In a landmark case highlighting the dangers of uncontrolled cryptocurrency investment, Rashawn Russell, former investment banker, was sentenced to 41 months in federal prison.

The U.S. District Court in Eastern Fresh York issued the sentence after Russell pleaded guilty to wire fraud and identity theft, a significant step in the fight against digital asset fraud.

Cryptocurrency fraud scheme busted

The Ministry of Justice estimates that Russell’s cryptocurrency scam led to investor losses of approximately $1.5 million. His ruling is part of a broader Department of Justice initiative to combat the growing number of fraud cases, which have increased noticeably in recent years.

Russell’s program, which ran from November 2020 to August 2022, targeted friends, former college classmates and colleagues. Using his industry experience and registration as a broker, Russell raised money for his R3 Crypto Fund.

He tempted investors with 25% return guarantees and even suggested potential profits of up to 100%, capitalizing on the widespread interest and trust associated with investing in digital currencies. To maintain a façade of legality, Russell fabricated documents, including forged bank statements and false wire transfer receipts.

These false documents misled investors about the status and profitability of their investments. In fact, Russell used some of the funds to pay off earlier investors in classic Ponzi scheme fashion, while also contributing significant amounts to personal expenses and gambling.

The revelation of Russell’s conspiracy began with his arrest in April 2023. Further investigation revealed that between September 2021 and June 2023, Russell purchased nearly 100 credit and debit cards under other people’s names, with the intention of using them for fraudulent transactions.

This additional level of criminal activity resulted in his bail being revoked in February 2024 when it became clear that Russell had continued his fraudulent behavior even while under house arrest.

The Department of Justice has stepped up its fight against fraud and illegal activity, led by the National Cryptocurrency Enforcement Team (NCET). The agency targets cryptocurrency exchanges that facilitate criminal activities such as money laundering and investment fraud, allowing criminals to easily profit from their crimes and withdraw cash.

The Department actively deals with investment fraud, the so-called “pig slaughter” programs., where scammers build relationships with victims over several months. In April 2023, the agency seized more than $112 million in cryptocurrency investments in six such scams.

The Department of Justice is also focusing on cross-chain bridges, which are a prime target for malicious attacks, and aims to combat theft and hacks in the decentralized finance (DeFi) field. The Department of Justice’s efforts are aimed not only at combating cryptocurrency fraud, but also at building infrastructure for a potential future in which the Federal Reserve (Fed) introduces its own digital currency at the consumer level, potentially leading to a cashless society.

The FBI estimates that $3.31 billion was stolen from people through investment scams in 2022, with more than $2.5 billion of that amount due to cryptocurrency scams. Over the past four years, the Department of Justice has seen a significant escalate in cryptocurrency-related criminal incidents, with cryptocurrency fraud increasing by 183% from 2021 to 2023, representing $2.57 billion in one year.

Featured image from Getty Images, chart from TradingView