The mastermind of what the U.S. Department of Justice calls a scam of “epic proportions” has been sentenced to 10 years in prison. His crypto scheme collected over $147 million, duping 72,000 investors. He is also ordered to pay the U.S. Internal Revenue Service more than $1.8 million for tax evasion.
Scam Involving Fake Cryptocurrency
The U.S. Department of Justice (DOJ) announced Monday that a California man, Steve Chen, has been sentenced to 10 years in federal prison for his “leading role” in a major crypto fraud case. Judge John Walter called Chen’s scheme a scam of “epic proportions.”
The DOJ explained that the 63-year-old conducted “a massive investment scam where a multinational company issued a phony digital currency purportedly backed by billions of dollars’ worth of amber and other gemstones.” Chen pleaded guilty in June last year to one count of conspiracy to commit wire fraud and one count of tax evasion.
Chen was the owner and CEO of U.S. Fine Investment Arts Inc. (USFIA) and six other companies. The DOJ detailed that he fraudulently promoted and solicited investments from July 2013 until September 2015. He convinced investors that USFIA was a successful multi-level marketing company that extracted amber and other gemstones from the mines it “owned” in the U.S., the Dominican Republic, Argentina, and Mexico. However, in reality, the mines did not exist. The DOJ added:
He ultimately obtained approximately $147 million from 72,000 victims, in one of the largest pyramid schemes ever prosecuted in this district.
Investors were duped into buying USFIA “packages” purportedly comprised amber and other gemstones, as well as USFIA “points.” They were told that these points could be converted to USFIA shares when the company had its IPO, which never happened. The investments range from $1,000 to $30,000 each. USFIA also “offered other bonuses – including cash, travel, luxury cars, homes in the Los Angeles area, and EB-5 visas for immigrant investors – to investors who recruited other people to purchase these ‘packages,'” the Justice department detailed.
From September 2014, Chen and others substituted points for “Gem Coins,” which “had no circulation in any industry, were not accepted by any merchants, and had no economic value,” the DOJ continued, adding:
They falsely promoted these ‘coins’ as a legitimate digital currency backed by the company’s gemstone holdings. Chen also falsely represented that these ‘coins’ already were in wide circulation in the jewelry and finance industries.
In addition, Chen committed tax evasion when he reported that his gross income for 2014 was $138,015 when it was approximately $4,816,193. He, therefore, owed the U.S. Internal Revenue Service (IRS) $1,885,094 – before interest and penalties. The DOJ notice concludes:
Judge Walter ordered Chen to pay restitution of $1,885,094 to the IRS on the tax evasion count.
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