The U.S. Attorney’s Office for the Southern District of New York on Thursday sentenced Magdaleno Mendoza in the IcomTech crypto Ponzi scheme. The court sentenced the accused to 71 months in federal prison for defrauding working-class Spanish-speaking investors.

Mendoza was a senior promoter in the purported crypto-mining and trading company IcomTech. The firm was established in mid-2018 and collapsed by the end of 2019.

Court orders Mendoza to pay restitution and forfeit his California residence

The court alleged that Mendoza’s scheme falsely promised guaranteed daily returns from crypto trading and mining. However, he operated that scheme as a classic MLM-style Ponzi scheme, paying earlier participants with new investor funds. According to the report, he allegedly siphoned hundreds of thousands for personal use.

The court ordered Mendoza to pay $789,218.94 in restitution. He is also required to forfeit approximately $1.5 million, along with his Downey, California, residence, which is suspected to be derived from the proceeds of the scheme.

The defendant is alleged to have previously promoted at least two other digital asset Ponzi schemes. The court found that Mendoza also used his own restaurant in Los Angeles to host pitch events and collect thousands in cash. 

Mendoza’s scheme worked because he toured the country with flashy expos, arriving in luxury cars and wearing designer clothes. Meanwhile, his victims were unaware that they couldn’t access their phantom profits growing in their dashboards.

Court documents revealed that withdrawal requests began to be delayed at the beginning of August 2018. The delays were followed by excuses and hidden fees, which prompted IcomTech to roll out a proprietary token, Icoms. The digital asset was falsely touted as valuable for future payments but turned out to be worthless, leading to losses for investors.

Ari Redbord, Global Head of Policy at TRM Labs, argued that promoters often share a language or cultural background with their victims. She believes that it lowers skepticism and increases credibility. She also noted that such schemes exploit real barriers faced by immigrant communities.

“Promoters often share a language or cultural background with victims, which lowers skepticism and increases credibility. These schemes also exploit real barriers – limited access to traditional financial services, less exposure to regulatory warnings in a person’s primary language, and heavy reliance on word-of-mouth networks.”

-Ari Redbord, Global Head of Policy at TRM Labs.

Redbord also acknowledged that Mendoza’s 71-month sentence mirrors how courts are currently treating large-scale crypto Ponzi schemes. According to her, courts give such a sentence where a Ponzi scheme has a clear intent, significant victim loss, and sustained promotion. She argued that courts are increasingly focused on traditional fraud factors, such as scale, duration, losses, and leadership roles.

Court sentences other co-conspirators for their roles in the IcomTech Ponzi scheme

The court also sentenced Mendoza for illegal reentry into the U.S. after deportation. He was accused of living in the country unlawfully for decades, and he has been deported four times. He has also been deported once for using a false identity. Court documents revealed that Mendoza went on to promote around three more crypto Ponzi schemes after IcomTech collapsed.

The court has also convicted and sentenced other senior promoters for their roles in the scheme, including David Brend, Juan Arellano, and Moses Valdez. Other co-conspirators in the scheme were also charged, including IcomTech’s founder, David Carmona, alleged CEO Marco Ruiz Ochoa, and web developer Gustavo Rodriguez.

Redbord argued that the biggest challenge is dealing with promoters who move from one scheme to the next by rebranding pitches and targeting new communities. She added that IcomTech is a clear example of promoters resurfacing, but their histories eventually catch up with them.

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