Crypto Fund Founder Convicted of Fraud Over Fake Trading Bot

A federal jury in San Francisco has convicted the founder of a cryptocurrency trading fund of wire fraud and conspiracy, after prosecutors showed he sold investors on trading software he knew did not work, the Justice Department said on Monday.

Japheth Dillman, 48, raised close to $1 million from more than 20 investors in Block Bits Capital between June 2017 and August 2018, telling them the fund would make money from automated cryptocurrency trading driven by a proprietary tool called the Autotrader, which he claimed was complete and working.

In fact, the algorithm did not function—and prosecutors said Dillman knew it, meaning investor money could not be used the way he had promised. He and a co-conspirator, who is not named in the announcement, instead paid themselves and put the rest into speculative positions in other crypto ventures while telling investors the money was in something safer.

Those bets lost heavily, and Dillman then told investors that Block Bits’ trading had produced significant profits, when in fact it had produced further losses.

Sentencing in December

Dillman was convicted after a 10-day trial before U.S. District Judge Richard Seeborg and remains free on bond. He is due to be sentenced on December 8 and faces up to 20 years and a $250,000 fine on each count, with the judge to set the term under federal sentencing guidelines.

The FBI and IRS Criminal Investigation ran the investigation, with help from the SEC’s San Francisco office. Assistant U.S. Attorneys Christiaan Highsmith and Charles Bisesto prosecuted.

Crypto accounted for more than half of everything Americans reported losing to scams and cybercrime last year, according to the FBI’s complaint center. Investment schemes were the single biggest component at $8.6 billion, a rise of 32% on 2024.

That figure covers only what victims tell law enforcement, and the Consumer Federation of America has argued the true cost is several times higher, on the basis that the overwhelming majority of people defrauded never file a complaint at all.