Home General Investments Two Orange County Men Sentenced to Federal Prison for Defrauding Investors Out of $1.9 Million Through Cryptocurrency Offering | USAO-CDCA

Two Orange County Men Sentenced to Federal Prison for Defrauding Investors Out of $1.9 Million Through Cryptocurrency Offering | USAO-CDCA

0

SANTA ANA, California – Two Orange County men were each sentenced to federal prison today for inducing more than 2,000 investors to buy a cryptocurrency that allegedly offered exclusive access to a profitable trading program and then to use most of the $1.9 million raised to line their own pockets.

Jeremy David McAlpine, 26, of Fountain Valley, was sentenced to 36 months in federal prison by U.S. District Judge Cormac J. Carney. In a separate hearing today, Judge Carney sentenced Zachary Michael Matar, 29, of Huntington Beach, to 30 months in federal prison. Judge Carney planned a September 26 restitution hearing in this case.

McAlpine and Matar each pleaded guilty in August 2021 to one count of securities fraud.

In 2017, McAlpine and Matar founded Dropil Inc., a Belize-based company operating in Fountain Valley. Dropil provided and managed investments in digital assets, including a cryptocurrency called DROPs that McAlpine and Matar developed. McAlpine and Matar were also primarily responsible for developing Dropil’s digital asset trading program, an automated trading bot called “Dex”, which could be used exclusively with DROPs.

McAlpine and Matar tricked investors into buying DROPs by misrepresenting DROPs, Dex’s functionality and profitability, and the number of investors and volume of DROP investment that had allegedly already been made and that would have been improved – thanks to the supply and demand operation – the value of the DROPs. Dex has been said to provide an “expert-run portfolio balancing algorithm [that] manages the risks”, according to information published on the Dropil website. DROP tokens were supposed to “ensure privacy while providing added value and exclusivity.” Dropil further promised that trading Dex would generate profits which would be distributed in the form of additional DROP tokens every 15 days.

Starting in late 2017, McAlpine and Matar launched an unregistered offer and sale of DROPS on the Dropil website. In January 2018, the defendants launched an initial coin offering (ICO) for the sale of DROP, again via Dropil’s website, which continued until March 2017. Neither McAlpine, Matar nor Dropil were registered with the Securities and Exchange Commission (SEC) as a broker or dealer.

To trick investors into buying DROPs, McAlpine and Matar made a series of false statements to investors in a “White Paper” posted on Dropil’s website and Twitter account, promoting the supposed success of the cryptocurrency. . Among other misrepresentations, the whitepaper claimed that trading with Dex would produce average annual returns of between 24% and 63% depending on the “risk profile” selected by the investor.

In response to SEC investigative subpoenas, defendants fabricated false Dex profitability reports, giving the false appearance that Dex was operational and profitable. The defendants also fabricated an investor spreadsheet for the SEC that purported to show that Dropil successfully raised $54 million from 34,000 foreign and domestic investors. In fact, the ICO raised less than $2 million from less than 2,500 investors. McAlpine also provided false sworn testimony to the SEC about the amount of money raised in the ICO, as well as about Dex and its allegedly profitable trading business.

In total, the defendants obtained approximately $1,896,657 from 2,472 investors through the sale of approximately 629 million DROPs. McAlpine and Matar used the money invested as promised to fund disbursements for themselves and their associates.

In sentencing memoranda, prosecutors argued that the defendants’ “offences were serious and disturbing: they caused significant financial harm to a very large number of victims and resulted in efforts to derail attempts by law enforcement order to eradicate and correct wrongdoing”.

As part of the settlement of a separate civil case filed by the SEC, Dropil Inc., McAlpine and Matar in July 2021 accepted permanent injunctions prohibiting any other fraudulent conduct and prohibiting them from participating directly or indirectly in the offer, purchase or sale of digital securities.

The FBI investigated this case.

Assistant United States Attorney Ranee A. Katzenstein, Chief of the Major Fraud Section, prosecuted the case.

LEAVE A REPLY

Please enter your comment!
Please enter your name here