A federal jury has convicted Block Bits Capital co-founder Japheth Dillman of wire fraud and conspiracy after prosecutors said more than 20 investors lost nearly $1 million in a fraudulent cryptocurrency trading fund.
- Japheth Dillman was convicted of defrauding more than 20 Block Bits Capital investors of nearly $1 million.
- Investors were told the fund used an automated crypto trading tool even though Dillman knew the algorithm did not work.
- Investor funds were used for personal payments and risky crypto investments that resulted in significant losses.
- Dillman faces up to 20 years in prison and a $250,000 fine for each count, with sentencing set for Dec. 8.
The U.S. Department of Justice said on Aug. 24 that the 48-year-old San Francisco resident was found guilty following a 10-day trial before U.S. District Judge Richard Seeborg in the Northern District of California. Dillman remains free on bond and is scheduled to be sentenced on Dec. 8.
Court evidence showed that Dillman helped raise money for Block Bits Capital between June 2017 and August 2018 by giving investors false information about the fund’s trading technology and performance. Prosecutors said Dillman and a co-conspirator promoted an automated cryptocurrency trading program called the “Autotrader” as a completed and functioning product.
The software was supposed to generate returns by automatically trading digital assets, but Dillman knew the algorithm did not work as represented, according to evidence presented at trial. Investor money therefore could not be deployed through the automated strategy investors had been told the fund would use.
Block Bits Capital investors were sold a non-working trading tool
While raising capital, Dillman and his associates presented Block Bits Capital as a fund capable of earning profits through automated cryptocurrency trading, according to the Justice Department. Prosecutors said the claims continued even though Dillman knew the Autotrader was not functioning.
Earlier regulatory records provide more detail about the technology behind those representations. The U.S. Securities and Exchange Commission alleged in a 2022 civil complaint that Block Bits never completed the trading bot and had only funded early development work. No functional version was tested or deployed, while trading of fund assets was instead carried out manually, the regulator said.
According to the SEC complaint, Dillman and Block Bits continued making statements about the bot in emails, offering materials and promotional communications even as internal discussions acknowledged that automated trading was unavailable. The agency alleged that Dillman told investors in 2017 that the system could conduct arbitrage across multiple cryptocurrency exchanges despite the software remaining unfinished.
Prosecutors also told the jury that investor funds were used for purposes other than the strategy that had been marketed. Dillman and his co-conspirator paid themselves and placed money into speculative cryptocurrency ventures without fully disclosing the risks to investors, the DOJ said.
Several of those positions produced substantial losses, according to trial evidence. Even as the investments lost money, Dillman falsely told investors that Block Bits’ cryptocurrency trading operations were generating significant profits, prosecutors said.
The SEC had separately charged Block Bits Capital, Block Bits Capital GP I, Dillman and co-founder David Mata in April 2022 over an alleged fraudulent and unregistered securities offering. The regulator said at the time that more than 20 investors had supplied almost $1 million after receiving misleading information about the fund’s automated trading system and the way their money would be handled.
Crypto fund fraud cases remain active in U.S. courts
Dillman’s conviction follows several recent federal cases involving cryptocurrency investment businesses accused of overstating returns or misusing customer money.
In June, federal prosecutors charged a Tennessee resident over an alleged $1.9 million crypto investment scheme operated through Star Credit Holdings. Authorities accused Misam Abidi of making false claims about returns, reserves and assets under management while directing more than $1.9 million to himself and family members.
Prosecutors said the Star Credit operation collected money from investors in several states, with some funds allegedly used to pay earlier participants and others diverted from legitimate trading. Abidi was charged with offenses including wire fraud, money laundering, operating an unlicensed money-transmitting business and tax-related crimes. The charges in that case remain allegations unless proven in court.
Another large investment case advanced in July when Christopher Alexander Delgado, the chief executive of Goliath Ventures, pleaded guilty to fraud and money laundering charges. Prosecutors said investors had transferred at least $400 million to Goliath Ventures after being offered returns from cryptocurrency liquidity pools.
As crypto.news previously reported, Delgado admitted responsibility for at least $250 million in investor losses and agreed to surrender assets including luxury homes, vehicles, watches, jewelry and other property. Prosecutors had previously accused the company of using investor funds to make payments to other participants and finance personal spending.
The Justice Department has also been pursuing the assets generated through international crypto investment scams. In July, federal prosecutors sought forfeiture of $25 million in cryptocurrency recovered through five investigations involving alleged fraud networks targeting victims in the United States and Canada.
According to federal authorities, the cases involved fake cryptocurrency investment platforms and relationship-based scams used to convince victims to transfer digital assets. The DOJ said assets seized through its Scam Center Strike Force had surpassed $800 million by the time the forfeiture actions were announced.
Dillman faces up to 20 years on each conviction count
Following the jury verdict, Dillman faces a maximum statutory sentence of 20 years in federal prison and a fine of up to $250,000 for each count of conviction, according to the Justice Department. The charges cover wire fraud under 18 U.S.C. § 1343 and conspiracy to commit wire fraud under 18 U.S.C. § 1349.
The maximum penalties do not determine the sentence Dillman will receive. Judge Seeborg will determine the punishment after considering federal sentencing guidelines and the factors set out under U.S. sentencing law, the DOJ said.
His sentencing hearing is scheduled for Dec. 8 at 9:30 a.m. before Seeborg. Dillman will remain released on bond ahead of the hearing.
Federal agencies involved in the case included the FBI and IRS Criminal Investigation, while the SEC’s San Francisco Regional Office provided assistance. Assistant U.S. Attorneys Christiaan Highsmith and Charles Bisesto are prosecuting the case with support from Kevin Costello, Lynette Dixon, Andy Ding and Royce Epperson, according to the Justice Department.
