It Needs to Look Real: The Bitcoin Scam That Took Buyers for a $722 Million Ride
For five years, the cryptocurrency company BitClub Network made sky-high profits, while customers lost so much money that at least one lodged death threats against the company.
I became bankrupt with this clubcoin, wrote one member of a cryptocurrency forum in March. He claimed to have invested $40,000 in the company. I don't know what to do now. These lying bastards lied so much for almost 2 years. If I meet Russ Medlin, I will just strangle him.
At the time, BitClub Network (BCN) was a near-billion-dollar company and Medlin, a convicted sex offender for child pornography and sexual assault of a minor under 14, sat at its head. Today, Medlin is one of the companys only leaders not facing federal charges. BCN was a sophisticated scam that bilked customers out of at least $722 million across five years, prosecutors charged last week. Four alleged ringleaders were arrested, while two others, whose names are redacted in a federal complaint, remain at large.
BCN was an empire propped up by dubious technology, customers they privately called idiots, and the stolen identity of at least one violent rapist, according to the court documents.
The company said it would make investors rich by earning them cryptocurrency, a form of digital money. Customers could invest in BCNs mining technology, which supposedly used high-powered computers to generate the cryptocurrency bitcoinand BCN would give investors a share of the bitcoin profits. It looked like the ultimate work-from-home scheme: Once a customer paid a $99 joining fee and at least $500 to join a mining pool, they could sit back and reap the rewards for years.
Or at least thats how it would work if BCN actually owned the mining technology it advertised. But messages from the companys leaders suggest they were misleading customers from the beginning. The federal complaint, filed in New Jersey includes messages from June 2014, in which BCNs early leaders said their target audience would be the typical dumb MLM [multi-level marketing] investor.
We may need to fake it for the first 30 days while we get going, Matthew Goettsche wrote to Silviu Balaci in October 2014, according to the criminal complaint. It needs to look real.
Both men, along with alleged co-conspirators Jobadiah Weeks and Joseph Frank Abel have been arrested for their roles in BCN. It is unclear whether the defendants have lawyers.
BCN was not actually mining the bitcoin it advertised, Goettsche said. Instead, he wanted Balaci to provide fake mining numbers to investors. We are building this whole model on the backs of idiots, Goettsche told Balaci in January 2015. Keeping the scheme going just means convincing the morons ;).
Both Goettsche and Balaci, along with alleged co-conspirators Jobadiah Weeks and Joseph Frank Abel, have been arrested for their roles in BCN. It is unclear whether the defendants have retained lawyers yet.
Goettsche might have had contempt for his customers, but the unregulated world of cryptocurrency in 2015 meant that plenty of non-morons were still losing money on bitcoin schemes. Rising cryptocurrency values led a growing pool of people to invest via third-party dealers who promised to act like unofficial banks. But nearly all those companies were brand new, making it difficult for investors to tell which were legitimate and which were scams. BCN claimed to be the most transparent company in the history of the world, and one of the top 10 crypto currency mining operations in the world.
Many of their customers believed them.
Edmond Thamage invested $3,500 in BCNs Founders pool, the companys supposedly premier mining pool that promised the greatest rate of return.
Back then I didnt know much about crypto like I know right now and I failed to do my own research hence I fell prey to BCN recruiters, Thamage told The Daily Beast. I will live to regret it!
When he realized he wasnt receiving the payouts hed hoped for, he said, he contacted BCN many times but I think they have blocked or terminated support services.
Juliet Nursey, another BCN customer, isnt a Silicon Valley techie. Shes a pensioner in the U.K. living on what she described as a very limited income. She didnt know exactly what to expect from BitClub, she told The Daily Beast. Just hoped to earn some money.
Through a friend, she invested 250 (approximately $330) in the company. She hasnt seen a penny in return, a development thats left her bloody annoyed, she said. Like many other BitClub customers, she left a complaint on the companys Facebook page, but never received a response.
But for years, BCN did just enough to give its business the appearance of legitimacy.
Bump up the daily mining earnings starting today by 60%, Goettsche told him in 2015, according to the criminal complaint.
60%? Balaci asked. Wow. That is not sustainable, that is ponzi teritori [territory] and fast cash-out ponzi. But sure.
They just needed to placate restless members, Goettsche told him. We will dilute over time. Members will think its due to strong growth.
To show off its supposed growth, BCN fabricated at least one of the reviews on its site. Its website included testimonials from supposed customers whod struck it rich on the network, including a rave review from a Brazilian man named Victor Diaz who wrote in Spanish instead of Brazils official language of Portuguese. The accompanying picture of Victor was actually a mugshot of a Mumbai man who received a lifetime sentence for a violent rape, a bitcoin blog noted in 2016.
Not everyone was convinced. From the companys founding, some industry insiders noted that it had the makings of a Ponzi scheme. The blog Behind MLM noted that although the companys founders were difficult to track down, some of its earliest promoters were linked to ZeekRewards, a Ponzi scheme that netted $900 million from victims.
Meanwhile, multiple BCN leaders led jetsetting lifestyles promoting the company. The criminal complaint describes them traveling through the U.S. to host talks about BCN. BCN also hosted presentations internationally. In October 2015, a Redditor in Zurich, Switzerland, posted from a BCN pitch meeting, which he said looked like a Ponzi scheme.
As BCNs profile rose, Medlin emerged as the companys de facto leader. We have seen interviews and footage of the BitClub CEO Russ Medlin, so that adds a degree of assurance when the owner of the scheme is prepared to show their face in public, a scam-detection site wrote in 2017. (In the comments, investors argued that the company was very much a scam. I invested $2500 and they took all my money. I lost 10,000USD. They asked me to fund my account again. I invested my pensions fund into them but when i asked for a withdrawal they refused.)
As of April, Medlin was still doing interviews as the companys CEO. But his own reputation was less than clean. A Nevada criminal record reveals he was twice convicted on sex offenses: sexual assault on a minor under 14 in 2005, and possession of child pornography in 2008. For these offenses, he is required to register as a sex offender with Nevada for 25 years. Nevadas sex offender registry currently lists Medlin as non-compliant, suggesting the state might not know where he is.
A voicemail at a number listed for Medlin (his answering machine message: do not leave any messages) was not returned.
According to a Department of Justice release on Tuesday, two unnamed people connected to BCN remain at large. The complaint includes messages between Goettsche and one of those people.
Here is my current plan, Goettsche wrote in September 2017, outlining an 8-step scheme to cash out. Step 8: We retire RAF [rich as fuck]!!!
I like it, the unnamed collaborator wrote. Call me when you can.
Read more: https://www.thedailybeast.com/bitclub-network-and-the-bitcoin-scam-that-took-buyers-for-a-billion-dollar-ride