5 Arrested in the US: $722 Million Cryptocurrency Ponzi Scheme

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Prerna Sengupta
Prerna Sengupta is a writer for Thecoinrepublic. She is a law student at NALSAR University of Law, Hyderabad. She is interested in Tech Law and is especially keen on cryptocurrency, blockchain, and Bitcoin. She hopes to pursue this field in the future as a lawyer.

5 Arrested in the US: $722 Million Cryptocurrency Ponzi Scheme

  • Three people in conjunction with BitClub Network were detained in New Jersey.
  • They were charged with an attempt to commit wire fraud.
  • The scheme seems to have started as a relatively modest scam and has dramatically spurred on ambition.

Investigators in the U.S. detained three people in conjunction with BitClub Network, a bitcoin mining network that reportedly defrauded investors out of an estimated $722 million.

According to a statement released by the US Department of Justice, Colorado-based Matthew Brent Goettsche and Jobadiah Sinclair Weeks were charged with attempting to commit wire fraud and with the offering and selling unregistered securities. Goettsche is believed to have called the group of people that they intended to defraud as “dumb” investors. 

The scheme seems to have started as a relatively modest scam and has dramatically spurred on ambition. Internal communications between the conspirators give the impression that they did not talk very highly of the investors and they enjoyed the process of  defrauding these “idiots.” The men reportedly described their victims as “dumb” investors and “sheep.”

Hundreds of investors have taken over the company that Craig Carpenito, the U.S. Attorney for New Jersey, referred to as a new, high-tech Ponzi scheme. Mr. Carpenito stated that the defendants had used the complexity of the Bitcoin technology to their advantage.

The prosecution argued that the defendants ran the BitClub Network from October 2014 to this month. Mr. Goettsche, Mr. Weeks and others sought contributions in the Bitcoin Mining Pools Club by offering false and misleading estimates that the participants were told was “Bitcoin Mining Earnings,” according to federal prosecutors.

In February 2015, for instance, Mr. Goettsche ordered one of his conspirators “to bump up daily mining earnings by 60 percent from now on,” prompting that person to say, “That’s not sustainable, that’s Ponzi” territory and “quick cash-out Ponzi… but sure,” according to the indictment.

In September 2017, a mail was sent from one conspirator to the other who asked them to fall mining earnings dramatically, so that he could retire rich.

John M. Griffin, a professor at the University of Texas at Austin, said that by providing options to invest in Bitcoin mining, the BitClub Network had effectuated a classic Ponzi scheme under the guise of a flashy cryptocurrency which made investing in a Ponzi scheme easier and more unbelievable for the investors. 

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