Founders Of Crypto ICO Sentenced To Combined 8 Years In Prison For Tax Evasion
DALLAS (CBSDFW.COM) - The founders of a cryptocurrency company were sentenced to a combined eight years in federal prison for tax evasion after raising $24 million from investors, Acting US Attorney for the Northern District of Texas Chad E. Meacham announced Mar. 10.
Bitqyck founders Bruce Bise, 61, and Samuel Mendez, 65, were charged with tax invasion in August 2021. Bise pleaded guilty on Sept. 9, 2021 and was sentenced on Mar. 7. Mendez pleaded guilty on Oct. 12, 2021 and was sentenced this afternoon. Both men were sentenced to 50 months in prison and ordered to pay back $1.6 million each.
According to court documents, Bise and Mendez both admitted that Bitqyck raised about $24 million from over 13,000 investors, offering an initial coin offering (ICO) for their company's cryptocurrency Bitqy in 2016. An ICO is a process where a company attracts investors by selling a new cryptocurrency, which may be purchased in the hope that its value will increase.
But instead of fulfilling their promises to their investors, Bise and Mendez used the funds on personal expenses including casino trips, cars, luxury furniture, art, and rent.
"Crypto actors are required to pay their fair share of taxes, just like everyone else," said U.S. Attorney Chad Meacham. "Not only did these defendants shirk their tax obligations, they lied to investors and made off with their millions. Anyone else contemplating such a scheme should know that the Justice Department and its law enforcement partners have a sharp eye on the cryptocurrency space, and we will not let criminal behavior slide."
The pair characterized Bitqy as a way for "those individuals who missed out on Bitcoin" to get rich. In an attempt to legitimize Bitqy tokens – and to avoid scrutiny over selling unregistered securities – the company characterized the cryptocurrency as an "earned gift" that rewarded consumers for certain internet purchases.
A paper posed on the Bitqyck website promised investors that each Bitqy token came with a tenth of a share of Bitqych common stock. However, the pair admitted that they never actually distributed shares to token holders. The only shares of Bitqyck common stock were issued to Bise and Mendez, who collectively owned 100% of it.
About nine months after launching Bitqy, Bise and Mendez began marketing another token, BitqyM, arbitrarily priced at $1. They claimed buying the token allowed investors to join "Bitcoin mining operations," by paying to power a Bitqyck Bitcoin mining facility in Washington state.
In reality, this facility never existed. The defendants instead contracted with an overseas third-party company in an attempt to mine the Bitcoin they promised their investors.
"These criminals committed this scheme to thoroughly deceive and defraud stakeholders and the taxpaying public by cheating cryptocurrency investors," said Special Agent in Charge Christopher J. Altemus Jr., Dallas Field Office. "The IRS-Criminal Investigation Dallas Field Office is proud to be part of the team that is bringing them to justice and will continue to pursue those who unjustly enrich themselves by not paying their taxes."
By diverting income from Bitqyck for their own personal use, Bise and Mendez raked in about $4.68 million and $4.48 million, respectively, from 2016 to 2018.
"By misrepresenting unregistered securities to investors who were lured with the appeal of owning shares of interest in a new and exciting marketplace, the defendants took advantage of unsuspecting individuals and defrauded them out of millions of dollars," said Ryan L. Korner, Special Agent in Charge of IRS-CI's Los Angeles Field Office. "Today's sentencing saw justice served not only on the investors of cryptocurrency, but also on honest, hard-working American taxpayers who choose to pay their fair share of income taxes, rather than enriching themselves by evading their tax-paying responsibilities as both Mr. Bise and Mr. Mendez have done."
Taxpayers using virtual currency are required by law to report those transactions on their tax returns. For 2016 and 2017, Bise underreported his income to the IRS, resulting a tax loss of $371,278. Mendez also underreported to the IRS, resulting in a tax loss of $311,155. In 2018, Bitqyck failed to file any corporate tax returns despite bringing in over $3.5 million from investors.
Prior to their guilty pleas, Bise and Mendez came to a civil settlement with the SEC in which Bitqyck agreed to pay an $8.3 million penalty to resolve claims that it defrauded investors and operated an unregistered digital asset exchange. As part of that settlement, Bise and Mendez agreed to pay penalties of $890,254 and $850,022, respectively.
