A federal jury convicted Block Bits founder Japheth Dillman on all five counts for a fake crypto arbitrage bot that cost investors $960K. Sentencing could bring up to 20 years per count.
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A federal jury in San Francisco found Block Bits founder Japheth Dillman guilty on all five counts Monday, concluding a trial over a crypto investment scheme that took roughly $960,000 from retail investors.
Law360 reported that the 12-member jury deliberated about six hours across two days. Prosecutors proved the funds raised between June 2017 and August 2018 went into a nonexistent arbitrage system.
Dillman and his partner David Mata marketed the Block Bits Fund I as a vehicle with proprietary software that could trade 100 digital assets across more than 30 exchange platforms. The bot was never built or deployed, prosecutors said.
Filings presented by the U.S. Securities and Exchange Commission showed the actual trading consisted of manual orders placed by Mata on a single exchange account. Dillman still reported positive monthly returns to clients for June and July 2017.
The scheme also included false claims about asset custody. The promoters told investors that roughly 40% of the capital sat in low-risk cold storage. The money went to unsecured loans and the AML Bitcoin initial coin offering instead.
Mata cooperated with prosecutors after pleading guilty to one count of wire fraud in June 2022. He testified against Dillman during the trial, detailing the firm's internal operations.
Dillman's defense argued that Mata's testimony was false, framing Dillman as the capital fundraiser who was unaware of the software's technical inner workings. The jury rejected that argument.
Each wire fraud count carries a maximum of 20 years in prison and fines of up to $250,000. The final sentence depends on the loss calculation and federal sentencing guidelines.
The SEC's parallel civil enforcement action against Dillman and Block Bits entities remains active. The regulator seeks disgorgement, civil penalties, and officer-and-director bars. A formal sentencing hearing has not been scheduled yet.
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