Crypto investment fraud has been on the rise, but Mauricio Chavez, Giorgio Benvenuto and 24 additional defendants with CryptoFX, added a new twist to their investment scam. They set their Houston based Ponzi scheme up in a multilevel marketing (or pyramid) structure, allowing them to reach many investors quickly, and take advantage of a large range of investment sizes, from $500 to $300,000. In just under two and one-half years. CryptoFX associates conned 40,000 investors out of $300 million through large investor meetings and seminars, social media and Zoom calls. Their victims were spread throughout the United States, and in two foreign countries, as well.
The Ponzi Scheme
CryptoFX sold investment contracts called Venture Agreements, promising to trade investors’ funds in crypto-asset and foreign-exchange markets, guaranteeing periodic returns. Unregistered sales leaders located throughout the United States, including Houston, Chicago, New Orleans and Los Angeles, sold unregistered offerings.
Defendants Promised 15 to 100% Returns
“Despite raising more than $300 million (mostly in cash), Chavez’s crypto-asset and foreign-exchange market trading generated only $2.6 million in trading profits (or less than 1% of the total amount raised), and CryptoFX could only make payments of promised returns by using the funds coming in from new investors.” SEC Complaint
“Defendants described CryptoFX as the road to financial freedom and touted that it had created multiple millionaires. Certain Defendants also told prospective investors that their investments were ‘risk-free’ and that their principal was ‘guaranteed’ even if there was a world war or power outage.”
Where Did The Money Go?
Most of the money appeared to go to the sales people. Some of the more successful sales members received significant sums according to the SEC Complaint.
- Ismael Sanchez earned over $2 million in commissions and bonuses.
- Gloria Castaneda received over $548,000 for her efforts.
- Reyna Guiffaro raked in more than $289,000.
- Gabriel Ochoa deposited $473,000 in commissions and bonuses.
- Maria Saravia “earned” $432,000, and
- Roberto Zavala grabbed $574,000 for his fraudulent inducements.
Sanchez and team even managed to get two large investors to wire $310,000 directly to Chicago Title of Texas. These funds were used to purchase a one-million-dollar home for Sanchez.
In Illinois, Gloria Castaneda seemed to be running her own Ponzi Scheme. During a nine- month period, she scammed $11.6 million from investors, but sent only $921,000 to Houston. “Castaneda used $8,589,227 to pay purported returns to earlier investors and paid the remainder as commissions and bonuses to herself and those in her referral group.” In other words, she and her team pocketed over two million dollars for themselves.
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How To Avoid a Crypto Ponzi Scheme Investment Scam
As an investor, what can you do to avoid financial investment fraud?
- Research whether the security and the sales team are registered at the state or federal level. CryptoFX was not registered, nor were any of the sales team. Spending a few minutes up front to browse the government websites could have saved thousands of investors in this case.
- Ask for an audit report before investing. There is nothing to indicate CryptoFX had an external audit. While these documents can be faked, it is another step to help you determine if you are dealing with legitimate people.
- Meet the financial team, and in the case of crypto, meet a developer and have the software demonstrated.
- Be very wary of any guaranteed stream of income or return.
Ponzi Schemes And Financial Investment Fraud Remain Rampant
Do your research before investing. We hope all your real estate, commodities, foreign exchange, crypto-currency and oil and gas investments are safe and profitable. But if you find yourself searching for an experienced investment fraud attorney, oil and gas litigator or a commercial litigation lawyer, Mark A. Alexander. P.C. is here to help. Call us today at (972) 544-6968.
