Two Men Bag Three Years in Prison for $1.9M ICO Fraud

The United States Department of Justice (DOJ) announced Monday that two men from Orange County who both coordinated a $1.9 million initial coin offering (ICO) fraud have been sentenced to federal prison.

3 Years in Prison

U.S. District Judge Cormac J. Carney sentenced Jeremy David McAlpine to 36 months (3 years) and Zachary Michael Matar to 30 months (2 years and 6 months) in federal prison.

The ICO fraud was conducted on the official website of the privately-owned firm, Dropil, which was established by McAlpine and Matar in 2017. The duo conducted an unregistered sale of the company’s native token, DROP, since neither of the parties involved in hosting the sale was registered as a broker or dealer with the United States Securities and Exchange Commission (SEC).

In 2018, the founders conducted an ICO, generating about $1.9 million worth of funds from the 629 million DROP tokens offered to over 2,400 investors.

Dropil claimed to offer digital asset investment management services, allowing investors to trade on the platform. McAlpine and Matar cajoled users to buy and trade the DROP tokens, promising that the trades would generate gains that would be “distributed as additional DROP tokens every 15 days.”

To further deceive investors, the company made up a white paper that portrayed it as a flourishing company that offers attractive annual yields to risky investors, ranging from 24% to 63% gain. 

DOJ to Compensate Victims

When confronted by the U.S. SEC about the unregistered ICO, Dropil provided falsified information by giving the wrong notion that the company is financially stable. Dropil went further to generate a false report stating that $54 million was realized from 34,000 investors in its token sale, whereas it was $1.9 million that was raised.

While McAlpine and Matar are currently being sentenced to prison, the DOJ plans to compensate the 2,472 victims of the ICO scam, as Judge Carney declared that a restitution hearing will be held on September 26.

Meanwhile, another report confirmed that the U.S. SEC has filed charges against the four founding members of Forsage over a $300 million crypto Ponzi scheme.