August 25, 2022:
"Two Orange County men each were sentenced today to federal prison terms for conning more than 2,000 investors into purchasing a cryptocurrency that purportedly provided exclusive access to a profitable trading program, and then using most of the $1.9 million raised to line their own pockets." DOJ Link
According to DOJ, defendants "induced investors to purchase DROPs by making false claims about DROPs, the functionality and profitability of Dex, and the number of investors and volume of investment in DROPs that had purportedly already been achieved and that purportedly enhanced – through the operation of supply and demand – the value of DROPs. Dex was said to provide an “expertly managed portfolio balancing algorithm [that] manages risk,” according to information published on Dropil’s website."
"The DROP tokens were said to “ensure privacy while also offering added value and exclusivity.” Dropil further promised that Dex’s trading would generate profits that would be distributed as additional DROP tokens every 15 days." Defendants "began an unregistered offer and sale of DROPS on Dropil’s website. In January 2018, the defendants launched an initial coin offering (ICO) for the sale of DROPs, again through Dropil’s website, which continued through March 2017."
"Neither [defendants] nor Dropil was registered with the Securities and Exchange Commission (SEC) as a broker or dealer." To induce investors to purchase DROPs, McAlpine and Matar made a series of false statements to investors in a “White Paper” published on Dropil’s website and on its Twitter account, promoting the cryptocurrency’s supposed success."
"Among other false statements, the White Paper asserted that trading with Dex would produce average annual returns of between 24% and 63% depending on the “risk profile” selected by the investor." "In response to investigative subpoenas from the SEC, the defendants manufactured fake Dex profitability reports, giving the false appearance that Dex was operational and profitable."
"Defendants also fabricated an investor spreadsheet for the SEC that purported to show that Dropil had successfully raised $54 million from 34,000 investors both foreign and domestic".
" In fact, the ICO raised under $2 million from fewer than 2,500 investors. [Defendant] also provided false sworn testimony to the SEC about the amount of money raised in the ICO, as well as about Dex and its purportedly profitable trading activity."
"In total, the defendants obtained approximately $1,896,657 from 2,472 investors through the sale of approximately 629 million DROPs. [Defendants] used the invested money as promised to fund disbursements to themselves and their associates." "In sentencing memoranda, prosecutors argued that the defendants’ “offenses were serious and troubling: They caused significant financial harm to an extremely large number of victims and entailed efforts to derail law enforcement’s attempts to root out and address wrongdoing.