Key Takeaways
- • Japheth Dillman, co-founder of Block Bits Capital, convicted of wire fraud and conspiracy to commit wire fraud by federal jury in California for operating a cryptocurrency trading fund that defrauded over 20 investors of nearly $960,000 between mid-2017 and mid-2018.
- • The fund's central fraudulent claim: a proprietary autotrading bot capable of arbitraging price differences across digital asset exchanges. Trial evidence demonstrated the bot never functioned operationally.
- • Instead of deploying capital into the promised algorithmic trading strategy, Dillman and co-founder David Mata diverted investor funds into high-risk ventures including loans and the AML Bitcoin initial coin offering, resulting in estimated investor losses of approximately $508,000.
- • Dillman faces a maximum penalty of 20 years in prison per count; sentencing has not yet been scheduled. Co-founder David Mata pleaded guilty to one count of wire fraud in June 2022 as part of a cooperation agreement and testified against Dillman at trial.
- • Mata settled SEC civil charges by disgorging $75,000 plus interest and accepting an industry-wide financial services bar. The FBI and IRS Criminal Investigation unit jointly handled the case following investor complaints.
Summary
A federal jury in California has convicted Japheth Dillman, co-founder of Block Bits Capital, of wire fraud and conspiracy to commit wire fraud stemming from his operation of Block Bits Fund I, LP, a cryptocurrency trading fund that raised approximately $960,000 from over 20 investors between mid-2017 and mid-2018. Dillman faces maximum penalties of 20 years imprisonment for each count, with sentencing to be scheduled at a later date.
The fraud centered on misrepresenting the fund's core investment strategy. Block Bits Fund I marketed itself to investors by claiming ownership of a proprietary autotrading bot designed to exploit price arbitrage opportunities across digital asset exchanges—purchasing cryptocurrency at lower prices on one exchange and selling at higher prices on another to capture the spread automatically. According to trial evidence presented by federal prosecutors, this autotrading bot was never operational.
Rather than deploying investor capital into the promised algorithmic trading strategy, Dillman and his co-founder David Mata redirected the funds into undisclosed high-risk ventures, including making loans and investing in the AML Bitcoin initial coin offering. These investments were never presented to or authorized by the fund's investors. Of the approximately $960,000 raised, investors sustained estimated losses of around $508,000.
David Mata, Dillman's co-founder, entered a guilty plea to one count of wire fraud in June 2022 as part of a cooperation agreement with federal prosecutors. Mata subsequently testified against Dillman during trial and reached a separate settlement with the Securities and Exchange Commission, agreeing to disgorge $75,000 plus interest while accepting an industry-wide bar from financial services employment. The investigation was conducted jointly by the Federal Bureau of Investigation and the Internal Revenue Service Criminal Investigation unit, initiated following complaints from defrauded investors.
The fraud centered on misrepresenting the fund's core investment strategy. Block Bits Fund I marketed itself to investors by claiming ownership of a proprietary autotrading bot designed to exploit price arbitrage opportunities across digital asset exchanges—purchasing cryptocurrency at lower prices on one exchange and selling at higher prices on another to capture the spread automatically. According to trial evidence presented by federal prosecutors, this autotrading bot was never operational.
Rather than deploying investor capital into the promised algorithmic trading strategy, Dillman and his co-founder David Mata redirected the funds into undisclosed high-risk ventures, including making loans and investing in the AML Bitcoin initial coin offering. These investments were never presented to or authorized by the fund's investors. Of the approximately $960,000 raised, investors sustained estimated losses of around $508,000.
David Mata, Dillman's co-founder, entered a guilty plea to one count of wire fraud in June 2022 as part of a cooperation agreement with federal prosecutors. Mata subsequently testified against Dillman during trial and reached a separate settlement with the Securities and Exchange Commission, agreeing to disgorge $75,000 plus interest while accepting an industry-wide bar from financial services employment. The investigation was conducted jointly by the Federal Bureau of Investigation and the Internal Revenue Service Criminal Investigation unit, initiated following complaints from defrauded investors.
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