Bitcoin Trader Pleads Guilty to Ponzi-Like Scheme, Faces 20 Years in Prison

Michael LaVere

Another day, another cryptocurrency scam.

As bitcoin registers another strong day of trading, with the price eclipsing $11,000 for the first time in more than a year, a crypto scam artist has pled guilty to defrauding investors of nearly $200,000.

Bitcoin Trader Pleads Guilty to Fraud

Patrick McDonnell, who went by the name Jason Flack, admitted to committing securities and wire fraud, according to a Brooklyn federal court order. McDonnell was the head of Staten Island-based CabbageTech, which operated the bitcoin trading firm Coin Drop Markets (CDM).

Under the guise of trading bitcoin, litecoin and other cryptoassets for investors, CDM was able to create a Ponzi-like operation. Between November 2014 and January 2018 the firm attracted investors to deposit money in CDM in the belief that McDonnell would provide trade recommendations and cryptoasset purchases.

Investors were further lured by false claims of massive returns being generated by the trading pool. In one such example, McDonnell’s group claimed to make a 300% return on investment in less than a week. Investors were further duped by false balance statements, which McDonnell issued in an effort to prove the venture profitable.

Ponzi-Like Scheme

According to United States Attorney Richard Donoghue, McDonnell followed the typical script for a Ponzi scheme,

“McDonnell has admitted that he used old-fashioned deception to defraud investors seeking to trade 21st century currencies,”

Donoghue continued,

“when investors requested refunds, McDonnell initially offered excuses for delays in repayment, and eventually stopped responding at all.”

New investor funds were used to pay off older investors, creating a cycle of recommendations and referrals that kept the fund afloat--at least for a while.

Instead of generating a hefty payout, Coin Drop Markets lost all of the principal investment in what the court documents call "personal use." The firm initially attempted to cover up the ordeal by deleting its website and social media accounts. However, McDonnell was eventually caught and indicted with nine counts of securities and wire fraud.

He faces up to 20 years in prison if convicted.