$15 000 000 USD

SEPTEMBER 2019

UNITED STATES

CIRCLE SOCIETY

DESCRIPTION OF EVENTS

David Saffron, 49 resided in Las Vegas, Nevada or Los Angeles County, California. He owned the digital currency commodities investment platform Circle Society. This was a commodity pool fund that combines investor contributions to trade on the futures and commodity markets.

 

Saffron was the Founder and Owner of Circle Society and was affiliated with several related entities, including Bitcoin Wealth Management, Omicron Trust, and Cloud9Capital. He held himself out as an expert computer programmer and an expert trader in various cryptocurrencies, including Bitcoin. He claimed to be the lead developer for the Uber App and Snapchat App, that security software he wrote was used by most U.S. banks, that his AI was as advanced as IBM's "Watson", and that he had a series-7 securities brokers license.

 

"He lived lavishly, using rented mansions in the Hollywood Hills with pools and private chefs to host opulent parties, according to investors interviewed by The Daily Beast. He posted on social media about eating at expensive steakhouses and traveled with a team of personal security guards. One investor, Scott Freeman, said he had to submit a background check just to get into Saffron’s house."

 

Through his various entities, David Saffron solicited prospective investors to invest with him through online communication platforms, online videos, and in-person meetings. Saffron promised investors "guaranteed" returns between 150% and 300%, paid within 30 days of their initial investment, which was a fraction of the 500% to 600% ROI he showed he was able to generate. He showed off significant personal wealth, meeting prospects in luxury Hollywood Hills homes, hosting dinners at high-end restaurants, and travelling with a team of armed security guards.

 

"One investor said he put in $300 to start, but was still skeptical about Saffron’s business, so he asked one of Saffron’s security guards whether the guy was legit. The security guard told him that he had been suspicious, too, until his co-worker invested and saw great returns on his money. The investor kept his money in."

 

Trades were stated to be performed by his trading bot to generate the reported returns. Saffron represented to investors that he had personally developed and employed an Artificial Intelligence (“AI”) trading robot (an “AI trading bot”) that would execute 17,500 transactions per hour on various cryptocurrency exchanges. The AI trading bot would buy and sell various cryptocurrencies in exchange for one or more fiat currencies as the exchange rates fluctuated up and down. His AI trading bot used “signaling technology” that analyzed news reports, market reports, and “social media sentiment” related to all of the stock exchanges and cryptocurrency exchanges around the world.

 

To prove his technology to prospects, David Saffron offered investors the ability to "test out" his trading program. If meeting with a group, he would offer some of those investors an opportunity to invest a small amount of cash or cryptocurrency, between a few hundred and few thousand dollars for 20-30 minutes, a few hours, or a few days. He would pay out the promised returns for the small group accurately and on time, which would encourage other investors to invest between tens and hundreds of thousands of dollars.

 

Investors were provided with continual assurances that their investments were growing along with updated balances. They were encouraged to "roll" or reinvest "profits" for greater returns, as opposed to withdrawing their funds. There was also an exciting opportunity to invest in Cloud9Capital, which David Saffron had personally invested 200 of his own bitcoins in, and was generating him impressive returns.

 

Saffron commodity pool was completely unregistered.

 

David Saffron didn't own any of the Hollywood Hills homes he took prospects to, and the security guard team is reported to have only existed to give a fake image of wealth and power.

 

"David Saffron, was a 49-year-old Australian living in Nevada. Before starting an investment company, Saffron was perhaps the least infamous member of his family: His immediate family all appeared on a 2011 episode of the Gordon Ramsay show Kitchen Nightmares in which his father, Alan, admitted to taking $250,000 from his son to keep his restaurant afloat. (David does not appear in the episode, the son in question is his brother, Daniel.) His grandfather was a notorious Sydney underworld figure known as “Mr. Sin,” who started a network of underground clubs selling prostitutes and illegal booze, and served time for federal tax evasion."

 

"Saffron’s career was less remarkable. One LinkedIn page lists him as the CEO of “A9 models,” which has one post and nine followers on Instagram; another lists him as the marketing manager for “WizKidsNow.” California business records list him as the owner of an S&M performance venue in Los Angeles called Master D’s Academy of Sin, whose Facebook page features videos of Saffron spanking women and pouring paint down their naked backs. His own Facebook page refers to him as “Master D” and features a photo of him in a bright red suit and matching fedora."

 

As alleged in the indictment, Saffron falsely represented to investors that he traded investors’ funds to earn profits using a trading bot that could execute over 17,000 transactions per hour on various cryptocurrency exchanges.

 

"Defendant SAFFRON and his co-conspirators falsely represented to victim-investors that defendant SAFFRON traded investors’ funds to earn profits, including through investment vehicles such as Circle Society, Bitcoin Wealth Management, and the Omicron Trust, among other entities."

 

Saffron worked with a lawyer, a prominent bitcoin community member, the chief operating officer of a contract security company, and the chief executive officer of a fashion and media company.

 

"Co-conspirator 1 (“CC-1”) was a lawyer who knowingly made false representations to victim-investors to induce victim-investors to invest funds with defendant SAFFRON."

 

"Co-conspirator 2 (“CC-2”), who was known to certain victim investors as “the Bitcoin guy,” accepted at least hundreds of thousands of dollars in funds from victim-investors on behalf of defendant SAFFRON."

 

"Co-conspirator 3 (“CC-3”) was the Chief Operating Officer of a contract security company hired by defendant SAFFRON. CC-3 established and managed bank accounts used by defendant SAFFRON and solicited potential victim-investors on behalf of defendant SAFFRON."

 

"Co-conspirator 4 (“CC-4”) was the Chief Executive Officer of a fashion and media company based in Hollywood, California, who falsely represented to victim-investors that he, purportedly as the Director of the Federal Crypto Reserve, had been hired by defendant SAFFRON to investigate the purported “theft” of defendant SAFFRON’s and the victim-investors’ investments."

 

When enabling investors to "test out" his trading program, he was simply paying them with investments from other investors, and Cloud9Capital was an entity which David Saffron also owned.

 

“Mr. Saffron preyed on investor interest in cryptocurrency by enticing victims with fake technology and false promises of guaranteed returns,” said Special Agent in Charge Ryan L. Korner of the IRS-CI’s Los Angeles Field Office. “In reality, Mr. Saffron was operating an illegal Ponzi scheme to defraud victim investors and used the funds for his own personal benefit. IRS-CI will pursue and root out these schemes to protect investors, preserve our commodity markets, and bring financial fraudsters to justice.”

 

"Most of the investors who spoke to The Daily Beast have given up on getting their funds back, regardless of how the court rules., Marshall, like many of them, said he just wants Saffron to serve time—and to never be able to do something like this again."

 

Explore This Case Further On Our Wiki

David Saffron appeared to be highly wealthy with mansions and armed security guards. He promised investors a lucrative opportunity to make 500%-600% returns on their money.

 

In reality, it appears he was running a ponzi scheme. The CFTC filed a complaint against him and he is prosecuted by the Department of Justice. There is no official word on any recovery of funds.

HOW COULD THIS HAVE BEEN PREVENTED?

In general, the investing public should always be extremely wary of anyone claiming to have a trading bot capable of generating returns by trading. Such an opportunity would be eliminated quickly by the nature of an efficient market. Were such a bot to exist, there is no reason why the inventor would ever be approaching general members of the public, as they would have no trouble finding funding.

 

This situation can be easily prevented through the requirement of a Proof of Reserves or regular accounting. This can determine whether investor funds are fully backed or not.

 

Check Our Framework For Safe Secure Exchange Platforms

Sources And Further Reading

 For questions or enquiries, email info@quadrigainitiative.com.

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