Just when you ask yourself when was the last time you heard about a massive crypto fraud where investors were duped out of millions, the news wires were rife with stories of a $722 million mining fraud that was perpetrated against investors both far and wide. US prosecutors have arrested three men for what has been called a “high tech Ponzi scheme”, but two co-conspirators are still on the lamb and have yet to be apprehended. In the meantime, there is little in the news about recovered funds, but the bandits are accused of lavish spending and exorbitant lifestyles.
The three accused men are 37-year-old Matthew Brent Goettsche of Lafayette, Colorado, Jobadiah Sinclair Weeks, 38, of Arvada, Colorado, and 49-year-old Joseph Frank Abel, of Camarillo, California. The trio operated the “BitClub Network”, a firm that promised high returns from mining Bitcoins and rewarded investors handsomely for bringing their friends into the “tent”. The operation had been active since April of 2014 out of its New Jersey offices, until recently when officials shut it down, according to an indictment signed by US Attorney Craig Carpenito.
According to reporting from Yahoo, Carpentino said: “The indictment describes the defendants’ use of the complex world of cryptocurrency to take advantage of unsuspecting investors. What they allegedly did amounts to little more than a modern, high-tech Ponzi scheme that defrauded victims of hundreds of millions of dollars. Working with our law enforcement partners here and across the country, we will ensure that these scammers are held to account for their crimes.”
The operation to shut down this modern day fraud scheme was a combined effort of the FBI, IRS enforcement officers, and other agencies of the US government. The latter group included Unit Chief David W Feder and Assistant US Attorneys Anthony P Torntore and Jamie L Hoxie of the Cybercrime Unit, and Unit Chief Sarah Devlin of the Asset Recovery and Money Laundering Unit of the US Attorney’s Office in Newark.
Paul Delacourt, the Assistant Director in Charge of the FBI’s Los Angeles Field Office, provided a few details: “Those arrested today are accused of deploying elaborate tactics to lure thousands of victims with promises of large returns on their investments in a Bitcoin mining pool – an advanced method of profiting on cryptocurrency. The defendants allegedly made hundreds of millions of dollars by continuing to recruit new investors over several years while spending victims’ money lavishly.”
John R Tafur, Special Agent in Charge, IRS Criminal Investigation, Newark Field Office, noted: “Today’s indictment alleges the defendants were involved in a sophisticated Ponzi scheme involving hundreds of millions of dollars that preyed upon investors all over the world This was a classic con game with a virtual twist – false promises of large returns for investing in the mining of Bitcoin. IRS Criminal Investigation will continue to work with our law enforcement partners, including the Joint Chiefs of Global Tax Enforcement, to investigate and bring to justice cyber criminals.”
It appeared from emails that Weeks had argued with his other partners in the scheme that it was “not right” to take in monies from investors and never buy one piece of mining equipment. Other accounts allege that Goettsche considered their investors as “dumb” and as “sheep” and that he was “building this whole model on the backs of idiots”. He is also said to have manipulated earnings statements, at one point arguing for a 60% increase in mining earnings. His partners had countered: “That is not sustainable, that is ponzi teritori [sic] and fast cash-out ponzi… but sure.”
Court documents discuss a broad based marketing campaign to corral likely targets across the globe: “Weeks and Abel created videos and traveled around the United States and the world to promote BitClub Network. In one video, a conspirator espoused that the BitClub Network was “the most transparent company in the history of the world that I’ve ever seen”. In another video, Abel assured investors that BitClub Network was “too big to fail”.”
Detectives also noted that they are conducting an extensive manhunt for two more individuals, whose names are being withheld. As for the three alleged co-conspirators, they will be charged with conspiracy to commit wire fraud and conspiracy to sell unregistered securities. The combined crimes could result in $500,000 in fines and 25 years in prison for each defendant. Anyone that suspects that he or she might be a victim of the BitClub Network is urged to contact the Department of Justice.