Summary of Complaint
On August 23, 2023 the SEC filed a complaint against John A. Desalvo alleging fraud in a crypto securities offering, and another fraudulent scheme in which he convinced friends to send money to his E-Trade account. Desalvo is a former corrections officer, creator of the Blazar token, and owner of a sealcoating company.
Desalvo’s crypto scheme began in November 2021 and concluded in May 2022. He targeted law enforcement officers and first responders by claiming that his Blazar token would replace traditional state pension systems. Blazar was available for trading on Pancake Swap.
Desalvo’s alleged material misrepresentations include:
- “Proceeds from the ICO will be used for development of the token, gas fees, advertising, marketing, exchange listing fees, and liquidity.”
- “There will be absolutely no use of Blazar Token’s funds for the self-interest of any Member of Blazar Token’s management team.”
- “We became a securitized token with the SEC.”
- “We have already secured being listed as a Payroll Deduction in 11 states.”
- The price of the token would increase 300% such that a $25,000 investment would yield income of $100,000 per month and would be worth $1 million within one year.
- “this is a GUARANTEED MINIMUM 100X Your money.”
- “What if I told you BLAZAR Token can get you 22.1% GUARANTEED and it’s not a lie? Well we can… 22% GURARANTEED with ZERO risk.”
- “This is no longer a maybe, it’s as solid as solid gets with the highest average annual return EVER seen on large sums of money. To be able to guarantee someone 20%+ on BILLIONS of dollars has NEVER been seen EVER. Well that’s about to.”
After receiving funds from investors, Desalvo allegedly sold his stake in Blazar, used the proceeds for personal expenses and trading other crypto assets.
Prior to the Blazar token scheme, Desalvo allegedly formed the “E*Trade Invest Group” but did not incorporate or register with the SEC. Instead, he simply used a personal E*Trade account. Similar to the Blazar scheme, Desalvo allegedly promised high returns with low risk, and made materially misleading statements to investors to raise approximately $100,000.
Opinion and Speculation
Sometimes I will read a complaint and have to remind myself that these are just unproven allegations in a pleading. Such is the case here. Desalvo isn’t even very good at committing fraud. A sincere effort at a Ponzi scheme can carry on for years, reaching tens of millions of dollars, with happy, oblivious investors receiving “returns.”
Observe that the total amount Desalvo raised through two fraudulent schemes was under $750,000. A lot of money in some contexts, but typically too small for the SEC to fry. Why would the SEC take an action in this particular case? It might not even qualify for a whistleblower award.
First, the victims are law enforcement officers and first responders. They may have connections, and law enforcement looks out for its own. If you’re not connected to law enforcement and you get taken for a ride in a scheme like this, forget it. Enforcement agencies don’t care, and you don’t have the resources to pursue recourse through the courts or violence.
Second, Desalvo’s fraud is so clumsy and incompetent that it’s a relatively easy case for the SEC. Maybe Desalvo could hire a really good lawyer who could get the complaint dismissed. For example, I didn’t see allegations that anyone relied on Desalvo’s alleged false statements. But (1) even if he wins a dismissal the SEC can simply seek leave to amend its complaint and re-file with more damning allegations, and (2) Desalvo probably can’t afford a lawyer that good. His combined schemes only raised $750K and there is likely a motion for an asset freeze pending with the court right now.
One theme that you will often see in fraud cases is people believing too-good-to-be-true claims. Nobody bothered to conduct a search of the SEC registrations for Blazar? Nobody bothered to contact their payroll administrator to ask about the automatic deduction? Nobody thought to themselves “$100k/month for doing nothing is great if you can get it, but I’ve never won the lottery before, so I’d have to assume the odds of this working out are similar.” These victims are law enforcement officers. Expert bullshit detectors. And they got lured in by the promise of an easy path to riches.
Capto Crypital 