Crypto scam leads to 5-year prison sentence and $3.5M fine

February 6, 2023 Rob Abruzzese

A photo of the Brooklyn federal courthouse by Mary Frost of the Brooklyn Daily Eagle

A photo of the Brooklyn federal courthouse. Photo: Mary Frost, Brooklyn Eagle

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DOWNTOWN BROOKLYN — Prosecutors in the Eastern District are busy with cryptocurrency and it’s not because they think it’s a good investment.

On Tuesday, John DeMarr, a 58-year-old from Santa Ana, California, was sentenced to 60 months in federal prison and was ordered to pay over $3.5 million in fines by Hon. LaShann DeArcy Hall for his role in a cryptocurrency and securities fraud scheme.

DeMarr had previously pleaded guilty to one count of conspiracy to commit securities fraud in July 2021.

“DeMarr took advantage of those who trusted him, persuading them to double down on their investments when he knew that his cryptocurrency companies and their dubious celebrity endorsements were scams being used to fund his lavish lifestyle,” stated U.S. Attorney Breon Peace. “The victims ultimately lost everything, so it is appropriate that DeMarr lose his freedom for concocting this fraud.”

This is the third major announcement out of the U.S. District Court for the EDNY involving cryptocurrency scams.

The developer of an NFT known as Mutant Ape Planet, a 24-year-old French national named Aurelien Michel, was charged with defrauding investors of $2.9 million earlier this month. Less than two weeks ago EDNY prosecutors charged Anatoly Legkodymov, a 40-year-old Russian national living in China, for conducting Bitzlato Ltd, which is allegedly an unlicensed money-transmitting scheme.

“Cryptocurrency schemes are on the rise,” said Tyler Hatcher, Special Agent-in-Charge, Internal Revenue Service Criminal Investigation, Los Angeles. “The Internal Revenue Service Criminal Investigation and our law enforcement partners are working diligently to identify and investigate criminals who perpetrate these schemes, like John DeMarr.”

According to prosecutors, DeMarr conspired with others to defraud investors by getting them to invest in two companies — “Start Options” and “B2G”.

Prosecutors explained that Start Options pretended to be an online investment platform for cryptocurrency mining and trading, and that B2G pretended to be an “ecosystem” that provided a wallet and would allow users to trade tokens and other digital currency. Both companies, prosecutors claim, were fraudulent.

DeMarr allegedly told investors that their money would be invested in digital asset mining and trading platforms that would earn them profits. Instead, the money was never invested and was deposited into accounts for DeMarr’s personal expenses including a Porsche.

In one instance, DeMarr required investors to roll over their accounts into an unregistered “initial coin offering” of B2G, but investors never received any digital tokens, prosecutors said.