US federal prosecutors have brought criminal charges against a Rhode Island-based cryptocurrency trader in a case involving a Ponzi scheme disguised as a cryptocurrency trading scheme.
The US Department of Justice said Jeremy Spence, 24, had operated fraudulent fund-raising campaigns, set up and ran a digital asset trading firm though he has no professional experience.
The young trader, who was arrested this morning in Rhode Island, allegedly raised $5 million from more than 170 individual investors through online discussions on Telegram and Discord. Out of this figure, only $2 million was distributed to investors from November 2017 through April 2019.
Additionally, in order to shore up the fraud, he used a Ponzi-style scheme in which he paid some money to early investors that they claimed represented profits but were, in fact, other investors’ funds.
In the course of his scheme, Spence used portions of the invested funds to pay personal expenses and debts, resulting in him being unable to pay his investors’ cash commissions or other bonuses.
A Ponzi-Style Scheme
The defendant solicited investors to invest in a series of hedge funds, the largest and most active of which were the Coin Signals Bitmex Fund, the Coin Signals Alternative Fund, aka the ‘CS Alt Fund’, and the Coin Signals Long Term Fund.
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The victims were told to transfer cryptocurrency, such as Bitcoin and Ethereum, to Spence in order to invest it in digital asset markets. The fraudster even went as far as to draft performance reports which falsely claimed their pools had achieved stunning annual returns for investors.
Additionally, the complaint details Spence’s alleged means of concealing trading losses, including issuing false monthly account statements and checks that purported to represent trading profits and investment returns.
Further explaining the scheme, the DoJ said that Spence provided in January 2018 fake account statements that show he generated returns in excess of 148% in a month while he was actually sitting on net losses.
For new participants, they were assured to receive guaranteed annual returns, while they were actually duped into a Ponzi scheme. Nearly all of the pool money was lost, according to the complaint that accuses the defendant of commodities fraud and wire fraud offences.
Furthermore, the FBI Assistant Director-in-charge explained: “As alleged, Jeremy Spence misrepresented the success of his investment platform in order to entice people to send money his way. Because his trading was less than profitable and significantly less successful than he represented to investors, he used money from new investors to pay off others in order to keep his plan moving—a typical marker of a Ponzi scheme. Whether investing with cash, shares, or virtual currency, our advice to investors always remains the same — exercise due diligence, and when something just doesn’t seem right, report suspicious activity to the authorities.”