A disbarred Southern California attorney has pleaded guilty to inducing people to take part in a cryptocurrency Ponzi scheme involving artificial-intelligence trading bots – a plot that led to investors being defrauded out of $9.5 million.
David Kagel, 85, a former Beverly Hills resident, entered the plea at the end of May and now faces a maximum penalty of five years behind bars, according to the federal Department of Justice. Kagel is scheduled to be sentenced on Sept. 10.
A federal grand jury also charged an Australia man, David Gilbert Saffron, 51, and Anthony Mazzotta Jr., 52, of Los Angeles for their roles in the cryptocurrency scheme, in which investment programs were promoted under names such as Bitcoin Wealth Management, Omicron Trust and Cloud9Capital, the Justice Department reported.
Promoters of the Ponzi scheme falsely told victims that Kagel held $11 million worth of Bitcoin in escrow – funds that were supposed to guarantee victims’ income against any loss, the Justice Department said.
Kagel provided letters to Ponzi scheme victims on his firm’s letterhead to affirm the false cryptocurrency promotions, according to prosecutors.
“Kagel admitted that he and his co-conspirators used victims’ funds for their own personal benefit,” a Justice Department news release states.
Kagel’s partners, Saffron and Mazzotta, allegedly misused investors’ funds for personal activities, such as private charter flights, luxury hotel stays, a personal chef and security guards, according to prosecutors.
Kagel was disbarred on April 21 of last year, according to the State Bar of California, and he was declared not eligible to practice law in the state in 2022. He faced disciplinary charges a couple of times since he was admitted to the State Bar in 1974 over misappropriation of client funds and acting with moral turpitude, dishonesty or corruption.
Last year, the state Supreme Court ordered Kagel to pay $5,000 in monetary sanctions to the bar’s Client Security Fund, as well as restitution to a client to the tune of $25,000 plus interest.
“Mr. Kagel has not paid the sanctions, and we cannot confirm whether or not he paid the outstanding restitution,” the State Bar said in an email to the Southern California Record.
The Justice Department stressed that Kagel abused his position as a lawyer to earn the trust of investors and endorsed false information to promote a scam.
“Kagel and his co-conspirators defrauded their victims out of millions of dollars and used the victims’ money to line their own pockets,” Nicole Argentieri, head of the Justice Department’s Criminal Division, said in a prepared statement. “When lawyers lend a veneer of legitimacy to fraudulent schemes, it can lead to devastating losses for victims. The Criminal Division and its law enforcement partners will continue to aggressively pursue such fraudsters and hold them to account.”
Kagel’s partners, Saffron and Mazzotta, are now awaiting a trial that is scheduled to start on Aug. 13.
The Justice Department advised that people who believe they are victims of the parties involved in this case to call the department Victim Witness Unit at (888) 549-3945 or email victimassistance.fraud@usdoj.gov.
Kagel’s public defender did not respond to a request for comment.