A federal judge in Nevada has sentenced a disbarred California attorney to five years of probation and restitution amounting to nearly $14 million over the former lawyer’s involvement in a cryptocurrency Ponzi scheme.
Judge Gloria Navarro handed down the sentence against David Lee Kagel, a former Beverly Hills resident, on Oct. 7 following his guilty plea to the charge of conspiracy to commit commodity fraud. Kagel, 85, has been receiving hospice care at a residential care facility in Henderson, Nevada, according to the court’s conditions of supervision.
Under those conditions, he will be subject to electronic monitoring if he leaves the Henderson hospice facility – or any other hospice facility – and he is not allowed to communicate with two other people charged in the cryptocurrency scheme, David Gilbert Saffron, 51, originally from Australia, and Anthony Mazzotta Jr., 52, of Los Angeles.
The full $13.95 million in restitution is due “immediately” in a lump sum, according to Navarro’s judgment.
The Ponzi scheme involved artificial-intelligence trading bots and led to investors being defrauded out of $9.5 million, according to the U.S. Department of Justice. Those involved in the cryptocurrency promotion told victims that Kagel held $11 million in Bitcoin in escrow to guard against any losses, prosecutors said.
Kagel and his partners used investor funds for activities such as private charter flights, luxury hotels and a personal chef, the Justice Department said in a July news release about the case.
The attorney, who was admitted to the State Bar of California in 1974, was subject to disciplinary charges three times during his career, according to the State Bar. Kagel was disbarred by the state Supreme Court in the spring of last year and has not been eligible to practice law since May of 2022 after misappropriating client funds and acting with moral turpitude and dishonesty, the State Bar reported.
Investment programs in the cryptocurrency scheme were publicized under names such as Bitcoin Wealth Management, Omicron Trust and Cloud9Capital, according to the Justice Department.
Kagel’s federal public defender did not respond to a request for comment about his client’s sentencing.
Crypto pyramid schemes have been a concern this year for the federal Securities and Exchange Commission. In January, the SEC charged the founder of the $1.7 billion pyramid scheme known as HyperFund with fraud, and in August, the agency charged NovaTech Ltd. with a plot to raise $650 million in crypto assets by defrauding 200,000 investors worldwide.
Gurbir Grewal, the former director of the SEC’s Division of Enforcement, said in a speech last year that turmoil in the crypto markets, which about 16% of Americans are involved with through investments or trade, has taken a financial toll among investors. About 46% of U.S. residents involved in crypto report their investments have done more poorly than expected, Grewal said.
“While some of this may be the result of natural market forces, some of it is certainly due to fraud and other unlawful activity,” Grewal said.
Over the past decade, the Department of Enforcement has filed more than 100 crypto-related actions involving unlawful activities such as Ponzi schemes, affinity frauds and other types of scams, he said.
Cryptocurrency refers to digital money created through encryption algorithms and a virtual accounting system that can be used as a form of payment or as an investment.