Virtual currency, like bitcoin, can become a new tool that can serve fraudster to lure investors by offering them unregistered offering or trading platforms.
There is some news that fraudsters are using cryptocurrencies as a shield.
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Scammers are using initial coin offerings (ICO), on cryptocurrency platform by using faulty wallets or posing as real crypto-currency. There is also a dearth of know-how around these financial instruments companies which are becoming a tool for scammers to develop Ponzi schemes using crypto-platforms.
New generations of Ponzi and pyramid schemes have employed cryptocurrencies. Ponzi scammers sometimes create bubble; the price exceeds the intrinsic value of the item until the inevitable collapse. It shares common characteristics with a pump and dump scheme (artificially inflate the price by spreading misleading positive news and then dump their overvalued share).
In South Korea, the CEO of a cryptocurrency exchange “Coin up” was caught and faced 16 years in prison. He was accused of deceiving investors out of US$ 384 million. The company promised return of up to 200% and convincing them of listing in the near future.
Ponzi and pyramid schemes develop fake investment platforms by taking advantage of unsuspecting individuals by promising them a higher return for their investment. These schemes have similar characteristics and based on the same concept of an unscrupulous investor.
Recently, bitcoin Ponzi scheme was charged by the Securities and Exchange Commission (SEC) in Texas, 2013, where the organisers advertised bitcoin as an investment opportunity and promise the return of 7 % per week. Almost 700,000 bitcoin were sold through the scheme which is at today price worth US$ 60 million.
OneCoin is reported to be one of the biggest crypto-based Ponzi schemes, it has raised millions of dollars worldwide by deceiving investors of promising higher returns. OneCoin has its own private blockchain, and they used to sell educational material for trading. In 2015, Bulgaria Financial Supervision Commissions (FSC) issued a warning of potential risk, after that it ceased its local activities while started using foreign banks. Other countries issued warnings as well as and eventually in 2017, the exchange was closed.
Recently SEC issued common red flags of these schemes to alert public. Some common early signs of these scammers are promises of high investment returns with little risks, overly consistent returns, unregistered investments, unlicensed sellers, loopholes in paperwork and no minimum investment requirements.
This list includes Ponzi schemes but some of them are also pyramid schemes.
Defunct Ponzi schemes: