The Securities and Exchange Commission has issued charges against Block Bits Capital, LLC, Block Bits Capital GP I, LLC, and the co-founders Japheth Dillman and David Mata, alleging fraudulent offering of unregistered securities.
Block Bits along with Dillman and Mata, apparently raised about $1 million from over 20 investors for an automated digital asset trading bot that is said to have never been functional.
According to the SEC’s complaint, Dillman falsely claimed that the fund’s assets were invested in risk-free “cold storage” deals, when in reality Dillman and Mata used the funds for high-risk loans and to invest in the AML Bitcoin initial coin offering. The SEC noteds that the aforementioned offering was also deemed to be a fraudulent unregistered securities offering in SEC v. NAC Foundation, LLC.
Simultaneously, the US Department of Justice has announced fraud charges against the founders.
According to the DOJ, Dillman was arrested yesterday in connection with an alleged scheme to defraud victims into investing in a San Francisco-based cryptocurrency trading fund. The federal complaint alleges that, together with Mata, Dillman raised approximately $960,000 from investors by misrepresenting the status and functionality of the technology underlying their “autotrader” and by making false representations regarding the manner investor funds were being used.
Justice states that Dillman and Mata are said to have diverted the funds and used them to invest in risky, cryptocurrency-related ventures, none of which involved “cold storage” or were related to the stated purpose of Block Bits Fund.
All of the investments are said to have failed and investors lost a substantial portion of their funds.
Dillman has a court appearance scheduled for today (April 28, 2022,) and Mata has a court appearance scheduled for April 29.
Regarding the SECs lawsuit, Mata has agreed to entry of a judgment, subject to court approval, imposing permanent and conduct-based injunctions and ordering him to disgorge $75,000 plus prejudgment interest of $11,624, and reserving the issue of a civil penalty for further determination by the court.