Two US men get prison for swindling investors of US$1.9mil in cryptocurrency scam


The two men allegedly lied about the profitability of Dex, which they described as an 'expertly managed portfolio balancing algorithm.' — Judge hammer photo created by fabrikasimf - www.freepik.com

Two Orange County men who admitted to swindling investors of US$1.9mil (RM8.46mil) with a cryptocurrency offering were sentenced Monday, Aug 1, to federal prison.

Jeremy David McAlpine, 26, of Fountain Valley was sentenced to three years and Zachary Michael Matar, 29 of Huntington Beach was sentenced to two years, six months more than a year after each admitted to taking part in securities fraud, according to the US Attorney’s Office.

According to federal prosecutors, McAlpine and Matar persuaded thousands of investors to buy cryptocurrency the pair claimed would provide buyers with exclusive access to a profitable trading program.

However, the trading program wasn’t actually profitable, prosecutors say, and the men used the bulk of the US$1.9mil they raised on payments to themselves or their associates.

The scheme was run through Dropil, a Belize-based company that McAlpine and Matar operated out of Fountain Valley. The company was focused on investing in digital assets such as cryptocurrency, but prosecutors say neither man, nor the company itself, were registered with the Securities and Exchange Commission as a broker or a dealer.

The company touted it’s own digital asset, which the men referred to as DROP tokens, and an automated trading bot they called “Dex.” The DROP tokens were the only way to use Dex, according to court filings, so buying the cryptocurrency gave investors access to the automated trading bot.

The two men allegedly lied about the profitability of Dex, which they described as an “expertly managed portfolio balancing algorithm.”

To back up the false claims, prosecutors say, the pair created fake profitability reports. They claimed to have raised US$54mil (RM240.52mil) from more than 34,000 investors, when the actual numbers were far less.

As part of their plea deal, McAlpine and Matar came to an agreement with the SEC that prohibits them from taking part in the “offer, purchase or sale” of digital securities.

Prosecutors, in a written sentencing memo filed with the court, described the crimes as “serious and troubling,” adding that the two men “caused significant financial harm to an extremely large number of victims.”

According to sentencing briefs filed by the defence, McAlpine and Matar became enamoured by the then-emerging cryptocurrency-related technologies and services in 2017, when they were in their early 20s.

The two men sought to create “buzz” or “hype” surrounding their company in order to drive up sales, their attorney’s wrote, not realising their claims to investors were actually “exaggerated or plain false.”

“They were young entrepreneurs, excited to be a part of a new wave of crypto technology, and they failed to understand the legal requirements that applied to their digital assets, or the consequences for failing to adhere to those requirements,” a defence sentencing brief read.

The two men regretted the false statements and misuse of investor funds, and quickly accepted responsibility, their attorneys wrote.

They are scheduled to return to the courtroom of US District Judge Cormac J. Carney in late September to determine how much restitution they must pay. – The Orange County Register/Tribune News Service

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