Three men were charged with running a cryptocurrency mining operation that officials labeled a "high-tech Ponzi scheme" that defrauded investors out of $722m.
The indictment alleges that Matthew Brent Goettsche, Jobadiah Sinclair Weeks and Joseph Frank Abel operated a fraudulent scheme to solicit cryptocurrency mining investments from April 2014 to December 2019. They were also charged with conspiracy to offer and sell unregistered securities.
Authorities are charging the first two with conspiracy to commit wire fraud, which carries a maximum sentence of 20 years in prison, as well as conspiracy to offer and sell unregistered securities. Abel, who was apparently less central to the scheme, has only been charged with conspiracy to offer and sell unregistered securities, a charge that carries a maximum prison term of 5 years.
What they allegedly did amounts to little more than a modern, high-tech Ponzi scheme that defrauded victims of hundreds of millions of dollars"
Two additional defendants, whom the US attorney's office did not identify, are still at large.
The three allegedly attracted investors in the venture, BitClub Network, with "false and misleading" data that it presented as "bitcoin mining earnings."
The BitClub Network promised investors shares in mining pools, used to generate cryptocurrency, in return for funds made through wire, cash, checks, and cryptocurrency transfers. In addition, rewards were offered for the recruitment of new members, of which a membership fee of $99 was imposed.
"What they allegedly did amounts to little more than a modern, high-tech Ponzi scheme that defrauded victims of hundreds of millions of dollars," US Attorney Craig Carpenito said in a statement.
Prosecutors allege that BitClub Network, which operated from April 2014 to this month, was built on soliciting money from individuals in exchange for shares of purported cryptocurrency mining pools and on rewarding investors for bringing in new clients. The group did not register shares sold with the US Securities and Exchange Commission, the indictment alleges.
According to the statement, Goettsche referred to potential BitClub Network investors as "dumb" and "sheep," saying he was "building this whole model on the backs of idiots." In September 2017, Goettsche sent an email to a co-conspirator in which he suggested BitClub Network would allow him to "retire RAF!!! (rich as f*ck)," prosecutors said.
The trio revealed in emails that daily earning numbers were tampered with beyond reasonable and believable rates, such as a daily earnings increase of 60%.