Arizona Court denies emergency motion by Bitcoin exchange CEO charged with money laundering and fraud, seeking Covid-19 release

By Christine Duhaime | April 22nd, 2020

Krypto king sought Covid-19 release

The US District Court for the District Court of Arizona has denied a Covid-19 emergency motion by John Michael Caruso to reopen his detention hearing to be released from pretrial custody because of what he argued was a threat to his life in jail arising from the virus.

Caruso was the CEO of a digital currency platform called Zima Digital Assets. He called himself the “krypto king.”

He was charged in January 2020, in Arizona with money laundering and wire fraud after an investigation by the US Secret Service. A complaint against him filed in January 2020, alleged that the digital currency business took in money from the public and its two principals, of which one was Caruso, blew through US$4.5 million of customer money to live a lavish lifestyle. Former MLB players were among the pool of victims. See “Two crypto dudes who allegedly blew through US$4.5 million, used customer funds to live in a mansion together, take a private jet, gamble at casinos and drive around in exotic fast cars, charged.”

Balancing health risks versus risks to society

At the Covid-19 detention rehearing on April 8, 2020, Caruso argued that his pretrial incarceration presented a deadly threat to his person and he ought to be released.

The Court held that although Covid-19 generally presents a serious health risk to the public, governments, including prison institutions, are taking steps to minimize the risk to incarcerated persons.

The Court cited United States v. Caddo, No. CR 18-08341-002-PCT-JJT (D. Ariz., March 23, 2020) with approval for the proposition essentially that [with respect to the balance between the risks to a person of Covid-19 in prison and the risk to the community of releasing a detainee charged with serious criminality], speculation in respect of the dangers of the virus do not outweigh legitimate countervailing concerns raised by the government for the continued incarceration of certain detainees, and although some Courts have found that the pandemic justifies release of certain detainees in certain circumstances, many Court have not so found, supporting a case-by-case analysis (citing United States v. Motley, No. 19-CR-00026-LRH-WGC-1 (D. Nevada, Apr. 2, 2020).

Severity of allegations warranted continued incarceration during Covid-19

With respect to the case-by-case analysis balancing personal interests and personal safety versus the interests and safety of the community, the Court held that Caruso’s indictment on 17 counts of money laundering, fraud and conspiracy involving an alleged scheme of at least US$9 million, together with the fact that Caruso and his family had contacted some of the alleged victims after his arrest, warranted against his release during Covid-19.

Caruso had an initial detention hearing on February 7, 2020, in which he was ordered incarcerated pending trial. At that time, he was charged with carrying out a Bitcoin Ponzi scheme that defrauded over 100 victims of at least US$7.5 million. Since then, the amount of the alleged fraud continues to increase as more victims are located, and Caruso was subsequently indicted.

At the February pretrial detention hearing, the Court noted that the government alleged that it had records from casinos, private jet rental companies, a mansion rental company and exotic car rental companies that evidenced that Casuso “lived an extravagant lifestyle”, including a private jet trip to Las Vegas where he allegedly gambled large sums and other trips overseas allegedly paid for with customers’ money – all the while earning only US$22,800 in income. The Court noted that financial crime investigators were unable to locate where all the money from customers had gone. Because millions of dollars was in the control of Caruso and not accounted for, there was a risk Caruso could use those funds to flee.

Court noted Caruso lied about his education, gambling and the exchange’s success

At that first detention hearing, the Court noted that Caruso lied to investigators when they questioned him about the Bitcoin business and his activities during the time of the alleged fraud – for example, he is alleged to have lied about how money was spent, denying that it was spent at casinos and to have lied about his education, alleging qualifications that he did not have. Moreover, in promotional materials in respect of the Bitcoin business, the Court noted untrue statements he made about his success.

The Court held that Caruso posed a danger to the community, inter alia, because of his track record of making untrue statements, including those made to investigators in the course of a government authorized investigation, his receipt of millions of dollars from victims and the allegations of serious financial fraud.

In 2016, Caruso was charged with attempted extortion for allegedly threatening someone with physical harm in order to extract money from them.

Salter obtains pretrial release

In contrast to Caruso, the co-accused Zachary Salter, was released from prison shortly after he was arrested by the Secret Service on January 30, 2020, in Paradise Valley, Arizona, and placed in the custody of a relative. It is possible that the view of the government is that Salter was duped by Caruso. Salter is prohibited from having any bank or other financial accounts or from buying anything above $500 and prohibited from traveling or taking drugs or alcohol. Salter was a singer before he went into the Bitcoin business with Caruso.

Comments are closed.