A federal jury in San Francisco found Japheth Dillman, 44, guilty on five criminal counts on August 24, 2026, after prosecutors proved he raised nearly $960,000 from roughly 22 retail investors through a cryptocurrency trading fund built around a trading bot that never worked.

Dillman co-founded Block Bits Capital and its investment vehicle, Block Bits Fund I, LP, alongside co-defendant David Mata, 42, of Spokane, Washington. Between June and December 2017, the pair raised the funds by pitching investors on a proprietary "autotrading" bot. In crypto, an arbitrage bot is software that automatically buys a digital asset on one exchange where the price is lower and sells it simultaneously on another exchange where the price is higher, capturing the spread as profit. Dillman described the bot's performance in marketing materials as "jaw-dropping," "eye-popping," and "insane." None of those results were real.

The Scheme

Prosecutors presented evidence that the autotrader was never operational at any stage. Mata executed all trades by hand. Dillman fabricated the performance data he sent to investors and repeatedly promised the automated system would be live "within one week," a deadline that was never met. Beyond the fake bot, Dillman also told investors their capital was sitting in "cold storage" for safekeeping and generating yields. Cold storage is an industry term for offline cryptocurrency storage considered secure and low-risk.

In reality, he deployed the funds into high-risk, unrelated crypto ventures that all failed. Investors lost approximately $508,000, or about 53 percent of what they had put in.

Mata entered a plea agreement and testified against Dillman at trial. The U.S. District Court for the Northern District of California convicted Dillman on four counts of wire fraud and one count of conspiracy. Each count carries a maximum sentence of 20 years in prison, a $250,000 fine, and up to three years of supervised release, putting his aggregate exposure at up to 100 years of imprisonment and $1.25 million in fines.

A sentencing date had not been announced as of publication.

Who Raised the Alarm

Paul Trowe, then the CEO of gaming company Herban and a former CEO of Replay Games, invested more than $700,000 from himself and associates. He grew suspicious after contacting accounting firms Dillman had cited as handling Block Bits' books. None of them had any record of the fund as a client. "Something fishy is going on here. I don't feel right about it," Trowe said, according to GamesBeat reporting. His withdrawal and subsequent complaint helped trigger the investigation that led to FBI involvement.

The SEC filed a parallel civil complaint on April 26, 2022, one day before federal agents arrested Dillman on April 27.

That civil action, SEC Litigation Release LR-25376, may result in additional disgorgement orders requiring Dillman to repay ill-gotten gains.

A Pattern Regulators Are Tracking Globally

The Block Bits case is not isolated. In May 2026, the SEC charged a Texas man named Nathan Fuller with raising $12.3 million from roughly 150 investors through his firm Privvy in a scheme built on fake AI trading bots, according to CoinDesk.

In South Africa, a fund called NTC Global Trade claimed its proprietary bot generated returns of 0.32 to 4 percent per trade through crypto arbitrage. NTC raised an estimated 492 million rand (approximately $27 million) from hundreds of investors before a Gauteng High Court provisionally liquidated it in September 2025. A liquidator's report confirmed that none of the investor funds were used for actual crypto trading. The investigation turned violent when Bouwer van Niekerk, an attorney who had investigated NTC, was shot and killed in September 2025. The NTC case reflects a broader regional crisis: Africa recorded a 112 percent surge in crypto fraud rates, the fastest increase of any region globally.

The structural similarities across these cases are notable: a trusted figure in a local community, a technology-sounding mechanism (an arbitrage or AI bot), fabricated performance data, and retail investors who lacked tools to verify on-chain activity independently. Chainalysis data published in its 2026 Crypto Crime Report shows that crypto scams globally cost investors $17 billion in 2025, up from $12 billion the year prior. Investment scams accounted for 62 percent of fraud inflows, and AI-enabled operations generated 4.5 times more per scheme than non-AI scams.

What This Means for Investors and Regulators

The Dillman conviction took more than four years from initial charges to verdict. For regulators in markets where retail crypto adoption is outpacing enforcement capacity, particularly across South Asia and sub-Saharan Africa, the case illustrates both the limits and the reach of criminal enforcement. India's SEBI, RBI, and FIU, along with Pakistan's SECP and authorities in Bangladesh and Sri Lanka, have each issued repeated warnings about algorithmic and bot-driven investment schemes targeting retail investors in their markets. Civil frameworks can move faster than criminal prosecutions, and securities regulators in those regions have the tools to act well before a jury is ever seated.

For individual investors, the Block Bits case reinforces a baseline checklist: verify that any claimed algorithm has been independently audited, confirm on-chain activity matches reported performance, and treat "cold storage" or "arbitrage bot" claims from unlicensed funds as immediate red flags. Dillman's background as a recognized Silicon Valley figure (he previously co-founded YetiZen, a gaming accelerator that operated from 2011 to 2016, and Clevr, a VR social platform that raised $150,000 from HTC Vive) shows that community reputation is not a substitute for verified disclosures.

Sentencing will occur in the Northern District of California. Verse Press will update this story when a date is set.