Two Orange County men were sentenced Monday to more than two years in federal prison for their roles in a cryptocurrency scheme that fraudulently raised $1.9 million, prosecutors said.
Jeremy David McAlpine, 26, of Fountain Valley and Zachary Michael Matar, 29, of Huntington Beach pleaded guilty in August 2021 to securities fraud in connection with the scheme, the U.S. attorney’s office for the Central District of California said.
McAlpine was sentenced to three years in prison, and Matar was sentenced to two and a half years.
They conned more than 2,000 investors into buying Drops, a cryptocurrency that could be used with an automated trading bot called Dex from their company, Dropil Inc., prosecutors said.
McAlpine and Matar made false claims about the cryptocurrency and the trading bot’s profitability, as well as the number of investors and the volume of the investments.
In a white paper published by Dropil, the company claimed that Dex would produce average annual returns of 24% to 63%.
The company launched an initial coin offering, although neither man was registered with the Securities and Exchange Commission as a broker or dealer.
“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,” prosecutors said.
A fabricated investor spreadsheet showed that the company had raised $54 million from 34,000 investors, but the company had brought in just under $2 million from around 2,500 investors.
McAlpine also provided false testimony to the SEC regarding the company’s profitability.
“McAlpine and Matar used the invested money as promised to fund disbursements to themselves and their associates,” officials said.
In sentencing documents, prosecutors wrote that the actions “caused significant financial harm to an extremely large number of victims.”
McAlpine and Matar were also barred last year from the offering, purchasing and selling of digital securities as part of a settlement from a lawsuit filed by the SEC.