U.S. prosecutors are looking for to return $6.5 million in allegedly scammed bitcoin to victims of the “Banana.Fund” crowdfunding venture, which the federal government described in courtroom papers as a Ponzi scheme.
In a forfeiture go well with in opposition to the cryptocurrency account storing the funds, prosecutors allege Banana.Fund’s unnamed administrator admitted to traders his venture had flopped, promised to return $1.7 million to them after which failed to take action. The operator then pivoted to a laundering and refund scheme that finally resulted within the U.S. Secret Service’s (USSS) seizure of 482 bitcoin (BTC) and 1,721,868 tether (USDT).
The lawsuit, filed July 29 within the U.S. District Courtroom for the District of Columbia, seeks to grant the federal authorities formal possession of the property so it could return them to the victims.
The go well with didn’t determine the operator of Banana.fund. However a number of victims of the alleged rip-off, and paperwork reviewed by Fintech Zoom, present the outfit was run by a British nationwide named Richard Matthew John O’Neill aka “Jo Cook.”
One of many victims, Mike Koenen, instructed Fintech Zoom that since a minimum of May 2018 he has been pushing the us to analyze Banana.Fund and O’Neill.
Paperwork reviewed by Fintech Zoom present that by November 2019, brokers with the us San Francisco discipline workplace had been email-canvassing probably victims for info on Richard O’Neill. Regulation enforcement had frozen O’Neill’s Poloniex account over a 12 months earlier than.
Neither O’Neill nor the Division of Justice responded to requests for remark.
The forfeiture go well with represents maybe probably the most substantial improvement but in a little-known scheme that ran via the peak of bitcoin’s historic late-2017 price pump and apparently went belly-up inside months of the market’s pop, the paperwork reveal.
Peeling again the fraud
Banana.Fund’s white paper describes a crowdfunded enterprise improvement firm that shepherds fledgling startups via their earliest phases whereas providing operational transparency to their seed traders.
O’Neill instructed Fintech Zoom in January 2017 that Banana.Fund would “use blockchain for what it is good for: implementing transparent and irreversible global transactions.” In his view, he was “creating a level playing field for all users to pursue their business ideas, free of charge.”
Investing in O’Neill’s personal enterprise concept was not freed from cost, nevertheless.
The buy-in began at 0.02 BTC, mentioned Telegram person Dutch_Giant, who heard about Banana.Fund on the now-defunct message board MoneyMakersforum.
“The bigger deposit you made, the bigger part of the business you got,” Dutch_Giant mentioned. He put in 0.024 bitcoin – “about $60 at the time.”
Different traders went even larger on O’Neill’s crowdfunding darling, inside paperwork present. One person invested 82 bitcoin and 9 others contributed 10 bitcoin or extra. In all, 417 traders declare to have misplaced a mixed 481 bitcoin, worth virtually $5.5 million at present, to Banana.Fund.
These figures come from a spreadsheet of “verified refund claims” that O’Neill started compiling on Jan. 2, 2018, when he emailed Banana.Fund traders that they could possibly be refunded almost thrice the greenback value of their authentic funding – however not their value in bitcoin.
“Banana.Fund is a failed project,” O’Neill mentioned in a venture announcement whose textual content was shared with Fintech Zoom and referenced within the prison criticism. He claimed that whereas Banana.Fund had already spent round a 3rd of traders’ $600,000 pie on overhead, he had ridden the remaining bitcoin via late 2017’s heights and will now refund them triple their authentic funding in USDT, a stablecoin that often trades 1-for-1 with the greenback.
“We’ve failed up!” he mentioned. He claimed to have $1,730,000 in USDT for refunds. “Pure dumb luck.”
His traders would have been far luckier had they by no means locked their bitcoin up in Banana.Fund, the DOJ factors out. Banana.Fund’s founder, referred to within the go well with solely as “Person 1,” solely “stated that due to the increased value of bitcoin, investors would receive more than their initial investment in U.S. dollars, although, realistically, they would all still lose money because of the increased value of bitcoin.”
A calculated danger
Prosecutors allege that “Person 1” had an account steadiness of $11 million and will due to this fact simply pay again even Banana.Fund’s greatest traders. They additional allege that “Person 1” spent the weeks main as much as his USDT conversion “buying and selling multiple coins for personal gain” and tried one withdrawal to purchase a home.
O’Neill “literally gambled with our BTC on Poloniex and he had few good trades,” mentioned one other sufferer of the alleged rip-off, Kris Zelisko, who invested 1.01 bitcoin in Banana.Fund. “Also, BTC went up in the meantime.”
Prosecutors additionally allege “Person 1” engaged in a year-long bitcoin laundering scheme that spanned over 40,000 trades and 7 totally different cryptos, and in a two-week spree generated $540,000 in revenue from the Banana.Fund pot.
“Person 1” by no means paid the overwhelming majority of traders again, the prosecutors alleged.
Dutch_Giant mentioned that numerous Banana.Fund customers had been nicely conscious of the dangers concerned with “Jo Cook” enterprises. “Cook,” he mentioned, had a observe file of working crowdfunded-oriented web site scams that nonetheless paid some traders out.
“It was a reasonably calculated bet,” he mentioned.
The chief in blockchain information, Fintech Zoom is a media outlet that strives for the very best journalistic requirements and abides by a strict set of editorial insurance policies. Fintech Zoom is an impartial working subsidiary of Digital Forex Group, which invests in cryptocurrencies and blockchain startups.