U.S.-based promoter of foreign cryptocurrency companies charged in over $11 million securities fraud scheme

 

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Date: February 1, 2021

Contact: newsroom@ci.irs.gov

Brooklyn, NY — Earlier today, in federal court in Brooklyn, a complaint was unsealed charging John DeMarr with conspiracy to commit securities fraud for his alleged participation in a cryptocurrency and securities fraud scheme. DeMarr was arrested this morning in Santa Ana, California, and will make his initial appearance this afternoon in U.S. District Court for the Central District of California. Ryan L. Korner, Special Agent-in-Charge, Internal Revenue Service-Criminal Investigation, Los Angeles Field Office (IRS-CI), announced the arrest and charge.

"In today's hi-tech financial world there are increasingly more opportunities for fraudsters to take advantage of people and their bank accounts," stated IRS-CI Special Agent-in-Charge Korner. "John Demarr's Bitcoin operation is one such example of a cryptocurrency investment scheme that did not payoff for his investors. Claiming to be part of a cryptocurrency 'ecosystem,' Demarr created nothing more than an elaborate fraud scheme where he stole his investors' money to fund his own personal lifestyle, resulting in losses totaling over $11 million. Financial crimes never pay, as one way or another the person behind the computer will be caught and will be held accountable."

As alleged in the complaint, DeMarr, a promoter of several digital asset-related companies, conspired with others to defraud victims by inducing them to invest in two of his companies, "Start Options" and "B2G," that purported to be online investment platforms providing digital asset trading services. Investments were accepted in Bitcoin, U.S. dollars or Euros for a specified contract period based on DeMarr's false and misleading representations of significant profits, which he bolstered with bogus celebrity endorsements, false press releases and fabricated account statements. Instead of investing the funds in "Start Options" and" B2G," DeMarr diverted the funds into other accounts he controlled and spent the money on a lavish lifestyle he maintained, which included the purchase of expensive jewelry, a Porsche and the remodeling of his California home.

"As alleged, DeMarr made misrepresentations and false promises that coaxed investors into pouring millions of dollars into fraudulent cryptocurrency schemes, all to facilitate his extravagant lifestyle," stated Acting U.S. Attorney DuCharme. "We will continue to root out and prosecute those who would cheat investors to line their own pockets." Mr. DuCharme expressed his grateful appreciation to the U.S. Securities and Exchange Commission, New York Regional Office, for its assistance with the case.

Start Options also purported to feature celebrity endorsements to promote its securities offerings. For example, a professional athlete purportedly endorsed Start Options when, in fact, the athlete had no involvement with Start Options and his name and likeness were used without his consent. Based on this and other fraudulent promotional materials, investors sent millions of dollars' worth of Bitcoin, Ethereum, and fiat currency to financial accounts, including cryptowallets, controlled by DeMarr and others in the U.S. and abroad.

According to the complaint, DeMarr and others paid various promoters, including an actor famous for appearing in martial arts films of the 1980s and 1990s, to serve as a promoter and celebrity spokesperson, falsely claiming that B2G could generate a massive return for investors within one year, and that he was a participant in the ICO.

"The complaint alleges an elaborate scheme in which the defendant conspired to lure unsuspecting investors with fraudulent promises of large returns in the cryptocurrency market, only to divert millions of dollars for his own personal use," stated Acting Assistant Attorney General McQuaid. "While the technologies and methods are constantly changing, the Criminal Division's commitment to aggressively pursuing fraud in all its forms remains unchanged."

In May 2018 to avoid facing disgruntled B2G investors, DeMarr attempted to feign his disappearance by directing others to release statements claiming that he had been assaulted to avoid facing disgruntled B2G investors. DeMarr directed others to release statements claiming that DeMarr had been assaulted and was missing in Montenegro, and instructing B2G investors to stop attempting to contact DeMarr or his family regarding their inability to have the money they invested in B2G returned. Since his alleged disappearance, DeMarr has been residing in California.

"Mr. DeMarr created an elaborate cryptocurrency scheme, complete with high profile endorsements and incredibly large returns that proved to be a mirage, costing investors millions," stated FBI Assistant Director-in-Charge Johnson. "Mr. DeMarr is now in custody and no longer spending his victims' money, nor hiding from justice by faking his own disappearance."

The charge in the complaint is an allegation, and the defendant is presumed innocent unless and until proven guilty.

This case was investigated by the IRS-Criminal Investigation and FBI. Assistant U.S. Attorneys Kaitlin T. Farrell, Hiral D. Mehta, and David C. Pitluck of the Eastern District of New York, assisted by EDNY Criminal Investigator Martin Sullivan, with Trial Attorney Kevin Lowell of the Criminal Division's Fraud Section are prosecuting the case, Assistant U.S. Attorney Laura D. Mantell of the Eastern District's Civil Division is handling forfeiture matters.