Australian blockchain entrepreneur Sam Lee could face up to five years in jail after being charged for his alleged role in a $2.86 billion (US$1.89 billion) cryptocurrency pyramid scheme.

On Monday, the US Department of Justice (DOJ) announced 35-year-old Lee has been charged for allegedly co-founding investment scheme Hyperfund – also known as HyperTech, HyperCapital, HyperVerse and HyperNation.

Court documents allege Lee and his co-conspirators sold investment contracts to the public through the oft-rebranded Hyperfund’s investment platform, and that the company’s promotional materials made a range of false claims to investors.

One such claim suggested investors who bought into HyperFund “memberships” would receive daily rewards between 0.5 per cent and 1 per cent until the company either doubled or tripled their initial investment.

HyperFund allegedly claimed these payments would be disbursed partially through revenues from large-scale crypto mining operations, but according to a DOJ press release, the company had no such operations to back its claims.

Hyperfund allegedly began to block investor withdrawls as of at least July 2021.

“Lee is charged with one count of conspiracy to commit securities fraud and wire fraud,” reads the press release.

“If convicted, he faces a maximum penalty of five years in prison.”

Alongside Lee were further charges against US nationals Rodney Burton and Brenda Chunga, the latter of whom pleaded guilty to one count of conspiracy to commit securities fraud and wire fraud.

Chunga is scheduled to be sentenced in May, and – like Lee – could be facing a maximum penalty of five years in prison.

Burton is meanwhile charged with one count of conspiracy to operate an unlicensed money transmitting business and another count of operating an unlicensed money transmitting business.

In addition to the charges laid against the trio, the US Securities Exchange Commission (SEC) has launched a civil complaint against charging Lee, accusing him of fraud and unregistered sale of securities.

The SEC described HyperFund as a fraudulent “crypto asset pyramid scheme”, and further alleged both Lee and Chunga knew “or were reckless in not knowing” HyperFund had “no real source of revenue other than funds received from investors.”

US attorney for the District of Maryland, Erek Barron, further lambasted the accused trio before warning investors to be skeptical of overstated cryptocurrency offerings.

“The level of alleged fraud here is staggering,” Barron said.

“Whether it’s cryptocurrency fraud, or any other financial frauds, if it sounds too good to be true, it probably is.”

In addition to Lee’s recent charges, the Australian blockchain entrepreneur has also been involved in notable controversy domestically.

Lee was a director for one of Australia’s first failed cryptocurrency exchanges, Blockchain Global, which collapsed in 2021 owing creditors $58 million.

According to The Guardian, the liquidator of Blockchain Global initially referred Lee to the Australian Securities and Investments Commission (ASIC) for potential breaches of the Corporations Act, including breaches of director’s duties, breaches of trust, and unreasonable director-related transactions.

While ASIC initially did not take further action against Blockchain Global in 2022, the corporate watchdog has since decided to undertake an examination of the liquidator’s reports following a Guardian investigation into HyperVerse’s purported crypto investment scheme.