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Three men have been arrested for conspiring to run a Ponzi scheme that sought money to manage a crypto mining pool.
Yesterday, authorities in New Jersey arrested three men for running a cryptocurrency scam called BitClub Network, which defrauded unsuspecting investors of about $722 million. The announcement was made by U.S. Attorney Craig Carpenito in an official press release from the U.S. Attorney’s Office in the District of New Jersey.
Initially reported by Bloomberg, Matthew Brent Goettsche, 37, of Lafayette, Colorado and Jobadiah Sinclair Weeks, 38, of Arvada, Colorado, are both facing charges of conspiracy to commit wire fraud. A third co-conspirator, Joseph Frank Abel, 49, of Camarillo, California, is charged along with Goettsche and Weeks with a conspiracy to offer and sell unregistered securities. The three men were arrested separately in Colorado, Florida and California respectively, while two other unidentified co-conspirators connected to the scam are nowhere to be found.
Basically, BitClub Network advertised itself as a Bitcoin investment mining pool seeking investors who are interested in cryptocurrency mining. The company said it would use funds received from investors to purchase mining hardware and pay for power charges, to mine cryptocurrency and pay investors profits from the mining. However, authorities say that the entire platform was basically a “high-tech Ponzi scheme” that instead advertised fake returns on investment and basically used funds from later investors to pay earlier customers all the while “spending victims’ money lavishly.”
The press release further states that BitClub Network had been running this scam since April 2014 till their luck finally ran out in December 2019. Goettsche reportedly described the scheme’s investors using words like “dumb”, “sheep”, and also specifically said that he is “building this whole model on the backs of idiots.” In a September 2017 email, Goettsche directed an unnamed co-conspirator to reduce the mining earnings being advertised so he could make more money and “retire RAF!!! (rich as f**k).”
In addition to the mining scam, the press release also claims that the co-conspirators also conspired to sell BitClub Network shares which were not registered with the U.S. Securities and Exchange Commission (SEC) and did not exist. Specifically, both Abel and Weeks are said to have created several promotional videos and described the platform as the “most transparent company in the history of the world”, adding that it was “too big to fail.”
Prosecutors have specified that conspiracy to commit wire fraud carries a maximum jail term of 20 years with a fine of up to $250,000. The second charge of a conspiracy to sell unregistered securities carries up to $250,000 as well, with a maximum jail term of 5 years. This means that the arrested co-conspirators could be paying up to $500,000 each and spending up to 25 years in prison.
“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”, stated IRS Criminal Investigation Special Agent in Charge John R. Tafur.