BitClub Network and the Bitcoin Scam That Took Buyers for a $722 Million Ride

For five years, the cryptocurrency company BitClub Network made sky-high profits, while customers lost so much money that at least one lodged death threats against the company.

“I became bankrupt with this clubcoin,” wrote one member of a cryptocurrency forum in March. He claimed to have invested $40,000 in the company. “I don’t know what to do now. These lying bastards lied so much for almost 2 years. If I meet Russ Medlin, I will just strangle him.”

At the time, BitClub Network (BCN) was a near-billion dollar company and Medlin, a convicted sex offender for child pornography and sexual assault of a minor under 14, sat at its head. Today, Medlin is one of the company’s only leaders not facing federal charges. BCN was a sophisticated scam that bilked customers out of at least $722 million across five years, prosecutors charged last week. Four alleged ringleaders were arrested, while two others, whose names are redacted in a federal complaint, remain at large.

BCN was an empire propped up by dubious technology, customers they privately called “idiots,” and the stolen identity of at least one violent rapist, according to the court documents.

The company said it would make investors rich by earning them cryptocurrency, a form of digital money. Customers could invest in BCN’s “mining” technology, which supposedly used high-powered computers to generate the cryptocurrency Bitcoin—and BCN would give investors a share of the Bitcoin profits. It looked like the ultimate work-from-home scheme: Once a customer paid a $99 joining fee and at least $500 to join a “mining pool,” they could sit back and reap the rewards for years.

Or at least that’s how it would work if BCN actually owned the mining technology it advertised. But messages from the company’s leaders suggest they were misleading customers from the beginning. The federal complaint, filed in New Jersey includes messages from June 2014, in which BCN’s early leaders said their target audience would be “the typical dumb MLM [multi-level marketing] investor.”

“We may need to fake it for the first 30 days while we get going,” Matthew Goettsche wrote to Silviu Balaci in October 2014, according to the criminal complaint. “It needs to look real.”

Both men, along with alleged co-conspirators Jobadiah Weeks and Joseph Frank Abel have been arrested for their roles in BCN. It is unclear whether the defendants have lawyers. 

“Back then I didn’t know much about crypto like I know right now and I failed to do my own research hence I fell prey to BCN recruiters. I will live to regret it!”

— Edmond Thamage, who invested $3,500 in BCN’s “Founders” pool

BCN was not actually mining the Bitcoin it advertised, Goettsche said. Instead, he wanted Balaci to provide fake mining numbers to investors. “We are building this whole model on the backs of idiots,” Goettsche told Balaci in January 2015. Keeping the scheme going “just means convincing the morons ;).”

Both Goettsche and Balaci, along with alleged co-conspirators Jobadiah Weeks and Joseph Frank Abel, have been arrested for their roles in BCN. It is unclear whether the defendants have retained lawyers yet. 

Goettsche might have had contempt for his customers, but the unregulated world of cryptocurrency in 2015 meant that plenty of non-morons were still losing money on Bitcoin schemes. Rising cryptocurrency values led a growing pool of people to invest via third-party dealers who promised to act like unofficial banks. But nearly all those companies were brand new, making it difficult for investors to tell which were legitimate and which were scams. BCN claimed to be “the most transparent company in the history of the world,” and one of the “top 10 crypto currency mining operations in the world.”

Many of their customers believed them. 

Edmond Thamage invested $3,500 in BCN’s “Founders” pool, the company’s supposedly premier mining pool that promised the greatest rate of return.

“Back then I didn’t know much about crypto like I know right now and I failed to do my own research hence I fell prey to BCN recruiters,” Thamage told The Daily Beast. “I will live to regret it!”

When he realized he wasn’t receiving the payouts he’d hoped for, he said, he contacted BCN “many times but I think they have blocked or terminated support services.”

Juliet Nursey, another BCN customer, isn’t a Silicon Valley techie. She’s a pensioner in the U.K., living on what she described as “a very limited income.” She didn’t know exactly what to expect from BitClub, she told The Daily Beast. “Just hoped to earn some money.”

Through a friend, she invested £250 (approximately $330) in the company. She hasn’t seen a penny in return, a development that’s left her “bloody annoyed,” she said. Like many other BitClub customers, she left a complaint on the company’s Facebook page, but never received a response.

But for years, BCN did just enough to give its…

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