U.S.-Based Promoter of Foreign Cryptocurrency Companies Charged in over $11 Million Securities Fraud Scheme

(STL.News) A California man was charged in a complaint unsealed for his alleged participation in a coordinated cryptocurrency and securities fraud scheme that used purported digital currency platforms and foreign-based financial accounts.

John DeMarr, 55, of Santa Ana, was charged in a complaint filed in the Eastern District of New York with one count of conspiracy to commit securities fraud.  DeMarr made his initial appearance this afternoon before U.S. Magistrate Judge John D. Early of the Central District of California.  Judge Early referred the case to the Eastern District of New York for further proceedings.

“The indictment alleges an elaborate scheme in which the defendant conspired to lure unsuspecting investors with fraudulent promises of large returns in the cryptocurrency market, only to divert millions of dollars for his own personal use,” said Acting Assistant Attorney General Nicholas L. McQuaid of the Justice Department’s Criminal Division.  “While the technologies and methods are constantly changing, the Criminal Division’s commitment to aggressively pursuing fraud in all its forms remains unchanged.”

“As alleged, DeMarr made misrepresentations and false promises that coaxed investors into pouring millions of dollars into fraudulent cryptocurrency schemes, all to facilitate his extravagant lifestyle,” said Acting U.S. Attorney Seth D. DuCharme of the Eastern District of New York.  “We will continue to root out and prosecute those who would cheat investors to line their own pockets.”

“Mr. DeMarr created an elaborate cryptocurrency scheme, complete with high profile endorsements and incredibly large returns that proved to be a mirage costing investors millions,” said Assistant Director in Charge Kristi K. Johnson of the FBI’s Los Angeles Field Office.  “Mr. DeMarr is now in custody and no longer spending his victims’ money, nor hiding from justice by faking his own disappearance.”

“In  hi-tech financial world there are increasingly more opportunities for fraudsters to take advantage of people and their bank accounts,” said Special Agent in Charge Ryan Korner of the IRS-Criminal Investigation (IRS-CI) Los Angeles Field Office. “John DeMarr’s Bitcoin operation is one such example of a cryptocurrency investment scheme that did not payoff for his investors.  Claiming to be part of a cryptocurrency ‘ecosystem,’ DeMarr created nothing more than an elaborate fraud scheme where he stole his investors’ money to fund his own personal lifestyle, resulting in losses totaling over $11 million.  Financial crimes never pay, as one way or another the person behind the computer will be caught and will be held accountable.”

As alleged in the complaint, between 2017 and 2018, DeMarr conspired with others to defraud numerous victims of $11.4 million by inducing them to invest in their companies, “Start Options” and “B2G,” based on materially false and misleading representations.  Start Options purported to be an online investment platform that provided cryptocurrency mining, trading, and digital asset trading services.  B2G was purportedly an “ecosystem” that would allow users to trade B2G tokens, provide digital wallet staking, and trade digitial and fiat currencies “on a secure, comprehensive platform.”

According to the allegations, however, both Start Options and B2G were fraudulent.  In approximately December 2017, DeMarr and others began offering securities in the form of investment contracts to U.S. and international investors through the Start Options website.  Investments were accepted in Bitcoin, U.S. dollars, or Euros.  To participate, investors had to deposit their funds for a specified contract period, after which they could purportedly withdraw their money at a significant profit.

Among other things, DeMarr and others falsely claimed that investor funds would be invested in digitial asset mining and trading platforms that would earn them massive profits.  In truth, however, the money was never invested and was instead diverted to accounts controlled by DeMarr and others and used for various personal expeditures, including the purchase of a Porsche, jewelry, and renovations to DeMarr’s home in California.

Similarly, according to the complaint, Start Options also purported to feature celebrity endorsements to promote its securities offerings.  For example, a professional athlete purportedly endorsed Start Options when, as alleged in the indictment, the athlete had no involvement with Start Options and his name and likeness were used without his consent.  Based on this and other fraudulent promotional materials, investors sent millions of dollars worth of Bitcoin, Ethereum, and fiat currency to financial accounts, including cryptowallets, controlled by DeMarr and others in the U.S. and abroad.

As alleged, in or about late January 2018, rather than permitting Start Options investors to withdraw money from their accounts after the requisite time period, DeMarr and others required investors to roll over their accounts into an unregistered “initial coin offering,” or ICO, of B2G, the second of the two fraudulent companies in which DeMarr was involved.  Among other fraudulent misrepresentations, DeMarr and others falsely told investors that the ICO would raise capital for the company to build an “ecosystem” that would allow users to trade B2G tokens, provide digital wallet staking, and trading.  In truth, investors never actually received any digital tokens and funds from the offering were not used to develop the B2G platform.

According to the complaint, DeMarr and others also paid various promoters, including an actor famous for martial arts films made in the 1980s and 1990s, to serve as a promoter and celebrity spokesperson, falsely claiming that B2G could generate an “8000%” return for investors within one year, and that he was a participant in the ICO.  DeMarr and others also created false press releases and whitepapers about B2G, fabricated B2G account statements, and refused to allow investors to withdraw their money.

As alleged in the complaint, DeMarr staged his own disappearance to avoid facing disgruntled B2G investors.  DeMarr instructed others to release statements asserting that DeMarr had been assaulted and went missing in Montenegro, and telling B2G investors to stop attempting to contact DeMarr or his family regarding their inability to have the money they invested in B2G returned.  In truth, however, DeMarr did not disappear in Montenegro and instead was believed to be residing in California.

The charge in the complaint is based on allegations, and the defendant is presumed innocent unless and until proven guilty.

This case was investigated by the FBI and IRS-CI.  Trial Attorney Kevin Lowell of the Criminal Division’s Fraud Section and Assistant U.S. Attorneys Kaitlin Farrell, Hiral Mehta, and David Pitluck of the Eastern District of New York are prosecuting the case, with assistance on forfeiture matters from Assistant U.S. Attorney Laura Mantell.

The Criminal Division’s Fraud Section plays a pivotal role in the Department of Justice’s fight against white collar crime around the country.

SOURCE: USDOJ.Today

 

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