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Investors fear millions lost in Pennsylvania’s largest cryptocurrency scandal

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Sept. 7—Pennsylvania educator Mayama Kesselly said she was skeptical when a co-worker pitched her on a lucrative investment in one of the most explosive financial marketplaces in the world: cryptocurrency, which had gained glowing endorsements from Hollywood celebrities and Silicon Valley CEOs.

Shortly after her initial investment last spring in VBit Technologies — a novel bitcoin mining venture launched by a flamboyant Philadelphia entrepreneur — started to reap hefty profits, she and her husband went all in.

The Bristol couple took out $50,000 in loans to buy the company’s top-of-the-line “Black Diamond” mining package and soon started reeling in as much as $9,000 a month in returns.

In time, Ms. Kesselly became something of an evangelist for VBit, signing up her friends through the company’s pyramid-like “affiliates” program and reinvesting her own profits into more packages instead of paying off her initial loan.

It was a decision she would come to deeply regret.

“Every single day, I have a phone call, people call me asking, ‘When are they going to return our money?'” Ms. Kesselly said.

By January, VBit’s 34-year-old CEO, Don Vo, had vanished — selling the business for $105 million dollars to a Chinese company with no disclosed ownership on any public records, while customers lost access to millions of dollars in bitcoin in what has become the largest cryptocurrency scandal in Pennsylvania.

The founder’s abrupt exit capped off a year of lavish spending by company executives, who enjoyed fine wines and dinners at Philadelphia’s priciest restaurants while they bragged on social media about gifting luxury sports cars to their top performers and sailing on a private yacht.

The company that once pledged enormous returns for investors is now the target of a crackdown from state financial regulators, complaints to the U.S. Securities and Exchange Commission, and a federal lawsuit alleging massive securities fraud and what’s alleged to be a Ponzi scheme.

Meanwhile, the rapid change in ownership marked the beginning of what customers called a monthslong downward spiral, ending with them being barred from accessing their cryptocurrency and their computers.

“I’m so embarrassed. I’m so devastated,” Ms. Kesselly said. “I don’t even know how to lift my head up.”

» READ MORE: If you lost money in crypto, here’s how you can get some back

Ms. Kesselly, her husband, and their friends and co-workers are among the thousands of investors around the world — roughly 15,000 in all — whose money is now sitting inaccessible in company-controlled accounts as they try to recover bitcoin valued collectively at over $11 million.

Among the increasingly angry and frustrated customers are more than 100 Pennsylvanians who were drawn in by the promises from a company whose headquarters in bustling South Philadelphia was in their own backyard.

“It was so popular in Pennsylvania,” Ms. Kesselly said. “In Philadelphia, around here, we all thought it was a good thing. Everybody was just bringing their loved ones into this.”

The 2022 global crash of cryptocurrency markets — which lost an estimated $1 trillion in value in May and June, erasing an era of highly publicized returns — has also brought the exposure of a budding industry with little oversight and plagued by rampant fraud.

While buying cryptocurrency on a registered exchange is a legitimate form of investment, the industry is rife with get-rich-quick schemes. The Federal Trade Commission estimates that consumers have lost at least $1 billion in crypto fraud cases since last year, though that actual figure is probably much higher because many losses go unreported.

In the case of VBit Technologies, neither top officials with the successor company, Advanced Mining Group, nor Mr. Vo, who is no longer involved with the firm, responded to repeated interview requests from the Pittsburgh Post-Gazette.

The losses mark a rapid reversal of fortune from when VBit was surfing on the peak of 2021’s crypto wave. That summer, Mr. Vo captured the zeitgeist of the bitcoin boom in a post to his personal Twitter account.

“Bought 20 [bitcoin] at $29.5k before I left for vacation a week ago,” the then-CEO wrote, accompanied by a photo of him reclining with a glass of wine, a bright blue ocean in the background. “Now a happy camper while I sit on a private yacht.”

In local media, Mr. Vo was championed as Pennsylvania’s cryptocurrency luminary, a self-styled financial guru whose startup promised the average investor an opportunity to cash in on the bitcoin craze that was spiraling into a buying frenzy.

Through VBit, customers could buy into a high-powered bitcoin mining computer, which the company kept at one of its remote facilities. Month by month, VBit would kick back a portion of the mined cryptocurrency as a return.

» READ MORE: New crypto oversight legislation arrives as industry shakes

To make sure their pool of investors was constantly increasing, VBit enlisted a nationwide team of affiliates like Ms. Kesselly to act as regional figureheads, using word-of-mouth tactics to simplify the complexities of cryptocurrencies and sell their friends and coworkers on the company’s packages.

Some affiliates were more savvy, hosting informal Zoom sessions that touted VBit’s promise or sharing one of the company’s promotional YouTube videos — animations in which dollar signs swirl around brightly colored characters as they invest their way into a zen-like state of financial contentment.

Packages began with the “Silver Offer,” which, for $2,443, customers could buy a basic mining computer and hosting services. Once the bitcoin was mined, users were free to withdraw it from the company-controlled wallet and convert to U.S. dollars — or allow it to accumulate, as many customers did when the cryptocurrency’s value was bounding upwards.

Since its inception, bitcoin has been a costly endeavor due to the amount of energy that even a single computer requires. By some estimates, one transaction consumes the same amount of power that an average household uses in 50 days, while producing up to 75 decibels of noise — comparable to the sound of constantly running a vacuum cleaner.

That’s where Mr. Vo positioned his company as a solution for the everyday investor, hosting their noisy, power-hungry computers at VBit’s remote facilities in Montana and Alberta, Canada — places where the cost of energy was cheap and the likelihood of noise complaints was low.

Steve Reniari, a marketing professional and crypto enthusiast from Nevada, bought into VBit just as the market was taking off.

In early 2021, he purchased a Black Diamond mining package and hosting services for a total of $129,674, of which 50% was due up front.

When bitcoin’s value was rising, Mr. Renieari was making $4,000 to 5,000 per month. But like Ms. Kesselly, he didn’t pocket many of those funds from the company, instead choosing to let it amass and make smaller withdrawals.

In May, around the time bitcoin was crashing globally, he began to notice big changes.

“Every single day, I have a phone call, people call me asking, ‘When are they going to return our money?’”

Pennsylvania educator Mayama Kesselly

Over the course of a month, payouts that were normally ready in hours began to take days. Then they took weeks. Then they froze entirely.

Customers quickly demanded an explanation from Advanced Mining Group, which around the same time was dealing with internal struggles after its newly hired chief operating officer left the company after just three weeks.

Mr. Reniari began to grow worried when he tried to withdraw bitcoin and a team member responded in email to one of his support tickets on June 13 with the brief message: “Unfortunately, we are unable to provide an estimate time frame on when your transaction will be processed as the team is currently working on resolving the issue.”

A little less than two weeks later, Mr. Reniari’s fears were realized.

On June 27, he woke up to an email from Advanced Mining Group that the company sent to all of its customers.

“Advanced Mining has positively impacted many lives during its few years in operation,” the company wrote. “Therefore, it saddens us to inform you that we can no longer service the United States market.”

For reasons the company said it would not be “over-disclosing,” it was ceasing all withdrawals and sales of its mining packages due to a “potential pending settlement” with the SEC — the first revelation of a federal investigation.

In an email, the SEC would not confirm any such probe.

In addition to the SEC, another group of regulators from Washington state initiated a separate crackdown, which was related to whether Advanced Mining Group’s business model dealt in unregistered securities.

Worse yet, Mr. Reniari and other customers could still log into the company’s web portal and see their bitcoin accumulating — inaccessibly — in digital wallets that the company controls in what he would later call a “red flag” that he should have caught earlier.

Sporadic communication rolled in over the next several weeks, though, by then, customers were starting to organize on private messaging groups like Telegram to validate each other’s…



Read More: Investors fear millions lost in Pennsylvania’s largest cryptocurrency scandal

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