Paco Alvarez: Just to get us started, what inspired your investigation?
Katia Savchuk: So I had coffee with Amanda Silverman, who’s an editor at MIT Tech Review, and she had seen a headline in the New York Times that was just a brief news story about this pastor who had claimed that God told him to launch a cryptocurrency and was being charged in a criminal case, and was being accused of fraud. It just seemed like a very bizarre, fascinating story because he had actually made a video and essentially said, “we created a cryptocurrency with no clear exit. We used the money for home renovations and God told us to do it.”
It sounded, on the one hand, just like a fascinating story, but it was also the confluence of so many things that are really salient in society. Right now there’s a rise in crypto fraud, obviously a lot of hype around crypto. The regulation hasn’t necessarily caught up to. The spread of crypto. And there’s also the rise of religious influencers online. There’s a rise of charismatic Christianity, which is kind of a strain where people feel they have a really direct personal relationship with God. They’re speaking in tongues. There’s a feeling that God is directing you personally to take certain actions and maybe a distrust in sort of fact-based thinking in some cases, so it seemed like a really important arena to understand that this case could be a way to do that. And to me, I was also just personally really fascinated in the idea of blind faith, which is something that I ended up seeing in Eli and Kaitlyn Regalado, the couple at the center of this case and also a lot of their investors and also in a lot kind of corners of our society right now where we can basically sort of blindly believe things and sometimes it can lead us astray.
Alvarez: Could you give a brief rundown of what affinity fraud is and what it looks like in the crypto space? Why do you think crypto currencies are particularly vulnerable to fraud?
Savchuk: Sure, so affinity fraud can take many forms, but what it has in common is that it preys on the ties in a certain community. So that can be a religious community, an ethnic community, a group of veterans, an elder care community. But the person perpetrating the fraud is part of the community or pretends to be. And the common denominator is that trust plays a really big role in sort of convincing people. To do what you want them to do. And so in crypto fraud, that’s kind of its own bucket and that can take many different forms – there’s pump-and-dump schemes where people kind of pump up the price of a digital asset and then sell and the price crashes; there’s just sort of Ponzi schemes where people use profits from later investors to pay earlier investors. There’s pig butchering, which is a very vivid term, but people are essentially building a long-term relationship, “fattening people up,” whether by pretending to be a friend or a romantic partner or something like that, and then getting them to invest more and more.
But with affinity fraud and crypto, I think also can take many forms, but I kind of looked at religion in particular, and in the U.S, there have been cases, targeting Haitian immigrants using Christian faith-based appeals to sell them crypto. There’s been cases targeting Muslim community, cases targeting Spanish-speaking congregations. In some cases it’s been a pastor, another faith leader, or social media influencer. And I talked to a former FBI agent who specialized in crypto, and he’s an expert witness now in these cases, and he kind of made the point of “God told me,” like, who can argue with that? It’s a very convincing appeal. And I think with crypto, some of the things experts pointed out is that a lot of people don’t understand necessarily how the technology works, but a lot of people want to get in on it. One investor I talked to said, this is the wave of the future. It can also be very appealing. People don’t trust the mainstream financial system as well. And it’s really easy to create a crypto, not necessarily the kind that the Regalados in this case created, but generally a token on an existing blockchain is very easy to create, it’s very easy to send money digitally, and one regulator told me that social media has been playing a greater role in these cases, so it’s easier to spread the word. And at the same time, oversight is really fragmented and inconsistent. There’s a bunch of different agencies federally that oversee it and at the state level, they have different definitions. The definition of a security is really in flux. And right now, federally, there has really been a pullback in enforcement, the industry spent a lot of money in the most recent elections. And there’s been a retreat from cases on the part of the SEC against crypto firms, a narrowing of what kinds of crypto transactions fall under securities laws, which are much more stringent as far as disclosure, conflict of interest and stuff like that.
Alvarez: You sort of talked about it a bit earlier, but could you give a brief summary of what happened with this couple in Colorado that you profile, Eli and Kaitlyn Regalado? What did they set out to do and why did they end up being accused of fraud?
Savchuk: Yeah, so back in 2021, Eli and Kaitlyn were newlyweds. And Eli had a background in marketing. He’d had a firm that sort of focused on crowdfunding campaigns like Kickstarter. And a few years before they met, he had this kind of intense religious experience and he delved pretty deeply into charismatic Christianity and sort of felt that God was directly telling him to do certain things, and Kaitlyn, she says she got saved on their first date so she also started hearing directly from God. And they took all kinds of steps that they felt God was telling them to do. But basically they ended up in a pretty dire financial situation in part because of some of the steps they took. By the time they were about to have their first baby, they were struggling to pay their bills, they had no income, they had closed down this marketing business. They’ve given away a bunch of money. And they were just really believing that a financial miracle would take place.
And so around that time, what Eli and Kaitlyn later said in court is that Eli’s sister and her brother gave them some crypto. So this was something someone else had created, but they basically felt that God was telling them to sell it. So they sold it mainly in their networks, like through friends and family, and they did a webinar and eventually created a PowerPoint. But they eventually ran into conflict with the creator of the coin. So they felt that God was telling them to do their own thing and create their own coin. It was very similar to this other cryptocurrency – the price of it was supposed to be based on an algorithm that tracks the top 100 cryptocurrencies. And so they really didn’t know what they were doing and they sort of freely admit that they were looking up things on ChatGPT and just Googling, like, what is a blockchain? They really didn’t have any knowledge of crypto and they hired some developers that created their own native blockchain and coin, which is kind of a more challenging approach to creating crypto.
But basically they ended up taking in around $3.4 million from people and a lot of that was really sort of word of mouth and someone telling someone, primarily in evangelical Christian communities. They really framed it as a mission that God had given them. And the people really thought that they were going to get a return that was in some cases like 10x what they were paying just based on the index price that they were saying it would trade at. They also at the same time spent around $1.3 million that they had gotten from investors on home renovation, au pairs, designer clothing, things like that. And they were building their own exchange, which was kind of unusual to trade the coin. And so people thought they would kind of get their returns when the exchange opened. But what happened was it collapsed pretty much immediately and they had put about $130,000 into it, but out there were about more than $300 million worth of coins circulating, so if people went to sell, you know, there just wasn’t the liquidity there. So then they ended up being sued in civil court and criminal court. The criminal case is ongoing, and the civil case, the judge ruled against them, but they’re appealing it.
Alvarez: Your investigation is partially based on extensive conversations with the Regalados. How did you initially get in touch with them, and how did you go about developing trust with them?
Savchuk: I reached out on Facebook. I found they had an online church where they had posted some sermons on Facebook, so I think that was what they ended up responding to. And I guess sort of the longer I do this, the more I think it’s 90% the person and maybe only 10% the reporter that determines whether somebody decides to talk to you. I feel people kind of are looking for a chance to tell their story or they’re not. I mean, they did tell me that they had looked a bit into what I’d done online and appreciated that and appreciated the care, as he put it, I think, in the note that I wrote, which sort of referenced some of his sermons and explained that I didn’t want to do a quick piece or just a sensational piece but really dig deep and understand what really happened. And I think that they really wanted their version of events to get out there. I think in court, they weren’t able to present all of it because they were representing themselves and they kind of didn’t understand all the rules. So they weren’t able to admit all the witnesses and evidence that they wanted. And they just really believed in what they were saying. And they also want to inspire people I think with their unwavering commitment to what they see as something that God told them to do. They were just really interested in getting their story out there and I think they also appreciated that I was kind of willing to take that time and really understand and get into everything and not just do a quick story.
Alvarez: The article presents evidence from both the criminal and civil cases against the regulators and what they shared with you. You also mentioned that even people who had purchased INDXcoin are divided in their views of the Regalados. How did you approach the reporting to give a balanced and nuanced view of the situation and how did you verify what Eli and Kaitlyn were telling you?
Savchuk: Yeah, it was really important to me to talk to as many people as I could and, you know, to go back to as original sources as I could. So I talked extensively to them. I think we had more than a dozen interviews, at least, that were extensive. I visited them in their home near Denver. And I talked to 20 investors. I wanted to make sure I had a sense of both the patterns in the variety and how people got into this and what they experienced so that I could feel really confident and not rely on other accounts of what happened. There were also pretty extensive court records with original wire transactions, sales agreements, stuff like that to rely on. The Regalados also gave me access to a private forum they had for people, mostly investors, but I think anyone kind of interested in INDXcoin, so I was able to go back to videos and posts in real time and reconstruct what they had told people at the time rather than just relying on memory. And I obviously wanted to independently find people, not only the people they pointed me to, but folks that I searched out. And I talked to a lot of friends, family members, ex-colleagues that I found on the Wayback Machine, Eli’s family. There’s a lot of people that aren’t actually even in the story that I talked to because I really wanted to vet everything that I was being told in very rare cases where there wasn’t anyone else there. I think we tried to make it clear that this was their recollection.
Alvarez: What are the ways you think the Regalado story is different or similar to other instances of financial fraud?
Savchuk: Well, so I want to make clear that they still deny that they orchestrated a scam, that they committed fraud. So a civil judge did rule that they did defraud investors and they’re appealing that. And then the criminal case is just starting out. So when I shared the details of this case with some experts, a couple pointed out that it seemed similar to maybe what they would consider old-fashioned schemes where people kind of prey on trusts to sell you something. The crypto was incidental. It relied so much on personal social networks. So in that sense, it was not so different from many things that came before.
I think what the Regalados often point out is that, you know, they did put a lot of substantial money and effort into this project. They also like to point out that they gave away a lot of money and a lot of the INDXcoin, even a Harley, a BMW, they call it sowing. And it’s kind of this practice that they believe in where if you sort of give, you will receive a hundred fold and not necessarily from the person you give it to, but it kind of is a spiritual practice. So they also didn’t run away, I guess, like a lot of folks who pull a scheme then disappear with the money. They were kind of putting money into the exchange, even on the day of, to try to make it work.
But at the same time, they admitted that they sold this crypto with no clear exit. They used the money for all these personal expenses. The judge found they omitted important information. A lot of people lost their money and are going through hardship. So Dan Wheeler, who’s this crypto influencer who advised them at a certain point and then kind of got disillusioned and felt they weren’t listening to him and started posting on Twitter that he thought this was a scam. Something that he told me was, you know, if you believe God is going to do a thing, then are you conning people? That’s an open question. But at the same time, like, look at how they spent their money. So I think even he was left with ambiguity of did they just really believe God was going to save the day.
Alvarez: And my last question, what were the biggest challenges you faced during your reporting? Was there anything that surprised you?
Savchuk: Yeah, I think the biggest challenge in this case was the really good problem to have, which was just the volume of information, because we’d had so many extensive interviews. I had all these videos from years ago, videos and posts on the forum. And with a video, you have to like go through it to even know what’s on it, you know? And journal entries and there were thousands of pages of court records. They also gave me emails and spreadsheets and photos and there were just so many different investors that I could conceivably contact. So I think sometimes finding the thread and all that information or deciding when to stop, like that was probably the biggest challenge, which is, I think, a very lucky challenge.
And I was surprised at how much access the Regalados gave me. I wasn’t necessarily expecting that, especially when there’s active legal cases going on, including a criminal case. And they did tell me their criminal defense attorneys advised them not to talk to me, but they believed it was the right thing to do. And they believed that God had also confirmed that. They’d walked into a room and Family Feud was on the TV and the answer was MIT. And the story was for MIT Tech Review. So that was one thing they took as a sign. So I was really surprised at not only how many interviews, how patient they were willing to be, but they gave me a lot of documents that didn’t always necessarily paint them even in a favorable light, the way someone could read it. And I was pretty surprised when I was at their house and Eli took out journals that he wrote about, INDXcoin in the journals, a lot of divine revelations he was having, and he just started flipping through them and reading them out loud to me without having vetted them first. And in one of those, he was asking himself, I’m paraphrasing, but, did I sell crypto illegally? And he was just reading that to me. And so I think it goes back to the fact that they are very confident in their own story and the way that they receive things and want to get that out there. And they kind of think that others are going to see it the same way.