- An individual from California accused of defrauding cryptocurrency investors in an $11 million securities fraud scheme
- Created shell companies and attracted investors to pour in a large amount of money with a promise of generating 8000% returns
- Carefully ensured he can escape the public eye and enjoy the money for personal fulfilment
John DeMarr aged 55 from California was instrumental in a coordinated cryptocurrency and securities fraud scheme. The scheme has purported digital currency platforms and foreign-based financial accounts.
Construction of Hollow Schemes
In the current hi-tech financial world, there are many opportunities for fraudsters to take advantage of individuals and their bank accounts. In this case, an elaborate scheme was created to lure unsuspecting investors with false promises of massive returns in the cryptocurrency market. The funds received would be channelled for personal usage, including purchasing a Porsche, exquisite jewellery and renovations to DeMarr’s home in California.
DeMarr had conspired to defraud numerous victims worth $11.4 million by inducing them to invest in his dummy companies, namely ‘Start Options’ and ‘B2G’ basis materially false and misleading representations. Start Options was positioned as an online investment platform that provided cryptocurrency mining, trading and digital asset trading services. B2G was placed as an ‘ecosystem’ that would allow users to trade B2G tokens, provide digital wallet stalking and trade digital and fiat currencies through a secure and comprehensive platform.
In late 2017, the scheme’s creators offered securities in the form of investment contracts to the US and international investors through Start Options website. Investments would be accepted in US Dollars, Bitcoins or Euros. To participate, investors would be required to deposit their funds for a specific contract period post which they could withdraw money at a significant profit.
It was claimed that this money was getting invested in digital asset mining and trading platforms, which would fetch massive returns. In reality, these funds were diverted towards the personal usage of DeMarr and others involved in the scam.
Unfolding of Cryptocurrency Fraudulent Activities
Scams and criminal activities can escape for a limited time and will ultimately collapse. This scheme was also short-lived, and multiple red flags led to DeMarr being caught in his trap. As alleged in early 2018, instead of permitting Start Options investors to withdraw money from their accounts post the requisite period, investors were asked to roll over their accounts into an unregistered ‘initial coin offering’ or ICO of B2G which was the other shell company.
The investors were portrayed that the ICO would raise capital for the company to build an ‘ecosystem’ permitting users to trade B2G tokens, provide digital wallet stalking and trading. However, in reality, investors never actually received any digital tokens and funds from the offering were never utilised to develop the B2G platform.
Additionally, Start Options falsely featured celebrity endorsements for promoting its securities offerings. E.g. a professional athlete was known to be endorsing the firm. However, it was unearthed that the athlete had no involvement with the firm, and his name and likeness were used without his consent.
Subsequently, there was also creating false press releases and whitepapers about B2G, fabricated account statements and refusal for investors to withdraw their own money. DeMarr staged his disappearance to escape disgruntled investors and asserted that he had been assaulted and went missing Montenegro. Further, investors were prevented from contacting DeMarr or his family regarding the inability to have their money returned. It is believed that he was hiding in California.
The case is still undergoing trials. Senior members from the Legal fraternity are involved in resolving this fraud at the earliest so that investors can be compensated for the loss suffered.
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