With the blockchain technology booming, new projects are sliding into the crypto space everyday. As law enforcement and regulatory bodies are playing their part in keeping the crypto space clean from illicit activities, it would be prudent for investors to keep their eyes open while investing. The problem is not with Bitcoin or crypto and technology behind it, it’s the fraudulent activities of certain actors that’s creating a bad name for it. As SEC says, vigilance and information are the only solutions available now before regulations can be formulated.
Just last week, founders of yet another fraudulent crypto project, OneCoin, were arrested in the US on charges of wire fraud, securities fraud and money laundering.
Konstantin Ignatov and Ruja Ignatova, founders of OneCoin, have been charged with the aforementioned monetary crimes. Ignatov was arrested at the Los Angeles International Airport while Ignatova’s activities indicted a few days back. OneCoin operated through a multi-level marketing mechanism where an individual gets rewarded based on how many people he gets to buy OneCoin’s crypto packages. Due to this marketing scheme, OneCoin made €3.353 billion in sales revenue and earned profits of €2.232 billion. According to the model put forward by OneCoin, its currency is blockchain backed and works on the principle of supply and demand. But as United States Department of Justice states, all the claims were frauds, the price was internally controlled and there was no proper blockchain. Furthermore, there were no opportunities for the members to cash out. In an email exchange, the founders even talked about an exit strategy, with one of them suggesting, “Take the money and run and blame someone else for this….”
Though crypto has gained a lot of momentum in the past few years, it is incidents like this that have contributed in government not giving it approval as ETFs and a lack of regulations for the industry. Moreover, the institutions and retail investors have increasingly become skeptical about the crypto space.
Hacking incidents, insider trading and fraudulent activities have also made governments skeptical about the blockchain technology. For example, the host of a Pakistani investigative journalism TV show Sara-e-Aam, exposed the scam of Pakcoin where the distributors asked people to invest in the initiative and promised incentives based on how much users shake their phones. The scam was exposed and the fraudsters confessed that their crypto business was a scam.
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Moreover, scam ICOs have made the crypto space notorious, and while law enforcers and regulatory bodies are doing their best to eliminate these illicit activities from crypto, one should always remain cautious. The FBI has also played its part in arresting ICO scammers. Recently, the Section Chief of the FBI’s Financial Crimes Section within the Criminal Investigative Division, Steven M. D’Antuono, advised investors to be cautious before investing in a new project. He stated in an interview:
“While the FBI and other law enforcement and regulatory agencies are actively trying to eliminate the scams and bring the scammers to justice, there seems to be a lucrative market for the scammers, meaning they continue to appear. Perhaps our best tool in mitigating fraudulent offerings is getting information out to the public that they need to be careful prior to investing in these projects.”
The SEC has also become pretty skeptical about allowing the cryptos to be traded as ETFs because of these scams and fraudulent activities. Multiple ETF proposals have been rejected to date. Although the demand is increasing and some members of the SEC themselves vouch for the importance of a BTC ETF, the fraudulent actors are holding them back. This has also given rise to the idea of surveillance of cryptos, which is certainly against the integrity of blockchains. The SEC previously showed their concerns, stating:
“The Commission has also discussed concerns relating to the risk of fraud and manipulation in cryptocurrency markets in orders denying exchange proposals to list the shares of commodity trusts that would hold cryptocurrency. In addition, a number of recent media reports have highlighted a range of possible vectors for potential manipulation of cryptocurrency markets. Although some funds may propose to hold cryptocurrency-related products, rather than cryptocurrencies, the pricing, volatility and resiliency of these derivative markets generally would be expected to be strongly influenced by the underlying markets.”