Crypto fund founder convicted of fraud over fake trading bot

A federal jury in San Francisco convicted Japheth Dillman, 48, founder of the cryptocurrency trading fund Block Bits Capital, of wire fraud and conspiracy, after prosecutors showed he sold investors on trading software he knew did not work, the Justice Department said Monday.

Dillman raised close to $1 million from more than 20 investors in Block Bits Capital between June 2017 and August 2018. He told them the fund would generate returns through automated cryptocurrency trading, run by a proprietary tool he called the Autotrader, which he described as complete and already running.

The algorithm never functioned, and prosecutors said Dillman knew it. That meant investor money could never have been used the way he described. He and an unnamed co-conspirator paid themselves from the fund instead, then put the remainder into speculative positions in other crypto ventures while telling investors their money sat somewhere safer.

Those speculative bets lost heavily. Rather than disclose the losses, Dillman told investors that Block Bits' trading had produced significant profits, when the fund had in fact lost more money.

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

The FBI and IRS Criminal Investigation led the case, with assistance from the SEC's San Francisco office. Assistant U.S. Attorneys Christiaan Highsmith and Charles Bisesto prosecuted. The announcement did not name the co-conspirator who helped Dillman divert investor funds, and no separate charges against that person have been made public.

The case lands the same week as a separate conviction in Las Vegas, where Brent Kovar was found guilty of running a $24 million crypto fraud built on a similar promise: automated technology doing work it never did. Both cases follow a pattern regulators keep flagging. Crypto accounted for more than half of everything Americans reported losing to scams and cybercrime last year, according to the FBI's complaint center, with investment schemes alone accounting for $8.6 billion, up 32% from 2024. That figure only counts what victims report. The Consumer Federation of America has argued the true cost runs several times higher, since most people defrauded never file a complaint at all.

• Convicted: Japheth Dillman, 48, founder of Block Bits Capital
• Charges: wire fraud and conspiracy, after a 10-day federal trial
• Scheme: raised nearly $1 million from 20+ investors, 2017-2018, on a fake automated trading tool called Autotrader
• Sentencing: set for December 8, up to 20 years and a $250,000 fine per count
• Investigators: FBI and IRS Criminal Investigation, with the SEC's San Francisco office

Dillman's case differs from many crypto fraud prosecutions in one respect: the amount involved, under $1 million, is small next to headline cases that run into the hundreds of millions or billions. The mechanics were the same regardless of scale, a fabricated technology story, money diverted to other uses, and fabricated returns to keep investors from asking questions.

This piece is informational, not a recommendation to buy, sell, or hold any asset.