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A federal jury in San Francisco found Jafet Dilman, the founder of the cryptocurrency fund Block Bits Capital, guilty of wire fraud and conspiracy, according to the U.S. Department of Justice.
Between June 2017 and August 2018, 48-year-old Dilman raised approximately $ 1 million from more than 20 investors. He assured them that the fund was generating profits using an automated trading algorithm of his own design—Autotrader—which he claimed was already ready and fully operational.
In reality, the algorithm did not function, and Dilman knew this. Instead of trading cryptocurrency, he and an accomplice—who was not identified in the report—paid out funds to themselves and invested the rest in risky speculative positions in other crypto projects. Meanwhile, investors were told that their money was invested in reliable instruments.
The speculative ventures failed. Dilman, however, did not admit to the losses; on the contrary, he reported to investors that he was making significant profits from trading, which in reality was only generating further losses.
The trial lasted ten days and was presided over by U.S. District Judge Richard Siborg. Dilman is currently free on bail. His sentence will be handed down on December 8: for each count, he faces up to 20 years in prison and a $ 250,000 fine.
The investigation was conducted by the FBI and the Criminal Investigation Division of the Internal Revenue Service, with the participation of the Securities and Exchange Commission’s regional office in San Francisco.
Cryptocurrency fraud remains a major problem in the U.S. According to the FBI’s complaint center, last year cryptocurrency accounted for more than half of all losses Americans reported from fraud and cybercrime. Investment scams were the largest category—losses from them totaled $ 8.6 billion, a 32% increase from the previous year. At the same time, as the Consumer Federation of America notes, the actual figures may be significantly higher, since the vast majority of victims never report the crimes to law enforcement.