‘Coin Signals’ Trader Arrested on $5M Crypto Fund Fraud Charges

The Federal Bureau of Investigation (FBI) on Tuesday arrested Rhode Island cryptocurrency trader Jeremy Spence on allegations that his “Coin Signals” crypto funds bilked investors of $5 million between November 2017 and April 2019.

The 24-year-old proprietor of at least three crypto funds allegedly ran their value into the ground, losing millions of dollars for 170 investors. Spence tried to hide his losses by funneling over $2 million of newcomers’ bitcoin and ethereum positions to old-timers in a “Ponzi-like” fashion, according to a complaint unsealed Tuesday in federal court.

He also fabricated account balances to show Coin Signals investors in the green, prosecutors allege. Spence once falsely told his investors they were up 148% in a single month, according to the complaint.

In doing so, prosecutors allege Spence committed commodities fraud and wire fraud. Those charges could add up to 30 years in federal prison if prosecutors secure a conviction and maximum allowable sentence.

Spence’s crypto funds have landed him in hot water before. In 2018, crypto lawyer David Silver of Silver Miller Law filed a civil suit over the trader’s alleged Ponzi scheme on behalf of 22 Coin Signals investors. Miller secured a summary judgment and $2.9 million in damages against Spence in mid-December.

“We are pleased that after nearly two years, the government has finally indicted Mr. Spence to hold him accountable to his many victims, Silver told CoinDesk. “The real question remains, where is the stolen bitcoin? My clients would prefer a return of their bitcoin more than the unsatisfied $3,000,000 Judgment.”



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Class Action Filed Against Listed Bitcoin Miner Bit Digital Over Fraud Allegations

A class-action lawsuit has been filed against Nasdaq-listed bitcoin mining company Bit Digital following recent allegations of fraud.

According to a court document filed in the Southern District Court of New York on Thursday, the class action seeks to recover damages for Bit Digital investors who made stock purchases between Dec. 21, 2020 and Jan. 8, 2021.

Defendants allege the mining company made false and/or misleading statements and failed to disclose the true extent of its mining operations, which it said had 22,869 bitcoin machines in China, per the filing.

On Tuesday, Bit Digital denied allegations of fraud brought against it by J Capital Research in a report that claimed the company has “tried to downplay the criminality” of its actions.

J Capital also alleged that the large number of mining machines reported by the company was “simply not possible” after reportedly checking with its government contacts in China.

“Defendants’ [Bit Digital] positive statements about the Company’s business, operations, and prospects were materially misleading and/or lacked a reasonable basis,” the court filing reads.

Bit Digital said Tuesday that its mainland China mining operations are managed by XMAX Hong Kong, and all “utility bills and other expenses” are paid to Hong Kong suppliers.

Bit Digital must respond within a 60-day period; failing to do so would bring about a default judgement for relief.

The firm’s shares (BTBT) have declined 2.15% Friday and are currently down 45% year to date.



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Trustee of Collapsed Exchange to Ask Court to Resolve Crypto vs. Fiat Creditor Claims Tussle

Ernst and Young (EY), the bankruptcy trustee for the defunct exchange QuadrigaCX, is trying to resolve a dispute over how to value the firm’s cryptocurrency assets before disbursement to creditors.

EY will head to court on Jan. 26 to argue the valuation date for cryptocurrency claims should be considered from the date of the exchange’s bankruptcy on April 15, 2019. The firm is taking a different stance from affected user, crypto startup BlockCAT, which wants the digital assets to be valued as of Feb. 5, 2019, when Quadriga received court protection to restructure under Canadian federal law.

The date used will greatly affect how cryptocurrency is valued and, thus, how much creditors receive from the remaining pool of assets.

BlockCAT has made a claim of 4 million Canadian dollars (US$3.14 million). Seeking to maximize its payout, it has brought a motion arguing the date for valuing cryptocurrency claims of other users should commence from the exchange’s initial court order with respect to the Companies’ Creditors Arrangement Act (CCAA).

The issue at hand pits Quadriga’s former users, who have predominantly cryptocurrency claims, against creditors who predominantly have claims for fiat currency. In total, Quadriga users have made 17,053 claims with a value of either CAD$224 million or CAD$291 million, depending on the date used for asset valuation.

The trustee has to pay out claims made for cryptocurrency and U.S. dollars in Canadian dollars, meaning the court must decide on a date for valuation before it can proceed with disbursement.

A factum (a statement of the facts of the case) was filed by EY to the Ontario Superior Court of Justice on Tuesday in connection with its motion for an order to use the prevailing exchange rate on the date of bankruptcy for the conversions.

According to commercial litigator Evan Thomas, who assessed the trustee’s figures as outlined in the factum, a user with a claim solely for CAD will recover 23% less if the April 15, 2019 date is used.

As shown above, the price of cryptocurrencies between February 2019 and April 2019 typically rose. As such, a former Quadriga user with a claim solely for bitcoin would get 14% more in CAD if the April date is determined as the legitimate date by the courts.

If BlockCAT convinces the court that cryptocurrency claims should be valued at the February date, the relative share of the Quadriga pool to be paid to affected users with CAD claims would increase, Thomas noted.

The case in novel in Canadian law. “No bankruptcy court in Canada has previously been asked to determine as at what date claims made in cryptocurrency should be valued in Canadian dollars,” EY states in the factum.

QuadrigaCX, formerly Canada’s largest cryptocurrency exchange, went dark in January 2019, following banking issues, stalled customer withdrawals and the reported death of its founder and CEO, Gerald Cotten, in December 2018.



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