Crypto con warning from IRS as California man jailed over multimillion-dollar scam

The Internal Revenue Service (IRS) has said cryptocurrency scams are on the rise, as a California man was jailed for five years over a fraud scheme that saw would-be investors conned out of millions in Bitcoin and Ethereum as well as fiat currency.

John DeMarr, 58, of Santa Ana, was sentenced by a federal court in New York for his part in a securities fraud scheme that heavily relied on digital currency. He has also been ordered to pay north of $3.5 million in restitution after pleading guilty.

He used bogus companies B2G and Start Options – which featured a paid celebrity endorsement from an unnamed but famous martial arts actor who was presumably also misled – to convince victims to send millions of dollars in digital and conventional currency to crypto wallets and financial accounts controlled by him and his accomplices.

Other celebrities had their names and likenesses used without their consent to promote the fake investment scheme, said the US Department of Justice (DoJ), announcing the verdict.

To entice investors, DeMarr falsely claimed that B2G could generate 8,000% returns for them within just one year.

Rather than allow their victims to withdraw money from their ‘accounts’ at the beginning of 2018 – when they had been told they could as per the terms of the agreement – DeMarr and his fellow crooks forced them to “roll over” their accounts into a bogus initial coin offering.

The would-be-investors never received any digital tokens – the usual result of such transactions – and the fraudulently obtained money went straight into funding DeMarr’s “lavish lifestyle.”

The latter entailed extravagant purchases, including a Porsche sports car and jewelry, as well as a luxurious revamp of DeMarr’s home in California.

DeMarr was brought to justice by the Federal Bureau of Investigation (FBI), the US Attorney's Office for the Eastern District of New York, and the investigative branch of the IRS.

“Cryptocurrency schemes are on the rise,” said an IRS spokesman. “DeMarr, a promoter of several digital asset-related companies, conspired with others to defraud victims and made misleading representations for significant profits. DeMarr diverted funds into accounts he controlled and spent the money to maintain a lavish lifestyle.”

“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 US Attorney Breon Peace. “The victims ultimately lost everything, so it is appropriate that DeMarr lose his freedom for concocting this fraud.”

The global worth of cryptocurrency thefts peaked at just under $1 billion in 2018 before dipping to around $370 million the following year and rising again to $516 million in 2020, according to Statista.

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