Corrections Officer Pleads Guilty to Defrauding First Responders with Bogus Crypto, Investment Funds
That must have been what it felt like to fellow law enforcement officers and first responders when a state of New Jersey corrections officer defrauded them for more than $600,000.
On March 26, John DeSalvo pled guilty to charges related to two fraud schemes in which he targeted police, firefighters, EMTs, and other first responders. Some lost their entire retirement savings, according to a U.S. Attorney’s Office of New Jersey press release.
Bum Crypto Tokens
DeSalvo created his own cryptocurrency to perpetrate one of the frauds, prosecutors say. He styled the Blazar Token as a “crypto pension,” enticing first responders to buy it with their retirement savings. DeSalvo promised annualized return rates of more than 20%.
DeSalvo went to great lengths to make his crypto look legitimate, telling prospective investors the SEC had approved and securitized the token– a lie, according to court filings. He also falsely claimed that Blazar Token traded on major crypto exchanges, including Coinbase.
Personal Expenses and a Pyramid Scheme
So what happened to all the money investors gave him? DeSalvo stole some of the deposits from investors, spending it on personal expenses, day trading, and using deposits by new investors to make it seem like older investors were earning a profit, according to the FBI complaint against him.
DeSalvo did invest some of the investor deposits in his unsecuritized Blazar Tokens. After buying Blazar Tokens on his investors’ behalf, he sold the 41 billion tokens that he controlled, and which had propped up the value of the Blazar Tokens to make them more attractive to investors. That sale caused the digital currency to crash, ultimately rendering it worthless.
Bogus Investment Group
DeSalvo also ran a bogus investment group in addition to the cryptocurrency scam, says the U.S. Attorney General’s Office. He used social media to attract investors into his group, which was hosted at an online trading platform. In his posts, he boasted of being in the top thousandth percentile of investors, professing 1,200% returns. Both claims were outright lies.
DeSalvo solicited his victims through social media. He sent one victim the following message through Facebook, according to the FBI:
“I’ve done this three times since the summer. I’m not guaranteeing we get the same results, but so far the other three accounts are all over $15 million and they started with over $25,000 … I’ve had days where I’ve made over $300,000 in one day!”
All told, DeSalvo’s bogus fund attracted $100,000 in investments.
DeSalvo Stole Investment Group Profits
Despite the fraud, his group initially profited. His investment group account rose from an initial balance of $96,303 to $141,414 in February 2021, a 47% increase in less than a week.
Instead of reinvesting these profits or returning them to investors, DeSalvo began to transfer them into his own accounts, according to the FBI. He drained the investment group account a piece at a time until it had a balance of $0.
Next, he lied to investors and said that the fund had crashed because of poor market conditions, says the FBI. He wrote to one investor, “We’re done. Biggest crash of the Nasdaq in 27 years. 11 of 13 days down in a row.”
For his crimes involving cryptocurrency and investment fraud, DeSalvo faces 20 years in prison and $5 million in fines.
Cryptocurrency Scams
Consumers should beware of promises for zero-risk, high-return on investments and cryptocurrency. This and other tips for spotting cryptocurrency scams can be found on the FTC’s consumer advice cryptocurrency page.
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