A federal jury has convicted Block Bits co-founder Japheth Dillman on five fraud-related counts tied to a cryptocurrency investment pitch that prosecutors said was built around a trading bot that never actually existed.
The government said Dillman and fellow co-founder David Mata raised about $960,000 from roughly 22 retail investors between June 2017 and August 2018 for Block Bits Fund I. According to prosecutors, investors were told the fund used a proprietary automated system to trade around 100 digital assets across more than 30 exchanges, but the strategy described to investors was not real.
Jury verdict after two days of deliberations
The jury found Dillman guilty on four counts of wire fraud and one count of conspiracy. Jurors reached the verdict after about six hours of deliberations spread across two days.
The conviction follows a case in which prosecutors argued that the core technology used to market the fund was fictitious. Their presentation said Mata, not an automated system, manually executed trades while Dillman had promoted the system in early presentations as already profitable.
How Block Bits Fund I was sold to investors
Prosecutors said the fundraising campaign centered on claims that Block Bits Fund I had a proprietary bot capable of exploiting price differences across numerous crypto markets. The pitch described a wide-reaching operation trading about 100 digital assets on more than 30 exchanges.
Investors were also told that around 40% of fund assets were held in low-risk cold storage. Prosecutors, along with the Securities and Exchange Commission, said that protection did not exist. Instead, capital was allegedly deployed into risky loans and an AML initial coin offering.
Losses and co-founder testimony
By 2022, investor losses were estimated at about $508,000. The case involved approximately 22 investors, according to the government’s evidence.
Mata testified against Dillman under a plea agreement. He had already pleaded guilty in 2022 to one wire fraud count, a development that became part of the government’s broader case against Dillman.
What comes next
Dillman now faces sentencing following the guilty verdict. Separately, the SEC’s civil case against him and Block Bits is still moving forward.
That lawsuit seeks injunctions, disgorgement, civil penalties, and restrictions on future offerings. The case also reflects a pattern seen during the 2017 ICO boom, when trading bots and other advanced-sounding crypto tools were used to attract money from investors despite limited verifiable transparency.
Source: news.bitcoin.com