2015 was another colorful year in Bitcoin failures, scams and arrests | #yearinreview

Screenshot from the Judge Judy show, 2015

While 2015 was a great year that saw a record amount of venture capital flow in Bitcoin and the Blockchain come of age, it wouldn’t be the Bitcoin space without a year full of drama, including failed businesses, arrests, outright scams and a bit more in between for good measure.

Looking back at the year, you could perhaps go as far as saying that this was the year much of the deadwood from the wild west of the Bitcoin days fell by the wayside, as much of the space itself went legitimate.

The year started with the price of Bitcoin dropping to a low of $178, a rate that resulted in many already marginal Bitcoin mining operations quickly getting into strife.

Bitcoin miner CoinTerra, Inc. was sued by a Utah data center operator for $5.4 million in damages, court fees and related charges after it was claimed that it had acted in bad faith by intentionally underpaying for services, and further demonstrated a pattern of late repayment.

A Bitcoin trader involved in HYIP schemes in Colorado was arrested and was facing five years in jail for the operation of an unlicensed money transmitting business.

In one of our biggest exposes of Bitcoin investment fraud of the year, we exclusively detailed the elaborate Bitcoin scams of Tadas Kasputis, EgoPay, Virtex.com and Paymentbase; we may never have a definite figure on how much was stolen in the scam, but even 12 months later it still makes for a fascinating read.

January also saw the first signs of trouble with what would also to turn out to be another massive fraud when news broke that GAW Miners, a firm owned by Josh Garza, was under Securities Exchange Commission (SEC) investigation due to accusations that the company was undertaking “fraudulent conduct in the sales of securities” in relation to the sale of its Paycoin cyrptocurrency

Fast forward to March, and Bitcoin to Altcoin provider Paybase, another company owned by Garza, stopped allowing withdrawals, and never did once again.

The investigation took an interesting turn in August when the SEC subpoenaed Carlos Garza, an employee of GAW Miners and brother of Josh; Carlos not only refused to answer almost every question, but he provided the same answer, nearly verbatim each time.

It took until December for the SEC to finally make a call, when they charged Garza of having perpetrated fraud through GAW Miners and the lesser known ZenMiner by offering shares in an alleged digital Bitcoin mining operation while never having enough computing power for the mining it promised to conduct; Garza’s elaborate Bitcoin mining Ponzi scam is said to have sucked in over 10,000 investors, with most never recovering the full amount of their investments.

At the time of writing, a date for trial has not been set.

Another case of a Bitcoin exchange being nothing more than a scam emerged in August with our investigation into the dealings of Australian Bitcoin exchange igot Pty. Ltd. after it appeared to cease trading with users reporting they were unable to obtain withdrawals from the site and that the company was not responding to support tickets.

As of December, the company claims to have paid back 92 percent of funds, but ominously its website remains live and is still taking deposits it cannot immediately pay back.

The year in dodgy operators brings us to October when we first reported that Bitcoin and altcoin exchange Cryptsy (Project Investors, Inc.) was in serious trouble and was refusing to pay out users.

The exchange, remarkably, is still accepting funds, but two months later users are still claiming they are unable to withdraw Bitcoin from it.

Mt. Gox

The now notorious failure of Japanese Bitcoin exchange Mt. Gox may have occurred in 2014, but further and even more colorful developments in the investigation into the case kept keyboards busy throughout the year.

In January, Japanese police announced that after an investigation into the exchange they had found nearly all the missing Bitcoins had been stolen through internal systems and hence was an inside job, not via hacking, as had been previously alleged by founder Mark Karpeles.

Karpeles fun for the year was only just beginning, though, with an allegation in March that he was Dread Pirate Roberts, the mastermind behind the former online drugs bazaar Silk Road.

In a remarkable turn of events in April, a report from Bitcoin security firm WizSec found that most or all of the missing Bitcoins were stolen straight out of the Mt. Gox hot wallet over time, beginning in late-2011, with nearly all of them gone by mid-2013.

During this period, Japanese police continued their investigation, and it wasn’t good news for Karpeles when news broke at the end of July that they were preparing to arrest him.

Subsequently, Karpeles was not arrested once, but multiple times on differing charges: first in August when he admitted to creating fake Bitcoins, and then again later that month on embezzlement charges.

In September, Karpeles was formally charged with embezzlement, with the police claiming that he misappropriated $2.6 million of deposits from the trading accounts of Mt. Gox customers, including $48,000 for the acquisition of a bed.

Third time’s the charm as they say, with Karpeles being arrested for a third time in October on a new charge relating to Karpeles moving ¥20 million (US$166,000) in client money to his bank account, with at least some of this money being spent on prostitutes.

No doubt we’ll hear much, much more on the sordid tale of Mark Karpeles and Mt. Gox in the year ahead.

Failed startups

Sometimes startups offer a solution looking for a problem, and that certainly was the case with a number of failures in 2015.

Bitcoin wallet service provider 37coins, Inc. closed in August after its appallingly stupid model of catering for the “unbanked” and “unteched” in “developing economies without Internet access” with an SMS Bitcoin service that not only failed to take off, but never left the gate at the airport.

Bitcoin reputation startup Bonafide folded in November but only after burning through $850,000 in investors’ money to ascertain that people use Bitcoin because it’s anonymous and don’t want a reputation and name put to their transactions.

Mining firm BTCS tried really hard to go out of business also in November when it disclosed it was literally running out of money after burning millions without making a profit, but demonstrating a touch of the Lazarus remarkably announced $1.4 million in new funding in December to keep them going … for now.

Honorable mention

We couldn’t finish a colorful year of Bitcoin failures, scams and arrests without an honorable mention to the two dopey guys who thought it was best to bring their Bitcoin-related dispute before the Honorable Judge Judy.

If you missed the story back in November, not only is it worth a laugh, unsurprisingly Judy had no idea what Bitcoin was as well.

Image credit: Judge Judy