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\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 SANTA ANA, California<\/i> \u2013 Two Orange County men each were sentenced today to federal prison terms for conning more than 2,000 investors into purchasing a cryptocurrency that purportedly provided exclusive access to a profitable trading program, and then using most of the $1.9 million raised to line their own pockets.<\/p>\n
\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 Jeremy David McAlpine, 26, of Fountain Valley, was sentenced to 36 months in federal prison by United States District Judge Cormac J. Carney. In a separate hearing today, Judge Carney sentenced Zachary Michael Matar, 29, of Huntington Beach, to 30 months in federal prison. Judge Carney scheduled a September 26 <\/b>restitution hearing in this case.<\/p>\n
\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 McAlpine and Matar each pleaded guilty in August 2021 to one count of securities fraud.<\/p>\n
\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 In 2017, McAlpine and Matar founded Dropil Inc., a Belize-based company operating out of Fountain Valley. Dropil provided and managed investments in digital assets including a cryptocurrency called DROPs that McAlpine and Matar developed. McAlpine and Matar were also primarily responsible for the development of Dropil\u2019s digital asset trading program, an automated trading bot called \u201cDex,\u201d which could be used exclusively with DROPs.<\/p>\n
\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 McAlpine and Matar induced investors to purchase DROPs by making false claims about DROPs, the functionality and profitability of Dex, and the number of investors and volume of investment in DROPs that had purportedly already been achieved and that purportedly enhanced \u2013 through the operation of supply and demand \u2013 the value of DROPs. Dex was said to provide an \u201cexpertly managed portfolio balancing algorithm [that] manages risk,\u201d according to information published on Dropil\u2019s website. The DROP tokens were said to \u201censure privacy while also offering added value and exclusivity.\u201d Dropil further promised that Dex\u2019s trading would generate profits that would be distributed as additional DROP tokens every 15 days.<\/p>\n
\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 Beginning in late 2017, McAlpine and Matar began an unregistered offer and sale of DROPS on Dropil\u2019s website. In January 2018, the defendants launched an initial coin offering (ICO) for the sale of DROPs, again through Dropil\u2019s website, which continued through March 2017. Neither McAlpine, Matar nor Dropil was registered with the Securities and Exchange Commission (SEC) as a broker or dealer.<\/p>\n
\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 To induce investors to purchase DROPs, McAlpine and Matar made a series of false statements to investors in a \u201cWhite Paper\u201d published on Dropil\u2019s website and on its Twitter account, promoting the cryptocurrency\u2019s supposed success. Among other false statements, the White Paper asserted that trading with Dex would produce average annual returns of between 24% and 63% depending on the \u201crisk profile\u201d selected by the investor.<\/p>\n
\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 In response to investigative subpoenas from the SEC, the defendants manufactured fake Dex profitability reports, giving the false appearance that Dex was operational and profitable. Defendants also fabricated an investor spreadsheet for the SEC that purported to show that Dropil had successfully raised $54 million from 34,000 investors both foreign and domestic. In fact, the ICO raised under $2 million from fewer than 2,500 investors. McAlpine also provided false sworn testimony to the SEC about the amount of money raised in the ICO, as well as about Dex and its purportedly profitable trading activity. <\/p>\n
\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 In total, the defendants obtained approximately $1,896,657 from 2,472 investors through the sale of approximately 629 million DROPs. McAlpine and Matar used the invested money as promised to fund disbursements to themselves and their associates.<\/p>\n
\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 In sentencing memoranda, prosecutors argued that the defendants\u2019 \u201coffenses were serious and troubling: They caused significant financial harm to an extremely large number of victims and entailed efforts to derail law enforcement\u2019s attempts to root out and address wrongdoing.\u201d<\/p>\n
\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 As part of the settlement of a separate civil case brought by the SEC, Dropil Inc., McAlpine and Matar in July 2021 agreed to permanent injunctions<\/a> barring further fraudulent conduct and prohibiting them from directly or indirectly participating in the offer, purchase, or sale of digital securities.<\/p>\n \u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 The FBI investigated this matter.<\/p>\n \u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 Assistant United States Attorney Ranee A. Katzenstein, Chief of the Major Frauds Section, prosecuted this case.<\/p>\n<\/div>\n