A federal jury in San Francisco has convicted the founder of cryptocurrency trading fund Block Bits Capital of wire fraud and conspiracy. Prosecutors demonstrated that the founder sold investors on trading software that he knew did not function.
Japheth Dillman, 48, raised nearly $1 million from more than 20 investors between June 2017 and August 2018. He claimed the fund would generate returns through an automated proprietary tool called the Autotrader, which he stated was fully complete and operational.
According to prosecutors, the algorithm did not work, and Dillman was aware of this fact. Rather than utilizing the funds as promised, Dillman and an unnamed co-conspirator paid themselves and placed the remaining money into speculative positions in other cryptocurrency ventures. While making these risky bets, Dillman falsely assured investors that their capital was held in safer investments.
When those speculative bets incurred heavy losses, Dillman continued to mislead investors by falsely reporting that Block Bits' trading operations had generated significant profits.
Following a 10-day trial presided over by U.S. District Judge Richard Seeborg, Dillman was convicted and remains free on bond. He is scheduled to be sentenced on December 8. Dillman faces a maximum sentence of up to 20 years in prison and a $250,000 fine for each count, with the final term to be determined by the judge under federal sentencing guidelines.
The investigation was conducted by the FBI and IRS Criminal Investigation, with assistance from the Securities and Exchange Commission's San Francisco office. Assistant U.S. Attorneys Christiaan Highsmith and Charles Bisesto prosecuted the case.
