A California man pleaded guilty today in the Eastern District of New York for his participation in a coordinated cryptocurrency and securities fraud scheme through purported digital currency platforms and foreign-based financial accounts.
As part of his guilty plea, John DeMarr, 55, of Santa Ana, admitted that he conspired with others to defraud investor victims 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 digital and fiat currencies “on a secure, comprehensive platform.” Both Start Options and B2G, however, were fraudulent.
As part of the conspiracy, 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 were told that they could withdraw their money at a significant profit.
According to court documents, DeMarr and others falsely claimed that investor funds would be invested in digital 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 expenditures, including the purchase of a Porsche, jewelry, and to remodel DeMarr’s home in California.
Similarly, Start Options also claimed to feature celebrity endorsements to promote its securities offerings. For example, Start Options falsely represented that a professional athlete had endorsed Start Options when, in fact, the athlete was not involved 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.
In 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.
As part of the conspiracy, 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.
DeMarr pleaded guilty to one count of conspiracy to commit securities fraud and is scheduled to be sentenced on Jan. 4, 2022. DeMarr faces a maximum sentence of five years in prison. A federal district court judge will determine any sentence after considering the U.S. Sentencing Guidelines and other statutory factors.
Assistant Attorney General Kenneth A. Polite Jr. of the Justice Department’s Criminal Division, Acting U.S. Attorney Jacquelyn M. Kasulis of the Eastern District of New York, Assistant Director in Charge Kristi K. Johnson of the FBI’s Los Angeles Field Office, and Special Agent in Charge Ryan L. Korner of the IRS-Criminal Investigation (IRS-CI) Los Angeles Field Office made the announcement.
The FBI and IRS-CI are investigating the case.
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 Justice Department’s fight against white collar crime around the country.