Former NJ corrections officer charged in crypto fraud scheme

Matthew Fazelpoor//August 24, 2023//





Former NJ corrections officer charged in crypto fraud scheme

Matthew Fazelpoor//August 24, 2023//

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U.S. Attorney for New Jersey Philip Sellinger announced Aug. 23 that his office arrested and charged a former South Jersey corrections officer for two different fraud schemes, including one alleged cryptocurrency scam that targeted law enforcement, fire personnel and other first responders.

Prosecutors charged John DeSalvo, 47, of Marmora, with two counts of wire fraud, two counts of securities fraud, and two counts of money laundering related to the two schemes.

The first alleged con stems from the Blazar Token — a digital token that DeSalvo created and promoted, marketing it to police, fire personnel, EMTs, and other first responders as a “crypto pension” that could supplement investor’s existing pension plans. Prosecutors alleged DeSalvo promised investors that Blazar would offer more stability than any other token and that the value would continue to rise over time, similar to any investment fund — only at a much higher rate of success.

“Beginning in late 2021, DeSalvo used social media platforms to fraudulently solicit investments in Blazar through a series of misrepresentations including that: Blazar was in the process of becoming, or was already, a securitized token approved by the Securities and Exchange Commission; and Blazar could be purchased through payroll deductions and ACH transactions,” according to case documents and court statements. “DeSalvo additionally falsely told investors that Blazar had been approved for inclusion on several well-known cryptocurrency exchanges and guaranteed investors rates of return of more than 20% with ‘ZERO risk.’”

The scheme drew in more than 200 investors and raised over $620,000, which prosecutors say DeSalvo used for illicit unrelated purposes, such as personal expenses, day-trading in volatile cryptocurrencies, and payments to prior investors in the manner of a Ponzi scheme.

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“In May 2022, DeSalvo sold off more than 41 billion of his own Blazar tokens, which caused the price of the token to drop precipitously,” prosecutors allege. “The value of Blazar never recovered, causing most investors to lose their entire investments.”

Scheme two, prosecutors say, was Brokerage-1, an online trading platform that DeSalvo managed and solicited investment for between January 2021 and May 2021. Prosecutors allege that DeSalvo marketed the investment group through social media posts – touting his own investment success and claiming that his return rates are so high that people were throwing money at him to invest.

According to prosecutors, that scheme yielded approximately $100,000 in investments from about 20 people.

“After receiving the funds, DeSalvo engaged in trading activities for a brief period of time before transferring all the funds out of the investment group’s account at Brokerage-1 and into personal accounts held by DeSalvo at Brokerage-1 and Coinbase,” according to case documents and court statements. “DeSalvo then used the funds for various non-investment purposes such as credit card payments, personal trading in volatile cryptocurrencies, and payments to a contractor who performed work on DeSalvo’s personal residence.”

Once the investment group’s account was wiped out, prosecutors say that investors were advised by DeSalvo that their funds had been lost due to poor market conditions — providing false trading records.

Once DeSalvo got his investors’ money, he is alleged to have spent it on himself, paying personal expenses and funding his own investments.
— U.S. Attorney for New Jersey Philip Sellinger

“This defendant, a former New Jersey corrections officer, is alleged to have committed two brazen investment fraud schemes in which he falsely promised huge returns to obtain hundreds of thousands of dollars from unsuspecting investors,” said Sellinger. “Once DeSalvo got his investors’ money, he is alleged to have spent it on himself, paying personal expenses and funding his own investments. This office is committed to rooting out investment and securities fraud and protecting investors. By today’s charges, we intend to hold this defendant accountable for these alleged fraud schemes and prevent him from potentially victimizing anyone else.”

“Our investigation shows instead of actually making the rate of return he boasted about, he allegedly used hard-earned money from firefighters, police officers, EMTs and other public servants as his personal bank account,” said FBI-Newark Special Agent-in-Charge James Dennehy. “We are asking anyone who may believe they are a victim of DeSalvo to please reach out to the FBI at 1-800-CALL-FBI.”

On the criminal side, the counts of wire fraud carry a maximum potential penalty of 20 years behind bars and a $250,000 fine; the counts of securities fraud carry a maximum penalty of 20 years in prison and a $5 million fine; and the money laundering counts carry a maximum penalty of 20 years in prison and a $500,000 fine.

Based on the same alleged conduct, DeSalvo was also slapped with a civil complaint filed by the U.S. Securities and Exchange Commission.

The complaint charges DeSalvo with violating the antifraud and offering registration provisions of the securities laws. The SEC says it is seeking injunctive relief, disgorgement plus prejudgment interest, and civil penalties.

Gurbir Grewal

“We allege that DeSalvo orchestrated several fraudulent investment schemes that targeted law enforcement personnel and promised astronomical returns, including one involving a crypto asset security that would somehow replace traditional state pension systems. Rather than producing any returns or revolutionary technology, he instead misappropriated and misused investor money,” said Gurbir Grewal, director of the SEC’s Division of Enforcement, and a former New Jersey attorney general. “What’s particularly offensive about this case is that DeSalvo used his status as a former corrections officer to gain the trust of fellow law enforcement personnel, a number of whom invested their savings with him.”

An attorney was not immediately known for DeSalvo, who was slated to make his initial court appearance Wednesday in Newark federal court.