The founders of a crypto startup pleaded guilty to tax evasion in connection with a 2016 initial coin offering (ICO).
Bruce Bise, 60, and Samuel Mendez, 65, face up to five years in federal prison in connection with the Bitqyck ICO, which raised $24 million, the U.S. Attorney for the Northern District of Texas said Wednesday.
Bise pleaded guilty on Sept. 9 and Mendez on Oct. 13, according to the department.
The duo allegedly scammed investors out of their funds, using the ICO’s proceeds on casino trips, cars, art, rent and luxury home remodels.
The pair also promised investors who purchased Bitqy tokens they would receive shares of the company’s common stock, though no such issues were ever made. At the time of the pleas, Bise and Mendez own 100% of Bitqyck’s common stock.
Less than a year after Bitqyck’s 2016 ICO, Bise and Mendez began promoting a new coin, BitqyM, that was said to power bitcoin mining operations in Washington state. Bise and Mendez admitted in plea papers that no such operations ever existed, and they had unsuccessfully tried to contract a third-party overseas company to mine the promised bitcoin.
Bitqyck paid an $8.3 million penalty to resolve claims that it defrauded investors in a civil settlement with the Securities and Exchange Commission (SEC) in August of 2019.
From 2016 to 2018, Bise and Mendez profited a combined $9.16 million, but after underreporting their incomes, combined with Bitqy failing to file its tax returns in 2018 despite collecting $3.5 million from investors, the founders are on the hook for over $1.6 million in back taxes combined.
Bise and Mendez face up to five years in federal prison, according to the prosecutors.
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