NEWARK, N.J. -- Three men were charged with running a cryptocurrency mining operation that officials labeled a “high-tech Ponzi scheme" that bilked investors out of $722 million, federal officials announced Tuesday.
Matthew Goettsche, 37, was arrested Tuesday in Colorado, while Jobadiah Weeks, 38, was taken into custody in Florida and Joseph Abel, 49, was arrested in California, according to the U.S. attorney's office.
It wasn't immediately clear whether they had attorneys who could speak for them.
According to federal prosecutors, the men ran a business called BitClub Network from April 2014 through this month that promised earnings to investors who bought shares in its supposed cyrptocurrency mining pool.
Mining involves using computers to solve mathematical problems in order to record virtual currency transactions. Miners receive cryptocurrency for their work.
But the earnings reported by the network were false, authorities contend.
The operation also rewarded investors for recruiting new investors, according to prosecutors.
“Goettsche discussed with his conspirators that their target audience would be ‘dumb' investors, referred to them as ‘sheep,' and said he was ‘building this whole model on the backs of idiots,'” a statement from the U.S. attorney's office said.
In 2015, Goettsche told another conspirator to increase the daily earnings by 60% and was told it was unsustainable and “Ponzi territory,” the office said. A Ponzi scheme involves paying early investors with money obtained from later investors rather than from actual profits.
Goettsche and the others obtained the equivalent of at least $722 million from investors around the world and spent it on lavish lifestyles, authorities alleged.
They also conspired to sell shares that weren't registered with the U.S. Securities and Exchange Commission, according to prosecutors.
“The indictment describes the defendants’ use of the complex world of cryptocurrency to take advantage of unsuspecting investors,” U.S. Attorney Craig Carpenito said in a statement. “What they allegedly did amounts to little more than a modern, high-tech Ponzi scheme that defrauded victims of hundreds of millions of dollars."
Goettsche, of Lafayette, Colorado, Weeks, of Avada, Colorado, and Abel, of Camarillo, California, were indicted in New Jersey on conspiracy to offer and sell unregistered securities. Goettsche and Weeks also were charged with conspiracy to commit wire fraud.
If convicted, they could face up to five years in federal prison on the securities conspiracy charge and up to 20 years on the fraud conspiracy charge.
Two other people also were indicted but they haven't been arrested and their names haven't been released, the U.S. attorney's office said.