the news release stated.

The defendants, who allegedly recruited dozens of individuals to assist in the scheme, then laundered the funds through electronic banking apps, according to the indictment.

“This type of scam is not only illegal, but weakens the public’s faith in our financial marketplace,” James Smith, Assistant Director in Charge for the FBI’s New York Field Office, said in a statement.

Flagg and Lloyd were arrested by FBI agents on Long Island and arraigned before U.S. District Court Judge Gary Brown in Central Islip Tuesday afternoon. They were each released on a $250,000 bond. Hernandez was apprehended in Atlantic City, New Jersey and was to be arraigned in federal court in Brooklyn Tuesday. Bail details were not immediately known.

Lloyd's attorney, William Wexler of Hauppauge, declined to comment Tuesday. The attorneys for Flagg and Hernandez did not immediately respond to a request for comment.

If convicted, the four men face up to 25 years in prison, prosecutors said.

By Grant Parpan

grant.parpan@newsday.com@GrantParpan

Grant Parpan covers Suffolk County courts and federal courts for Newsday. A Long Island native, he joined Newsday in 2022.