U.S. prosecutors are seeking to return $6.5 million in allegedly scammed bitcoin to victims of the “Banana.Fund” crowdfunding project, which the government described in court papers as a Ponzi scheme.
In a forfeiture suit against the cryptocurrency account storing the funds, prosecutors allege Banana.Fund’s unnamed administrator admitted to investors his project had flopped, promised to return $1.7 million to them and then failed to do so. The operator then pivoted to a laundering and refund scheme that ultimately resulted in the U.S. Secret Service’s (USSS) seizure of 482 bitcoin (BTC) and 1,721,868 tether (USDT).
The lawsuit, filed July 29 in the U.S. District Court for the District of Columbia, seeks to grant the federal government formal ownership of the assets so it can return them to the victims.
The suit did not identify the operator of Banana.fund. But several victims of the alleged scam, and documents reviewed by CoinDesk, show the outfit was run by a British national named Richard Matthew John O’Neill aka “Jo Cook.”
One of the victims, Mike Koenen, told CoinDesk that since at least May 2018 he has been pushing the USSS to investigate Banana.Fund and O’Neill.
Documents reviewed by CoinDesk show that by November 2019, agents with the USSS San Francisco field office were email-canvassing likely victims for information on Richard O’Neill. Law enforcement had frozen O’Neill’s Poloniex account over a year before.
Neither O’Neill nor the Department of Justice responded to requests for comment.
The forfeiture suit represents perhaps the most substantial development yet in a little-known scheme that ran through the height of bitcoin’s historic late-2017 price pump and apparently went belly-up within months of the market’s pop, the documents reveal.
Peeling back the fraud
Banana.Fund’s white paper describes a crowdfunded business development company that shepherds fledgling startups through their earliest stages while offering operational transparency to their seed investors.
O’Neill told CoinTelegraph in January 2017 that Banana.Fund would “use blockchain for what it is good for: implementing transparent and irreversible global transactions.” In his view, he was “creating a level playing field for all users to pursue their business ideas, free of charge.”
Investing in O’Neill’s own business idea was not free of charge, however.
The buy-in started at 0.02 BTC, said Telegram user Dutch_Giant, who heard about Banana.Fund on the now-defunct message board MoneyMakersforum.
“The bigger deposit you made, the bigger part of the business you got,” Dutch_Giant said. He put in 0.024 bitcoin – “about $60 at the time.”
Other investors went even bigger on O’Neill’s crowdfunding darling, internal documents show. One user invested 82 bitcoin and nine others contributed 10 bitcoin or more. In all, 417 investors claim to have lost a combined 481 bitcoin, worth almost $5.5 million today, to Banana.Fund.
Those figures come from a spreadsheet of “verified refund claims” that O’Neill began compiling on Jan. 2, 2018, when he emailed Banana.Fund investors that they could be refunded nearly three times the dollar value of their original investment – but not their value in bitcoin.
“Banana.Fund is a failed project,” O’Neill said in a project announcement whose text was shared with CoinDesk and referenced in the criminal complaint. He claimed that while Banana.Fund had already spent around a third of investors’ $600,000 pie on overhead, he had ridden the remaining bitcoin through late 2017’s heights and could now refund them triple their original investment in USDT, a stablecoin that usually trades 1-for-1 with the dollar.
“We’ve failed up!” he said. He claimed to have $1,730,000 in USDT for refunds. “Pure dumb luck.”
His investors would have been far luckier had they never locked their bitcoin up in Banana.Fund, the DOJ points out. Banana.Fund’s founder, referred to in the suit only as “Person 1,” only “stated that due to the increased value of bitcoin, investors would receive more than their initial investment in U.S. dollars, although, realistically, they would all still lose money because of the increased value of bitcoin.”
A calculated risk
Prosecutors allege that “Person 1” had an account balance of $11 million and could therefore easily pay back even Banana.Fund’s biggest investors. They further allege that “Person 1” spent the weeks leading up to his USDT conversion “buying and selling multiple coins for personal gain” and attempted one withdrawal to buy a house.
O’Neill “literally gambled with our BTC on Poloniex and he had few good trades,” said another victim of the alleged scam, Kris Zelisko, who invested 1.01 bitcoin in Banana.Fund. “Also, BTC went up in the meantime.”
Prosecutors also allege “Person 1” engaged in a year-long bitcoin laundering scheme that spanned over 40,000 trades and seven different cryptos, and in a two-week spree generated $540,000 in profit from the Banana.Fund pot.
“Person 1” never paid the vast majority of investors back, the prosecutors alleged.
Dutch_Giant said that a number of Banana.Fund users were well aware of the risks involved with “Jo Cook” enterprises. “Cook,” he said, had a track record of operating crowdfunded-oriented website scams that nonetheless paid some investors out.
“It was a reasonably calculated bet,” he said.