Key facts
- Japheth Dillman, founder of Block Bits Capital, was convicted of wire fraud and conspiracy.
- He raised nearly $1 million from investors by falsely claiming a functional automated trading software.
- Investor funds were used for personal expenses and speculative crypto bets that lost heavily.
- Dillman misled investors about the fund's performance, claiming profits when losses occurred.
- Sentencing is scheduled for December 8, with a potential penalty of 20 years per count.
A federal jury in San Francisco has convicted Japheth Dillman, the founder of cryptocurrency fund Block Bits Capital, of wire fraud and conspiracy. Prosecutors presented evidence that Dillman defrauded over 20 investors out of nearly $1 million between June 2017 and August 2018.
Dillman had pitched Block Bits Capital to investors, claiming it would generate profits through automated cryptocurrency trading using a proprietary tool called the Autotrader, which he asserted was complete and functional. However, evidence showed that the algorithm did not work, and Dillman was aware of this fact.
Instead of deploying funds as promised, Dillman and an unnamed co-conspirator used the investor money to pay themselves and to make highly speculative investments in other cryptocurrency ventures. These speculative bets resulted in significant losses.
Dillman further misled investors by reporting substantial profits from the fund's trading activities, when in reality, the fund had incurred further losses. The conviction followed a 10-day trial presided over by U.S. District Judge Richard Seeborg.
Dillman remains free on bond and is scheduled for sentencing on December 8. He faces a potential penalty of up to 20 years in prison and a $250,000 fine for each count. The investigation was conducted by the FBI and IRS Criminal Investigation, with support from the SEC's San Francisco office. Assistant U.S. Attorneys Christiaan Highsmith and Charles Bisesto prosecuted the case.