SEC charges Block Bits Capital with fraudulent offer of securities
The Securities and Exchange Commission (SEC) has taken action against Block Bits Capital, LLC , Block Bits Capital GP I, LLC, and their founder and Managing Director, Japheth Dillman. The regulator filed a complaint against the defendants in the California Northern District Court on April 27, 2022.
The document, seen by FX News Group, alleges that Block Bits Capital and Dillman engaged in the fraudulent and unregistered offer and sale of securities. Dillman was the primary architect of the fraud, and with his co-founder and co-Managing Director David Mata, Block Bits and Dillman promoted the offering and raised at least $960,000 for the Fund from approximately 22 retail investors, from at least July through December 2017.
The Commission has filed a separate action against Mata.
Block Bits’ offering materials falsely stated that it had developed an in-house proprietary auto-trading bot, which would trade a hundred different digital assets or “cryptocurrencies” over thirty different trading platforms based on parameters defined by Block Bits to maximize returns for the Block Bits Fund I, LP in which investors purchased securities.
In reality, Block Bits never developed a functional auto-trading bot. The only trading for the Fund was done manually by Mata through a digital asset trading platform account.
Dillman also misrepresented to Block Bits investors that 40% of the Fund’s assets were invested in “cold storage” (offline) deals that would generate substantial returns and be held in risk-free conditions. In reality, at no time were any of the Fund’s assets stored in offline wallets or other risk-free “cold storage” to generate returns.
Instead, Dillman and Mata used the investor funds to continue manually trading and for investments that carried significant risk, including in unsecured loans and an investment in a related company’s initial coin offering of another digital asset, AML Bitcoin.
In this action, the Commission seeks injunctions; disgorgement of ill-gotten gains, with prejudgment interest; civil monetary penalties; and other appropriate relief.