Three men were charged with running a large-scale Ponzi scheme, taking as much as $722 million in cryptocurrency. The BitClub network was promoted by Matthew Brent Goettsche, 37, Jobadiah Sinclair Weeks, 38, and Joseph Frank Abel, 49, reported Bloomberg.
BitClub network ran a mining scam, promising to pool funds and buy Bitcoin (BTC) mining equipment. However, the company’s earnings were faked, to defraud even more investors of the potential earnings.
Mining has been a legitimate industry, used to veil the actual Ponzi scheme, which is based on referrals, as well as buying packages. A similar scheme was proposed by Bitcoiin, a project that also received a cease-and-desist order in New Jersey.
The accusation against Goettsche and Weeks was for conspiracy to perform wire fraud. All three of the detained were also charged with selling unregistered securities. According to case data, Goettsche had a mocking attitude to the investors joining the scheme, stating he was “building this whole model on the backs of idiots,” and calling investors “sheep” and “idiots”.
The crackdown on the BitClub scheme follows a recent case against a lawyer related to the OneCoin scheme. A conviction was reached for the laundering of $400 million related to one of the earliest and most prominent Ponzi schemes in the crypto space. Mark Scott, 51, laundered OneCoin funds through a fake investment vehicle created for the purpose.
Multiple crypto projects rely on a form of referrals, essentially building a pyramid scheme. But especially aggressive ones take large sums and can only exist for a few months. Crypto-related Ponzis were partially possible due to the increasing BTC market prices, but eventually fail.
US-based Ponzi schemes relying on the sale of tokens raised the attention on token sales. For most fraudulent schemes, the approach was to accuse the promoters of selling unregistered securities. The application of security law then spread to international ICOs, as the US Securities and Exchange Commission moved in to block multiple token-based projects, even when they did not intend to run a Ponzi scheme.
