Two former partners of a San Francisco-based cryptocurrency trading fund have found themselves in hot water after being charged with fraud for allegedly misleading investors about the fund’s technological capabilities and investment practices.
Japheth Dillman, a San Francisco resident, and David Mata, from Spokane Washington, are facing charges for allegedly deceiving investors and fraudulently obtaining $960K from approximately 22 individuals between June 2017 and July 2018. The two men were former general partners of Block Bits Fund I, LP.
Dillman, who is the founder and managing director of Block Bits Capital, LLC, and Block Bits Capital GP I, LLC, allegedly misrepresented the fund by claiming that they had developed a groundbreaking autotrading bot. This technology was said to be generating significant profits by automatically executing cryptocurrency arbitrage trades on various exchanges, taking advantage of price differences between cryptocurrencies.
Investors were led to believe that their money would be used to operate and enhance the autotrader technology. However, a complaint filed in the Northern District of California revealed that Block Bits Fund I never actually had a functional autotrader.
Furthermore, Dillman allegedly falsely assured investors that 40% of their funds would be securely stored in ‘cold storage,’ promising substantial returns without exposure to risky investments. However, the complaint alleges that the funds were not placed in cold storage as claimed, but instead were invested in high-risk cryptocurrency ventures unrelated to the fund’s stated purpose.
Reports sent to investors by Dillman and Mata falsely represented that their funds were safely stored when, in reality, they were invested in risky ventures that ultimately failed, resulting in investors losing approximately $508K.
Dillman has been arrested and charged with wire fraud, while Mata faces a separate wire fraud charge in a separate complaint. The Securities and Exchange Commission (SEC) has also taken action against both individuals, seeking injunctions, disgorgement of ill-gotten gains, civil monetary penalties, and other appropriate relief.
The case serves as a cautionary tale about the importance of due diligence and transparency in investment opportunities, especially in the volatile world of cryptocurrency trading. Investors must always be wary of promises that seem too good to be true and conduct thorough research before committing their funds to any venture.