A New York entrepreneur was arrested Thursday for allegedly defrauding investors out of $2 million for his ventures associated with two CrossFit affiliate gyms.
Joshua Newman, 35, was arrested by the FBI in New Jersey in connection with a scheme to defraud potential investors, lenders and business partners, according to an announcement by U.S. Attorney Paul J. Fishman. The man once profiled by the Wall Street Journal as a dorm room venture capitalist at Yale is charged with two counts of wire fraud and, if convicted, could face up to 40 years in prison.
"Josh is a very bright, energetic and creative entrepreneur. All of his business ventures have been legitimate and well intentioned," Priya Chaudhry, a lawyer for Newman, told the New York Times. "While his ventures were not always as successful as he hoped they would be, he never did anything to justify the overreaching charges issued against him today (Thursday). Josh intends to vigorously defend himself against any notion that he ever did anything criminal."
The first count of wire fraud alleges he initiated a wire transfer of $55,000 from a victim's account to an entity referred to as CrossFit Business 2 on Christmas Eve 2014. The second count alleges he initiated a wire transfer of $250,000 from an investment account controlled by two other victims to a different account tied to CrossFit Business 2 in February.
The complaint refers to two separate CrossFit boxes. Those businesses were generally independent and paid money to CrossFit to maintain affiliate agreements.
The criminal complaint alleges that, from 2012 through April, Newman made material representations to solicit investments for the CrossFit business enterprises and used the funds for personal expenses. Those expenses included paying back others who invested in his prior entrepreneurial projects, which included a failed film on the New York Yankees.
The complaint alleges he used doctored or bogus documentation to lull victims into believing investment money was safe or in position to be repaid. Those documents included operating agreements, false statements of ownership percentages held by various individuals and bogus Schedule K-1 IRS forms.
He also deceived his potential partners, purported investors and lenders into believing one of the CrossFit affiliate gyms raised millions of dollars in funding, according to the complaint.
When investors or lenders raised concerns or threatened legal action to recoup money, Newman typically gave false assurances or agreed to return funds, according to the complaint. The complaint alleges he often had no funds to return and made various excuses.
Newman's voting rights were removed from the CrossFit Business 1 ownership group by the two other owners in 2012, but the complaint alleges he continued to solicit investments and alleges he circulated a false operating agreement identifying himself as a manager.
In August 2014, Business 1 took legal action to ensure only the two other owners could enter into binding agreements. The action also restated Newman's 2012 removal from Business 1, according to the complaint.
In January, the complaint states Newman claimed to alleged victims that Business 2 was a broader application of Business 1 and he intended to fold Business 1 into Business 2.
The complaint also alleges Newman may be continuing to attempt to solicit money from new investors.
In addition to a potential prison term, Newman could receive a $250,000 fine, or twice the gain or loss from the offense, and a mandatory restitution for the full loss amount to the victims.