BitClub Network Ponzi

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BitClub Network

The Bitclub Network supposedly operated a large mining pool and sold different investment contracts for 5 years to investors, extracting profits of over $722m from participants. The system was widely known and trusted in the space. Unfortunately, the entire system was a ponzi scheme and no actual mining was done to generate the returns for investors. The scheme collapsed and those involved were charged with fraud.

This is a global/international case not involving a specific country.

About BitClub Network

"Bitcoin is the future of money. It's the first decentralized digital currency that works peer-to-peer without needing a bank of central repository. Mining is the backbone that allows Bitcoin to function. New Bitcoins are created as a reward for miners who secure & record payments in the blockchain. With BitClub you can earn daily profits from our shared mining pools. We also have a referral program so you can get paid for anyone you share BitClub with."

"Bitcoin mining is the process by which new bitcoins are created. A physical goldmine is an apt analogy: There is a set amount of gold in the mine. In order to extract the gold, a great deal of work must be done, whether with pickaxes or, in the case of cryptocurrencies, with computers. Since it takes a large amount of computing power and skill to mine, it makes sense to combine resources and distribute the gold amongst the people who contribute to the process."

"Replace gold with bitcoins and you’ve got a very simplified but functional understanding of what a mining pool does." Put another way, investopedia.com defines it as, “a joint group of cryptocurrency miners who combine their computational resources over a network.”

"From April 2014 through December 2019, BitClub Network solicited money from investors in exchange for shares of purported cryptocurrency mining pools and rewarded investors for recruiting new investors into the scheme. Goettsche, Balaci, Weeks, and others [solicited] investment in BitClub Network, including by providing figures that BitClub investors were told were “bitcoin mining earnings” generated by BitClub Network’s bitcoin mining pool. Goettsche, Balaci, Weeks, and others obtained the equivalent of at least $722 million from BitClub Network investors."

"According to the Bitclub Guide, a manual for members, Bitclub Network is not owned by any particular person, nor is it headquartered in any particular place. It exists as a medium for bitcoin miners to pool resources to increase the likelihood of successfully mining bitcoins."

“My system can make you as much as $15,000 first month. It did it for me. It can do it for you,” says Riccardo Ferrari, promoter of Bitclub Network, a bitcoin mining pool and MLM.

"[T]he service [was] used widely in the community and the owners evidently being well-connected. In December 2019, Twitter user @Bitcoin posted a video in which Roger Ver is seen having a dinner and an in-depth with BitClub CEO and indictee Russ Medlin" "BitClub CEO Russ Medlin seeking strategic advice from @rogerkver & @AntPoolofficial Yoshi about how to direct BitClub mining power."

"Bitclub Network is not supposed to be operating in the United States." "On its website, Bitclub Network cites the United States’ position towards Bitcoin as the reason for discontinuing service in the states:" “Why? Because the United States is not friendly to Bitcoin so we are focusing on the rest of the world.” "After careful consideration and many conversations with lawyers, advisors, and leaders within BitClub Network we have decided to stop taking new memberships within the United States starting May 1st 2016 and focus on other countries that we are growing much faster in." "Bitclub Network now uses geo-blocking software to keep investors in the United States out, but that hasn’t stopped promoters like Ferrari from recruiting in the U.S."

"In May of 2018, the Secretary of State of North Carolina issued a Letter of Caution to a Bitclub Network promoter who had been recruiting in the United States by suggesting ways for investors to circumvent the geo-blocking software. The promoter has since shut down operations."

"Goettsche, Balaci, Weeks, and Abel also conspired to sell BitClub Network shares—which were securities—notwithstanding that BitClub Network did not register the shares with the U.S. Securities and Exchange Commission. Weeks and Abel created videos and traveled around the United States and the world to promote BitClub Network and recruit others to invest."

"Beckstead, a BitClub Network investor, admitted conspiring with Goettsche and others to launder funds earned by Goettsche through his operation of the BitClub Network. At the direction of Goettsche, Beckstead created and controlled various entities that were used by Beckstead, Goettsche, and others to shield Goettsche’s association with the BitClub Network and to disguise income derived by Goettsche through his operation of the BitClub Network."

"Beckstead further admitted to controlling bank accounts associated with the entities and directing transfers to and from the accounts exceeding $50 million. Beckstead acknowledged that the transfers were designed to conceal the source of Goettsche’s income, disguise Goettsche’s ownership of certain property and assets paid for with BitClub Network proceeds, and to help Goettsche evade tax reporting requirements. Beckstead also admitted that he and others provided false and misleading information to financial institutions to conceal the source of Goettsche’s income."

"Beckstead, a former CPA, also admitted to aiding at least two different tax preparers in the preparation of Goettsche’s false 2017 and 2018 federal tax returns. Beckstead provided the tax preparers with documents and records to assist in the preparation of the returns. Beckstead admitted that he and Goettsche knew the 2017 and 2018 tax returns were fraudulent in that they failed to report more than $60 million in total income earned by Goettsche through his operation of the BitClub Network. This allowed Goettsche to avoid paying more than $20 million in federal income taxes."

"[T]he scheme was flagrant: prosecutors submitted evidence of online chats where the co-conspirators discussed forging evidence of the mining power that didn’t exist. Goettsche offered Balaci a $50,000 bonus ‘to get us “proof” of our own pool by end of month’. When asked if they were really mining, Balaci said: ‘well, having a mining pool is 1 thing… showing mining power is a totally different animal.’ They then openly discuss ‘convincing the morons’ by offering a 5% mining bonus to miners in an effort to draw in power to their pool."

"More damning, as far as Abel is concerned, is correspondence included in the indictment which shows that Abel and Co. were fully aware that they were offering unregistered securities, with CEO Medlin sending Abel an article about multi-level-marketing schemes, essentially the kind alleged to be run by BitClub, and their likelihood to be offering unregistered securities."

"On December 5, 2019, a federal grand jury returned a two count Indictment." "Matthew Brent Goettsche, BitClub Network’s creator and operator, and Silviu Catalin Balaci, Russ Albert Medlin, Jobadiah Sinclair Weeks, and Joseph Frank Abel, were charged by indictment in December 2019 in connection with the BitClub Network scheme." "Defendants Goettsche, Balaci, and Weeks have been charged with conspiracy to engage in wire fraud in connection with their roles in BitClub Network." "Status conference scheduled for July 16, 2020 at 2:00 pm." "Gordon Brad Beckstead, 57, of Henderson, Nevada, pleaded guilty by videoconference before U.S. District Judge Claire C. Cecchi to an information charging him with one count of conspiracy to commit money laundering and one count of aiding in the preparation of a false tax return."

"The BitClub scandal is a blemish on the digital currency community if the rest of the charges stick, being another case of a bad actor feeling that they exist outside the reaches of the law and duping unwitting investors into signing onto a scam." "Following the indictments, Ver distanced himself from BitClub Network, but the above tweet still remains, together with other strange videos including this one, where Ver deletes a tweet critical of BitClub Network in the presence of CEO Russ Medlin."

"BitClub Network Promoter Joseph Frank Abel admitted to receiving money from investors for shares in the BitClub Network mining pool that weren’t registered with the U.S. Securities and Exchange Commission (SEC)."

"The money laundering conspiracy charge to which Beckstead pleaded guilty carries a maximum penalty of 20 years in prison and a fine of $500,000, or twice the value of the property involved in the transaction, whichever is greater. The tax charge to which Beckstead pleaded guilty carries a maximum penalty of three years in prison and a fine of $100,000. Sentencing is scheduled for Aug. 9, 2022."

This is a global/international case not involving a specific country.

The background of the exchange platform, service, or individuals involved, as it would have been seen or understood at the time of the events.

Include:

• Known history of when and how the service was started.
• What problems does the company or service claim to solve?
• What marketing materials were used by the firm or business?
• Audits performed, and excerpts that may have been included.
• Business registration documents shown (fake or legitimate).
• How were people recruited to participate?
• Public warnings and announcements prior to the event.

Don't Include:

• Any wording which directly states or implies that the business is/was illegitimate, or that a vulnerability existed.
• Anything that wasn't reasonably knowable at the time of the event.

There could be more than one section here. If the same platform is involved with multiple incidents, then it can be linked to a main article page.

The Reality

This sections is included if a case involved deception or information that was unknown at the time. Examples include:

• When the service was actually started (if different than the "official story").
• Who actually ran a service and their own personal history.
• How the service was structured behind the scenes. (For example, there was no "trading bot".)
• Details of what audits reported and how vulnerabilities were missed during auditing.

What Happened

The specific events of the loss and how it came about. What actually happened to cause the loss and some of the events leading up to it.

Key Event Timeline - BitClub Network Ponzi

Date	Event	Description
December 11th, 2019 7:35:00 AM MST	Main Event	Expand this into a brief description of what happened and the impact. If multiple lines are necessary, add them here.

Technical Details

This section includes specific detailed technical analysis of any security breaches which happened. What specific software vulnerabilities contributed to the problem and how were they exploited?

Total Amount Lost

The total amount lost has been estimated at $722,000,000 USD.

How much was lost and how was it calculated? If there are conflicting reports, which are accurate and where does the discrepancy lie?

Immediate Reactions

How did the various parties involved (firm, platform, management, and/or affected individual(s)) deal with the events? Were services shut down? Were announcements made? Were groups formed?

Ultimate Outcome

What was the end result? Was any investigation done? Were any individuals prosecuted? Was there a lawsuit? Was any tracing done?

Total Amount Recovered

There do not appear to have been any funds recovered in this case.

What funds were recovered? What funds were reimbursed for those affected users?

Ongoing Developments

What parts of this case are still remaining to be concluded?

General Prevention Policies

Ponzi schemes like the BitClub Network are relatively easy to investigate and determine that there is no actual mining going on. It's also fairly trivial to use any form of Proof of Reserve or audit to show that customer funds are not backed.

Individual Prevention Policies

No specific policies for individual prevention have yet been identified in this case.

For the full list of how to protect your funds as an individual, check our Prevention Policies for Individuals guide.

Platform Prevention Policies

Policies for platforms to take to prevent this situation have not yet been selected in this case.

For the full list of how to protect your funds as a financial service, check our Prevention Policies for Platforms guide.

Regulatory Prevention Policies

No specific regulatory policies have yet been identified in this case.

For the full list of regulatory policies that can prevent loss, check our Prevention Policies for Regulators guide.