A federal jury in California has convicted Japheth Dillman of wire fraud and conspiracy to commit wire fraud for his role in operating Block Bits Fund I, LP, a crypto trading fund that raised roughly $960,000 from over 20 investors using a pitch built on lies. The central lie: a proprietary autotrading bot that could exploit price differences across digital asset exchanges. The bot never actually worked.
Dillman faces a maximum penalty of 20 years in prison for each count of conviction. Sentencing has yet to be scheduled.
The bot that never was
Block Bits Fund I operated between mid-2017 and mid-2018. The fund marketed itself to investors by claiming it had built a proprietary autotrading bot capable of digital asset arbitrage, essentially buying crypto cheaper on one exchange and selling it for more on another, pocketing the spread automatically.
According to trial evidence, the bot was never operational. Instead of deploying investor capital into the promised algorithmic strategy, Dillman and his co-founder David Mata funneled the money into high-risk ventures that investors never signed up for. That included making loans and pouring funds into the AML Bitcoin initial coin offering.
Of the approximately $960,000 raised, investors suffered losses estimated at around $508,000.
The co-founder flipped
David Mata pleaded guilty to one count of wire fraud back in June 2022 as part of a cooperation agreement with federal prosecutors. He then took the stand and testified against Dillman during the trial.
Mata also settled civil charges brought by the SEC. Under that settlement, he agreed to disgorge $75,000 plus interest and accepted a bar from the financial industry.
The investigation was handled jointly by the FBI and the IRS Criminal Investigation unit after investor complaints triggered federal attention.
A familiar playbook in an era of easy money
The AML Bitcoin ICO, where some of the misappropriated funds ended up, marketed itself as a privacy-focused cryptocurrency with anti-money laundering features built in. Channeling investor money into a questionable ICO without disclosure is exactly the kind of self-dealing that wire fraud statutes are designed to punish.