Circle Society Investment Platform

Notice: This page is a new case study and some aspects have not been fully researched. Some sections may be incomplete or reflect inaccuracies present in initial sources. Please check the References at the bottom for further information and perform your own additional assessment. Please feel free to contribute by adding any missing information or sources you come across. If you are new here, please read General Tutorial on Wikis or Anatomy of a Case Study for help getting started.

Notice: This page contains sources which are not attributed to any text. The unattributed sources follow the initial description. Please assist by visiting each source, reviewing the content, and placing that reference next to any text it can be used to support. Feel free to add any information that you come across which isn't present already. Sources which don't contain any relevant information can be removed. Broken links can be replaced with versions from the Internet Archive. See General Tutorial on Wikis, Anatomy of a Case Study, and/or Citing Your Sources Guide for additional information. Thanks for your help!

Circle Society Homepage/Logo

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.

About Circle Society

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.

Homepage:

Omicron Trust:

The Reality

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.

What Happened

David Saffron took at least $11 million worth of Bitcoin and U.S. dollars from investors from at least December 2017 and continued until at least September 2021, despite a CFTC complaint on September 2019 and a Preliminary Injunction Order in December 2019.

Key Event Timeline - Circle Society Investment Platform

Date	Event	Description
December, 2017	Fraud Beginning	"Beginning by no later than in or around December 2017 and continuing until at least in or around September 2021, in Los Angeles County, within the Central District of California, and elsewhere, defendant SAFFRON conspired with CC-1, CC-2, CC-3, CC-4 and others known and unknown to the Grand Jury, to commit wire fraud, in violation of Title 18, United States Code, Section 1343." "In December 2017, defendant SAFFRON conducted an in-person meeting with prospective investors in Los Angeles County, during which defendant SAFFRON falsely represented to investor H.C. that defendant SAFFRON guaranteed a 150% to 200% return, depending on the amount invested, and returns would be paid at the end of 30 days with no risk of loss."
January 21st, 2018	Law Firm Statement	"On January 21, 2018, CC-1 provided a letter to investor H.C. on letterhead from CC-1’s Los Angeles-based law firm stating that CC-1 had unrestricted access to one of defendant SAFFRON’s cryptocurrency wallets. CC-1 falsely represented that the wallet held 1,000 Bitcoin. On or about January 21, 2018, the market price for 1,000 Bitcoin was more than $11.6 million. To induce H.C. to invest, CC-1 falsely represented that the 1,000 Bitcoin in the cryptocurrency wallet would be used to ensure that H.C.’s initial investment would be returned in the event defendant SAFFRON was unable or unwilling to return the initial investment."
June 19th, 2018	Victim E.U.	"On June 19, 2018, CC-2 solicited and induced investor victim E.U., a Los Angeles County resident, to wire $432,000 U.S. dollars to a bank account under CC-2’s control in exchange for 65 Bitcoin. CC-2 knew that E.U. intended to invest the 65 Bitcoin in one of defendant SAFFRON’s fraudulent trading programs known as the Circle Society, Corp." "Interstate bank wire of $462,000 initiated from Los Angeles County by victim investor E.U. from account x0961 at Bank A to account x6966 controlled by CC-2 at Bank B."
June 20th, 2018	Faking Deposit	"On June 20, 2018, instead of sending the 65 Bitcoin to a cryptocurrency wallet controlled by investor E.U., CC-2 transferred the $432,000 to defendant SAFFRON via wire transfer." "Defendant SAFFRON falsely represented on Circle Society’s account website that 65 Bitcoin had been “credited” to E.U.’s account."
June 27th, 2018 5:46:46 AM	Website Captured	The Circle Society Website redirects to The Omnicron Trust, which appears to be a different investment scheme.
August 2nd, 2018	Selling Bitcoin	"On August 2, 2018, defendant SAFFRON negotiated, by and through other conspirators, an agreement with a registered investment advisor located in Los Angeles, California, pursuant to which defendant SAFFRON would receive $5 million U.S. dollars in exchange for an amount of Bitcoin of equal value. The agreement documentation provided instructions for the investment advisor to wire the $5 million to CC-2’s lawyer trust bank account."
August 8th, 2018	False Statements	"On August 8, 2018, upon learning that the $5 million sale might not go through because the investment advisor’s due diligence identified websites accusing defendant SAFFRON of operating a Ponzi scheme, CC-3 knowingly made false representations to the investment advisor to induce the investment advisor to go through with the transaction. Specifically, CC-3 falsely represented that CC-3’s contract security firm had vetted defendant SAFFRON, verified the source of defendant SAFFRON’s Bitcoin, and understood how defendant SAFFRON worked with Bitcoin and cryptocurrencies to produce considerable returns. CC-3 also falsely represented that defendant SAFFRON was not involved in any type of criminal activity because the security firm’s investigators would have found any such criminal activity."
August 17th, 2018	Investor S.F.	"Interstate wire of 3.00009348 BTC (approximately $19,736.11 USD) initiated from Orange County by victim investor S.F. to a cryptocurrency wallet controlled by defendant SAFFRON."
September, 2018	Circle Society Founded	Per the indictment, "Circle Society was a purported cryptocurrency investment and online trading platform that was founded in or around September 2018".
November, 2018	Investor S.H.	"Interstate wire of 1.0000 BTC (approximately $6,308.02 USD) initiated from Los Angeles County by victim investor S.H. to a cryptocurrency wallet controlled by defendant SAFFRON."
February, 2019	Investor "Greg"	"Investors said savvy users realized quickly that the daily plans, which paid out 3 percent per day directly into users’ crypto wallets, seemed to be the most lucrative." "That’s what Greg signed up for shortly after joining in February 2019. He was still skeptical of the program, he said, but the money kept showing up in his wallet every day, “like clockwork.”"
March, 2019	Payment Excuses	"One day, in March 2019, the money dried up. Investors said there were no more daily payments, just increasingly bizarre excuses: Payments were suspended because of too many unverified transactions on the blockchain; investors had hit the “payout” button too many times and locked their accounts; a solar flare required Saffron to shut down the website for several days. At one point, two investors told The Daily Beast, Saffron claimed he could not send payments because he was being held hostage. He sent a video of himself tied up with rope to the group as evidence." "Nevada-based attorney Brett Marshall, started calling out Saffron in the group, asking whether they would ever get paid, according to those who spoke to The Daily Beast. Saffron responded by threatening the detractors with legal action and making new promises to the group: big-time outside investors, a coming payout he deemed the “June balloon.” (When the promised payout failed to materialize, his detractors deemed the next month “Ju-lie.”)"
September 30th, 2019	CFTC Complaint Filed	The CFTC, a United States federal agency, filed a complaint against defendant SAFFRON and Circle Society, Corp., styled CFTC v. David Gilbert Saffron and Circle Society, Corp., No. 2:19-cv-01697, (D. Nev. Sept. 30, 2019) in the U.S. District Court for the District of Nevada.
October 17th, 2019 3:56:55 AM MDT	CryptoVibes Article Published	CryptoVibes reports that the Commodity Futures Trading Commission (CFTC) has charged Circle Society and its principal, David Gilbert Saffron, with an $11 million fraud scheme involving binaries and cryptocurrencies. The CFTC uncovered the fraudulent activities in September 2019, though the scheme had been operational since December 2017. Saffron allegedly used social media to attract investors, urging them to contribute funds in US dollars and bitcoins for trading instruments like forex contracts and binary options. The CFTC accuses Saffron of making misleading statements about profits, falsifying qualifications, and misappropriating investor funds. The regulator seeks disgorgement of gains, penalties, permanent injunctions against Saffron, but notes that victims may not have a repayment guarantee. The CFTC chairman emphasized the need for integrity in digital asset markets to ensure responsible development.
October 28th, 2019	Circle Society Incorporated	Per the indictment, Circle Society was "incorporated as Circle Society Corp. (“Circle Society”) in 28 October 2019 in Nevada." "The CFTC’s complaint alleged that defendant SAFFRON had accepted at least $11 million worth of Bitcoin and U.S. dollars from members of the public to trade options contracts on various cryptocurrencies and fiat currencies through defendant SAFFRON’s unregistered commodity pool."
December 6th, 2019	Preliminary Injunction	"On or about December 6, 2019, the Nevada U.S. District Court entered a Preliminary Injunction Order enjoining defendant SAFFRON from “soliciting or accepting funds from members of the public for the purpose of participating in a commodity pool operated by, for, or on behalf of Saffron or Circle Society,” and b. “trading, directly or indirectly, in any commodity that is regulated under the [Commodity Exchange] Act.”"
January 24th, 2020	Actual Notice Hearing	"On or about January 24, 2020, defendant SAFFRON received actual notice of the December 6, 2019, Preliminary Injunction Order at a hearing on the record in Nevada U.S. District Court, in which the court provided defendant SAFFRON with a copy of the Preliminary Injunction Order and directed defendant SAFFRON to familiarize himself with its terms."
July 28th, 2020	Bitcoin Fund S.B.	"On or about July 28, 2020, defendant SAFFRON represented to S.B. that defendant SAFFRON ran a Bitcoin fund."
August 9th, 2020	Service Argreement	"On or about August 9, 2020, S.B. agreed to accept fourteen (14) Bitcoin from defendant SAFFRON in exchange for $140,000 in services rendered by S.B.’s business to defendant SAFFRON. Defendant SAFFRON promised to pay the 14 Bitcoin after services were rendered, but defendant SAFFRON never paid S.B."
September 16th, 2020	Cloud9Capital	"On or about September 16, 2020, defendant SAFFRON solicited S.B. to invest in Cloud9Capital, a Bitcoin wealth-management fund." "On September 16, 2020, defendant SAFFRON solicited victim investor S.B. to invest in Cloud9Capital, a Bitcoin wealth-management fund that defendant SAFFRON falsely represented was operated by a third party. Defendant SAFFRON induced S.B. to invest, in part, by falsely representing that defendant SAFFRON had personally invested more than 200 of his own Bitcoin in Cloud9Capital.Defendant SAFFRON concealed from S.B. that defendant SAFFRON controlled the Cloud9Capital cryptocurrency wallet address and was using Cloud9Capital to defraud S.B. Thereafter, defendant SAFFRON maintained to S.B. that defendant SAFFRON was not responsible for Cloud9Capital’s failure to repay the initial investment or profits." "Interstate wire of 4.00001979 BTC (approximately $44,024.49 USD) initiated from Los Angeles County by victim investor S.B. to a cryptocurrency wallet controlled by defendant SAFFRON."
September 19th, 2020	Managed Funds	"Defendant SAFFRON represented to S.B. on or about September 19, 2020, that defendant SAFFRON personally managed funds for eleven (11) clients, each client having a minimum investment of 5,500 Bitcoin." "On or about September 19, 2020, defendant SAFFRON solicited S.B. to invest in the 11-client fund managed by defendant SAFFRON. Defendant SAFFRON falsely represented to S.B. that for a minimum 100 Bitcoin investment, defendant SAFFRON could pay returns of 50% in 140 days." "S.B. reminded defendant SAFFRON that defendant SAFFRON had agreed to pay S.B. fourteen (14) Bitcoin on or about August 9, 2020 for the $140,000 in services rendered by S.B.’s business to defendant SAFFRON. In response to defendant SAFFRON’s solicitations for S.B. to invest in defendant SAFFRON’s 11-client fund, S.B. asked whether defendant SAFFRON would invest the 14 Bitcoin defendant SAFFRON owed to S.B. into defendant SAFFRON’s fund. On or about September 19, 2020, defendant SAFFRON confirmed that defendant SAFFRON would put the 14 Bitcoin that defendant SAFFRON owed to S.B. into defendant SAFFRON’s 11-client fund, and defendant SAFFRON would pay S.B. a 150% return by no later than October 20, 2020."
October, 2020	Victims Called Angries	"Saffron also continued posting defiantly in the Circle Society Telegram group, threatening his detractors with lawsuits and something called the “the Kraken.” Between warnings that an asteroid was coming for the Earth and memes about Joe Biden, he mocked the naysayers by superimposing their faces on videos of The Spice Girls and referring to them as “the angries.” Shortly after the CFTC opened its case, he announced the launch of a new package called the “Coin Funding Trading Commune Plan,” or “CFTC Plan.”" "“YOU angry Messed it up for everyone. You shot yourselves in the head,” he wrote in an October 2020 post about the CTFC case that was reviewed by The Daily Beast." "“The amazing thing is YOU still have a CHOICE to do the right thing,” he wrote in another. “LEAVE the FIGHT and wait for the mana to be handed to you on a silver plate.”"
October 20th, 2020	No Payment	"Defendant SAFFRON did not pay victim-investor S.B. on October 20, 2020, as promised or at any time thereafter. Instead, after fraudulently causing S.B. to invest in defendant SAFFRON’s fund and Cloud9Capital, defendant SAFFRON misappropriated victim investor S.B.’s funds for defendant SAFFRON’s own personal use and benefit."
November 19th, 2020	Federal Crypto Reserve	"On November 19, 2020, defendant SAFFRON encouraged victim-investor S.B. to obtain a membership with the “Federal Crypto Reserve,” which defendant SAFFRON falsely represented he had hired to “investigate” Cloud9Capital." "The Federal Crypto Reserve was a fictitious government agency that purported to recover and return stolen cryptocurrency from victims and “educate” the public on cryptocurrency for a fee."
November 27th, 2020	Platinum Membership Fee	"On November 27, 2020, CC-4 sent an email to victim-investor S.B. that solicited S.B. to pay Bitcoin to join the Federal Crypto Reserve. CC-4 falsely represented that defendant SAFFRON had already initiated a Federal Crypto Reserve investigation into Cloud9Capital along with two other Cloud9Capital investors. CC4 also falsely represented that the Federal Crypto Reserve had already found “lots of information” on Cloud9Capital, but CC-4 could not share the information with S.B. until S.B. joined the Federal Crypto Reserve as a paid platinum member."
May 8th, 2021 7:02:54 PM MDT	Website Captured	A Circle Society website capture displays a notice "WELCOME TO CIRCLE SOCIETY. CURRENTLY THIS SITE IS CLOSED. AS WE ARE UNDER CIVIL INVESTIGATION BY CTFC."
June, 2021	CFTC Decision Appeal	"Saffron appealed the CFTC decision, and according to a June order by a Nevada district court judge, has been “cagey about his whereabouts in order to complicate the government’s enforcement efforts.” (He is currently representing himself, after his lawyers pulled out when he failed to pay them.) But the “angries” had another trick up their sleeve."
July, 2021	Circle Society Blog Post	“It has been a long road getting from there to here, it’s been a long time but our time is finally here,” Saffron wrote in a July 2021 post in the Circle Society group. “Legal has been a nightmare of bills and stress but fear not, I stand strong and will toe the line till the end!!”
July 24th, 2021 1:54:37 PM MDT	Homepage Displaying CFTC Investigation	An archive of the Circle Society homepage at this time still reports that "CURRENTLY THIS SITE IS CLOSED AS WE ARE UNDER CIVIL INVESTIGATION BY CTFC" and provides a link to a private Telegram group for discussions.
September, 2021	Fraud Ending	"Beginning by no later than in or around December 2017 and continuing until at least in or around September 2021, in Los Angeles County, within the Central District of California, and elsewhere, defendant SAFFRON conspired with CC-1, CC-2, CC-3, CC-4 and others known and unknown to the Grand Jury, to commit wire fraud, in violation of Title 18, United States Code, Section 1343."
June 30th, 2022	DOJ Announcement	The Department of Justice announces criminal charges in the case. The Department of Justice has filed charges against six individuals involved in cryptocurrency-related fraud offenses, totaling over $100 million in intended losses. Among the other cases is the largest known Non-Fungible Token (NFT) scheme charged to date, a fraudulent investment fund trading on cryptocurrency exchanges, a global Ponzi scheme with unregistered crypto securities, and a fraudulent initial coin offering. David Saffron is reported as the owner of Circle Society, a cryptocurrency investment platform. Saffron allegedly used Circle Society to solicit investors for an unregistered commodity pool, falsely claiming to trade funds using a trading bot and generating exaggerated returns. Saffron fraudulently raised approximately $12 million from investors and faces charges including conspiracy to commit wire fraud, wire fraud, conspiracy to commit commodities fraud, and obstruction of justice, with a potential sentence of up to 115 years in prison if convicted on all counts. The IRS Criminal Investigation is handling the case. Victims of the various schemes are encouraged to visit the DOJ's webpage for more information.
July 4th, 2022	Saffron on Telegram	"Saffron, too, responded to the indictment, taking to Telegram for what he said would be his last official post. He claimed he had “never committed a crime” and that his case would be defended by “the best criminal lawyers.”" “For the last 4 years I have been fighting militant radical Angry people lead by a lawyer who believes in a terrorist cause and is literally running an organization of hate!!!” he wrote, adding that he would keep the Telegram open so others could provide legal updates. “To all those that I care about,” he wrote in closing, “Happy 4th July weekend.”
July 5th, 2022 9:00:20 AM MDT	CoinGeek Mentioning	David Saffron and the Circle Society are included in a CoinGeek article which provides a summary of the charges announced by the Department of Justice, and mentions that he could face up to 115 years in prison if convicted.

Technical Details

This scheme is believed to have been a standard ponzi operation, with no investment happening behind the scenes.

Total Amount Lost

"The CFTC’s complaint alleged that defendant SAFFRON had accepted at least $11 million worth of Bitcoin and U.S. dollars from members of the public to trade options contracts on various cryptocurrencies and fiat currencies through defendant SAFFRON’s unregistered commodity pool."

"From in or around December 2017 through at least in or around September 2021, defendant SAFFRON and his co-conspirators fraudulently promoted and solicited investments and obtained at least approximately $15,000,000 in victim-investor funds for various cryptocurrency trading programs."

The total amount lost has been estimated at $15,000,000 USD.

Immediate Reactions

When victim investors began demanding the return of their initial investments and profits as promised, David Saffron came up with many elaborate excuses including a solar flare, limitations on the number of pending transactions supported by the bitcoin blockchain, that he had suffered a head injury and had to be put in a medically induced coma, that his cryptocurrency wallet was locked due to the payout button being clicked too many times, and that the site was under maintenance.

"35. When the victim-investors began to demand the return of their initial investment and the profits that defendant SAFFRON had promised, defendant SAFFRON would make various false representations about the reason he could not repay investors until some later time, including, but not limited to: a. That a “solar flare” required defendant SAFFRON to suspend payments and shutdown his website for a period of days; b. That there were too many unverified transactions on the Bitcoin blockchain, which required defendant SAFFRON to suspend payments to victim-investors; c. That repayments would be suspended for approximately one week because the Bitcoin blockchain limited the number of transactions that defendant SAFFRON’s cryptocurrency wallet could have pending at any one time; d. That defendant SAFFRON had not responded to requests from victim-investors because he had suffered a head injury and had to be put into a medically induced coma for five days, when defendant SAFFRON had actually been unable to communicate with victim-investors because he was in police custody; e. That several of defendant SAFFRON’s investors clicked the payout button more than 20 times, thus “locking” defendant SAFFRON’s cryptocurrency wallet for 24 to 36 hours; and That payouts to investors would be suspended for approximately one month while defendant SAFFRON’s website underwent “site maintenance.”"

David Saffron would represent that he had invested 200 bitcoins in Cloud9Capital, and lost them as well, deflecting him from having to honour withdrawals of any customers who had chosen to invest there.

Upon the announcement of the CFTC complaint, the opportunity was closed and the Circle Society website was modified to display a message.

"WELCOME TO CIRCLE SOCIETY. CURRENTLY THIS SITE IS CLOSED. AS WE ARE UNDER CIVIL INVESTIGATION BY CTFC."

Ultimate Outcome

"The Federal Crypto Reserve was a fictitious government agency that purported to recover and return stolen cryptocurrency from victims and “educate” the public on cryptocurrency for a fee."

IRS Criminal Investigation (IRS-CI) started investigating the case. Fraud Section Trial Attorneys Kevin Lowell and Theodore Kneller, and Assistant U.S. Attorney James Hughes of the U.S. Attorney’s Office for the Central District of California ultimately started prosecutions.

Saffron was charged in the Central District of California with one count of conspiracy to commit wire fraud, four counts of wire fraud, one count of conspiracy to commit commodities fraud, and one count of obstruction of justice.

“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.”

Saffron [has] responded to the indictment, taking to Telegram for what he said would be his last official post. He claimed he had “never committed a crime” and that his case would be defended by “the best criminal lawyers.”

“For the last 4 years I have been fighting militant radical Angry people lead by a lawyer who believes in a terrorist cause and is literally running an organization of hate!!!” he wrote, adding that he would keep the Telegram open so others could provide legal updates.

“To all those that I care about,” he wrote in closing, “Happy 4th July weekend.”

Total Amount Recovered

"All investor victims of the Baller Ape Club, EmpiresX, TBIS, and Circle Society schemes are encouraged to visit [a Department of Justice] webpage to identify themselves as potential victims and obtain more information on their rights as victims, including the ability to submit a victim impact statement."

From the indictment, all victim funds appear to become property of the United States and it is unclear whether or how that may be distributed to victims.

"71. Defendant SAFFRON, if so convicted, shall forfeit to the United States of America the following: a. all right, title, and interest in any and all property, real or personal, constituting, or derived from, any proceeds traceable to the offenses set forth in Counts One through Five of this Indictment; and b. to the extent such property is not available for forfeiture, a sum of money equal to the total value of the property described in subparagraph (a)."

"None of the investors who spoke to The Daily Beast ever received their promised funds, or even got their initial investment back. Greg ultimately convinced Saffron to hand over one of his bitcoins, meaning he is still out a total of 7.5. Marshall said he invested approximately $32,000 in the program and only ever got back less than $1,000. Freeman managed to claw back 4 of the 8 bitcoins he invested from Saffron, but turned around and reinvested most of it in one of the Circle Society’s Ethereum packages."

The total amount recovered is unknown.

Ongoing Developments

Prosecutions continue. Saffron could face up to 115 years in prison if he's convicted of all charges.

It is unclear whether any funds will be recoverable for victims.

"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."

“I know he’s not going to pay anything back,” he said. “So he can just sit in jail and think about whether it was worth it.”

Individual Prevention Policies

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.

Any time that you are promised any profit or benefit in exchange for an initial payment, smart contract approval, or deposit, pay special care as to whether the entity making that offer is trustworthy, actually who they say they are, and has the means to fulfill what they're promising. There are no magic algorithms providing guaranteed returns from trading or mining. Trading on average will lose money. Mining is expensive and complex. No one is going to immediately send back more than you sent them. NFT projects will rarely announce a surprise mint in only a single location. Are you fully prepared for the event your money is kept and nothing is delivered in return?

Store the majority of funds offline. By offline, it means that the private key and/or seed phrase is exclusively held by you and not connected to any networked device. Examples of offline storage include paper wallets (seed phrase or key written down and deleted from all electronic media), hardware wallets, steel wallet devices, etc...

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

Platform Prevention Policies

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.

Never take for granted the limited knowledge of users of your service and their tendency to skip past provided information. It is recommended to design a simple tutorial and quiz for new users which explains the basics of seed phrases, strong password generation, secure two-factor authentication, common fraud schemes, how ponzi schemes work, as well as other risks which are unique to the cryptocurrency space. This tutorial and quiz should ensure their understanding and be a standard part of the sign-up or download process which is difficult or impossible to skip.

All aspects of any platform should undergo a regular validation/inspection by experts. This validation should include a security audit of any smart contracts, reporting any risks to the backing (of any customer assets, ensuring treasuries or minting functions are properly secured under the control of a multi-signature wallet, and finding any inadequacies in the level of training or integrity of the team. The recommended interval is twice prior to launch or significant system upgrade, once after 3 months, and every 6 months thereafter. It is recommended that the third party performing the inspection not be repeated within a 14 month period.

Work with other industry platforms to set up a multi-signature wallet with private keys held separately by delegate signatories from seven prominent platforms and services within the industry. Establish requirements for contributions by all platforms and services, designed to be affordable for small platforms yet large enough to cover anticipated breach events. Any breach event can be brought forth by a member platform or a petition of 100 signatures for consideration by the delegate signatories. A vote of 4 or more delegate signatures is required to release any funds, which could partially or fully restore lost funds based on their assessment.

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

Regulatory Prevention Policies

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.

Create a standard tutorial and quiz for all new cryptocurrency participants, which is required to be completed once per participant. This tutorial and quiz should cover the basics of proper seed phrase protection, strong password generation, secure two-factor authentication, common fraud schemes, how to detect and guard against phishing attacks, how ponzi schemes work, as well as other risks which are unique to the cryptocurrency space.

All platforms should undergo published security and risk assessments by independent third parties. Two assessments are required at founding or major upgrade, one after 3 months, and one every 6 months thereafter. The third parties must not repeat within the past 14 months. A risk assessment needs to include what assets back customer deposits and the risk of default from any third parties being lent to. The security assessment must include ensuring a proper multi-signature wallet, and that all signatories are properly trained. Assessments must be performed on social media, databases, and DNS security.

Set up a multi-signature wallet with private keys held separately by delegate signatories from seven prominent platforms and services within the industry. Establish requirements for contributions by all platforms and services within the country, designed to be affordable for small platforms yet large enough to cover anticipated breach events. Any breach event can be brought forth by a member platform or a petition of 100 signatures for consideration by the delegate signatories. A vote of 4 or more delegate signatures is required to release any funds, which could partially or fully restore lost funds based on their assessment.

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