US federal prosecutors recently brought criminal charges against Rhode Island-based crypto trader Jeremy Spence. The charges were related to the Coin Signals Ponzi scheme.
Operating fraudulent schemes
24-year-old Spencer was involved in soliciting investments via Discord and Telegram to his crypto trading schemes. According to the US Department of Justice, he operated fraudulent fundraising campaigns and ran a digital asset trading firm even though he did not have the professional experience to do so. He was arrested this morning.
The prosecutors noted that he successfully raised $5 million from over 170 individual investors after having online discussions with them on Discord and Telegram. Of this money, only $2 million was distributed to investors between November 2017 and April 2019.
In a typical Ponzi fashion, he paid some money to early investors from new investors’ funds, claiming it to profit from their investments. Spence also used a portion of the invested funds to pay for his debts and personal expenses. As a result, he was unable to pay his investors bonuses or other cash commissions.
Claims of running a hedge fund
Spencer said that he would be investing funds in a series of hedge funds. The largest of these funds was Coin Signals Bittrex Fund while the most active was Coin Signals Alternative Fund or CS Alt Fund. He also sought investments for the Coin Signals Long Term Fund. The victims were asked to transfer their digital currency to Spence so he can invest in digital assets markets. He created fraudulent draft performance reports which were falsely claimed to have achieved massive returns for the investors.
The complaint also details how Spence managed to hide his losses. Apart from the fraudulent monthly account statements, he also made checks that represented nonexistent trading profits and investment returns. He claimed to have generated over 148% returns during a month while he was facing losses. All new participants were assured guaranteed annual returns when their money was actually being used to pay off older investors. Nearly all of the pool money was lost. The prosecutors have now charged Spencer with wire fraud and commodities fraud.