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Thomas B. Shea-USA TODAY Sports via Reuters
If someone from Zima Digital Assets calls you, run.
STRIKE THREE

Crypto Ponzi scheme took Major League Baseball players and their families for millions

Justin Rohrlich
By Justin Rohrlich

Geopolitics reporter

From our Obsession

Big Tech

Looking at Big Tech as the next Big Oil.

The self-styled “Kryp+0 K!ng” and his business partner defrauded more than 100 investors, including former professional baseball players, out of at least $7.5 million over the past 18 months, according to a complaint filed in Arizona federal court last week.

The US Secret Service arrested John Michael Caruso on Jan. 30. Caruso is the founder of Zima Digital Assets, a blockchain and cryptocurrency investment firm, and has dubbed himself the “Michael Jordan of algorithmic cryptocurrency trading.” Authorities arrested Zachary Salter, an aspiring R&B singer who co-founded Zima with Caruso, the same day.

Investigators said that “numerous victims” caught in the elaborate scam were former Major League Baseball players and their families. The players themselves are not identified in court documents. Other victims are described as senior citizens, such as the 76-year-old who gave the two men $200,000 to invest in cryptocurrency and an 86-year-old who entrusted them with $60,000.

The government believes the $7.5 million is just a portion of their total haul, and that the pair may have stashed additional ill-gotten proceeds “in an unknown location.”

Authorities say that Caruso, who declared income of just $22,800 in 2018, was able to convince the public that Zima was skillfully playing the crypto market and generating big returns.

“I’m not in the business of guessing, I make calculated trades using tested principles and algorithms since trading is using historical models to predict the future,” Caruso said last year.

Zima’s website says the firm “operates various private funds focusing on investments in cutting-edge technologies, including crypto and other blockchain based assets.” It also claims that Caruso and Salter have been “investing in long and short cryptocurrency and blockchain technology strategies since 2012.”

None of that is true, contend prosecutors.

The “pattern of investor payments against investor payouts with no investment of funds is consistent with…a Ponzi scheme,” court filings say. There is “no evidence any of the investment funds…have gone to any cryptocurrency/digital asset investment, or to any investment of any kind.”

The investigation began after the Federal Trade Commission received an anonymous complaint about Zima in April 2019.

Most of the money Caruso and Salter took from their customers went not into investments but toward funding their opulent lifestyles, prosecutors say. They each lived in mansions valued at about $9 million. Caruso is the registered owner of a 2019 Lamborghini Urus, and over the last two years spent at least $350,000 to rent, among other luxury vehicles, a Rolls Royce, a Ferrari, and an Aston Martin. Caruso, who also flew to London, New York, Chicago, Los Angeles, Hawaii, Cabo San Lucas and Aruba aboard private jets over the past two years, and has taken about 30 trips to Las Vegas, where he lost more than $1.4 million gambling in a 13-month period.

Salter, meanwhile, describes himself as “a serial entrepreneur” who has interests in the aviation and automotive industries.

“I’ve known since I was young that I wanted to make a positive impact,” he said in a Q&A with Entrepreneur magazine last June. “My mantra is ‘Gold Intentions,’ which I got as a tattoo when I dropped out of college at 20 years old.”

Salter, who reported no income at all in 2018, lived just as lavishly as Caruso. He owns two Mercedes, a BMW, an Audi, and a 1957 Chevy, which he flaunted online. Court documents point to Instagram posts as evidence of their lifestyle.

“Some other relevant Instagram photos include a posting dated August 1, 2018, in which a woman posted a photograph with her posing next to a newer model white BMW sedan with a red gift bow on it thanking her boyfriend, Salter, for surprising her with a new car,” the complaint says. “On May 12, 2019, Salter posted on Instagram that he purchased a new car for his mother on Mother’s Day with a photo of her standing near a newer model Mercedes. Also posted on Instagram was a video in which Salter is laughing with Caruso about Caruso damaging ‘another one’ of his Ferraris with the video focused on the scraped rear bumper of a Ferrari.”

Authorities had Caruso and Salter under both physical and electronic surveillance.

Caruso has spent time in jail before. He was found guilty of threatening to cut off a man’s hands and genitals in a $200,000 extortion scheme he carried out with his father in 2009. Caruso received five years probation for that crime, but was sentenced to three years in prison for violating the terms of his probation on three separate occasions. He was released in 2017, after serving 20 months, and set up the Zima website shortly after getting out.

Authorities wrote in the court documents that Caruso “appears to have wholeheartedly embraced his background and chartered the career trajectory of a full-time, career criminal…He appears to believe that he is endowed with superior intelligence, and indeed, details of his activities in jail where he engaged in a complex coordination of people and resources provided glimpses of a criminal mastermind at work.”

Prosecutors argued that Caruso be detained pending trial, calling him a flight risk. He “has spent his entire adult life attempting to defraud people,” the government said in a motion filed with the court. “He has already utilized at least half a dozen criminal schemes. His relationship with the truth is tenuous at best.”

Salter, who does not have a prior criminal history, was released to his father’s custody. Lawyers for Caruso and Salter did not respond to a request for comment.