Titanium Blockchain CEO Convicted of $21 Million FraudMichael Stollery Scammed Investors via Cryptocurrency Initial Coin Offering Fraud
The chief executive behind a fraudulent cryptocurrency initial coin offering pleaded guilty in U.S. federal court to securities fraud in a scheme in which $21 million was stolen.
See Also: Live Webinar | Breaking Down Security Challenges so Your Day Doesn’t Start at 3pm
Michael Alan Stollery, 54, conned investors by fundraising for Titanium Blockchain Infrastructure Services, a purported cryptocurrency investment platform he founded. Stollery faces up to 20 years of imprisonment.
Stollery's initial coin offering - the cryptocurrency equivalent of a stock market initial public offering - was allegedly to raise money to build out TBIS services such as network infrastructure. Stollery, who also goes by "Michael Stollaire," instead spent about $50,000 of investors' money to pay off credit card debt and used additional money for bills related to his Hawaii condo.
The stolen funds comprised digital assets, such as Ether and Bitcoin, and cash from dozens of investors located in at least 18 states and abroad who purchased the TBIS token called "BAR," federal prosecutors wrote in criminal complaint earlier this year. Stollery conducted and advertised the ICO between November 2017 and May 2018.
Stollery also did not register the ICO with the Securities and Exchange Commission. All ICOs and cryptocurrency investment opportunities that qualify as securities or investment vehicles must be registered with the SEC. The agency obtained in May 2018 a federal court order halting the ICO and freezing Stollery's and TBIS's assets.
The agency told the court Stollery lied about his business in his marketing materials and the white paper accompanying the ICO, touting slogans such as "Company as a Service™" and "Mining as a Service™."
"Just as steel changed the building industry forever, Titanium will usher in a new era of network construction, based on blockchain technology," Stollery said on social media, which he used frequently, the 2018 SEC complaint shows. His campaign of promotion included self-produced YouTube videos, paid-for interviews, online ads on Facebook and "prolific tweets."
"This ICO was based on a social media marketing blitz that allegedly deceived investors with purely fictional claims of business prospects," Robert A. Cohen, then-chief of the SEC Enforcement Division's cyber unit, said at the time.
To add to the appearance of legitimacy, Stollery planted fake client testimonials on TBIS' website, falsely claiming he had business relationships with the Federal Reserve and "dozens of prominent companies," including Apple, Boeing, eBay, General Electric, Microsoft, PayPal, Pfizer, the Royal Bank of Scotland, Universal Studios and Walt Disney. The TBIS website currently displays a court notification on the charges against Stollery, and TBIS's social media accounts appear to have been deleted.
Crypto Fraudsters Beware
Stollery's conviction marks the latest in a series of actions by the Department of Justice to curb cryptocurrency fraud. The DOJ's cryptocurrency fraud unit says it has charged since 2019 cases involving over $2 billion stolen investor money.
Each conviction sends a message to cryptocurrency fraudsters and scammers that law enforcement has the tools to deal with Web3 criminal activity, says William Callahan, director of government and strategic affairs at the Blockchain Intelligence Group.
Justice has come a long way, he says. "While I was overseeing counter narcotics efforts in the Midwest as a special agent in charge of the U.S. Drug Enforcement Administration's St. Louis division [between 2018 and 2020], we had one or two investigators or analysts familiar with cryptocurrency and blockchain financial investigations. Now these offices across the country have teams dedicated to identifying and disrupting the cybercriminals," Callahan tells Information Security Media Group.
The spate of recent Justice Department enforcement actions don't imply an increase in cryptocurrency-related attacks now, says Ari Redbord, head of legal and government affairs at blockchain intelligence company TRM Labs (see: Cryptocurrency Insider Trading, Fraud in Feds' Crosshairs).
"While it might feel like there is a rash of scams and fraud at this moment, what we are actually seeing are successful prosecutions that have been in the works for some time. Most of these are not new cases, but rather the fruit of actions that the department has taken since the creation of the DOJ Enforcement Framework almost two years ago," he says. Justice in October 2020 released the framework as part of an effort to set out its approach to cryptocurrency.
The department in 2021 also created the National Cryptocurrency Enforcement Team.