In the eclectic and mysterious world of Bitcoin and cryptocurrencies, three individuals were arrested yesterday, December 10, 2019, in an ill-fated and self-described ‘Ponzi’ scheme that bilked $722 million from investors since 2014.
In a press release issued by the Department of Justice (DOJ) yesterday, ‘Matthew Brent Goettsche, 37, of Lafayette, Colorado, and Jobadiah Sinclair Weeks, 38, of Arvada, Colorado, are charged by indictment with conspiracy to commit wire fraud and Goettsche, Weeks, and Joseph Frank Abel, 49, of Camarillo, California, are charged by indictment with conspiracy to offer and sell unregistered securities...Two defendants remain at large and their identities remain under seal.’
‘Those arrested today are accused of deploying elaborate tactics to lure thousands of victims with promises of large returns on their investments in a bitcoin mining pool, an advanced method of profiting on cryptocurrency...The defendants allegedly made hundreds of millions of dollars by continuing to recruit new investors over several years while spending victims' money lavishly.’
The press release describes in detail the evidence of how the operators of ‘BitClub Network’, a purported mining pool operation, fooled investors by posting imaginary returns on the Bitcoin mining operations - all while not actually mining any Bitcoin. This is the second major arrest by the Department of Justice in the cryptocurrency and blockchain ecosystem over the past few weeks, as Virgil Griffith was arrested on Thanksgiving day for teaching cryptocurrency and blockchain in North Korea.
The three individuals arrested operated ‘BitClub Network’ that claimed to offer shares in a ‘mining pool’ for Bitcoin. Bitcoin, a cryptocurrency that started in 2009, is trusted by those who exchange it or hold onto it for speculative purposes, as a result of the work of ‘Bitcoin miners’ who solve mathematical proofs.
This was a classic con game with a virtual twist; false promises of large returns for investors mining of Bitcoin.
Computers around the world ‘mine’, which for Bitcoin means to solve mathematical puzzles every 10 minutes with computers. In return, if you ‘mine’ faster than anyone else and solve the latest ‘block’ in blockchain, you receive an amount of newly-minted Bitcoin as a reward. Currently, the reward for mining is 12.5 Bitcoin. With a current price of one Bitcoin as of December 11, 2019, at 9am ET at $7,216 per Bitcoin, a successful miner could earn $90,200. These earnings are within the reach of miners around the world every ten minutes.
While Bitcoin was not always as high of a price as it is today, as Bitcoin became more popular, items such as a laptop computer would not be sufficient to ‘mine’ the Bitcoin as it would not have enough computing power. Soon, ‘mining equipment’ was necessary, as depicted below, to have a chance at scoring new Bitcoin from mining.
As time evolved, a market for individuals in the cryptocurrency space quickly arose for those who could not afford the mining equipment, but wanted to participate in a mining operation, could purchase ownership ‘mining pools’ where everyone would receive a share of the gains on a particular mining operation and benefit by getting a portion of whatever Bitcoin was earned should the miner be successful with a new block on the blockchain.
Programmer preparing mining rig for cryptocurrency mining
‘Goettsche discussed with his conspirators that their target audience would be “dumb” investors, referred to them as “sheep,” and said he was “building this whole model on the backs of idiots.’
Self-Fulfilling Prophesy Of A Ponzi Scheme
The ‘BitClub Network’ sadly has shades of the actions of Bernie Madoff , as the company never even bought mining equipment or mined Bitcoin for its investors. Instead, the operators spent most of their time describing their investors as ‘sheep’ or ‘dumb’, faking earnings and going to great lengths to provide ‘proof’ of the mining activities - activities within ‘BitClub Network’ never to have appeared to have happened.
Instead, the BitClub Network encouraged investors to find new investors to bring more money in. While many individuals around the world - excited about this new ‘California Gold Rush’ online and making some money with Bitcoin mining - turned over their money to BitClub Network, any returns that they received were fake and from the money of other BitClub Network investors. The only winners, up until now, were the operators of ‘BitClub Network’, who lived lavish lifestyles over five years from what is accounted at $722 million by the DOJ press release.
The DOJ press release stated, ‘Goettsche discussed with his conspirators that their target audience would be “dumb” investors, referred to them as “sheep,” and said he was “building this whole model on the backs of idiots.’ The release indicates how ‘BitClub Network’ travelled the world to sell to new investors, making claims they were the most transparent company ever and ‘Too Big To Fail’.
‘Goettsche discussed with his conspirators that their target audience would be “dumb” investors, referred to them as “sheep,” and said he was “building this whole model on the backs of idiots.’
The release also showed conversations that were captured over the Internet in chat rooms described what they were doing as a Ponzi scheme.
The DOJ captures messages in an Internet chat room how manipulate and falsely increase the "mining ... [+]
DOJ Press Release:
Indictment:
