Despite the growing strength of crypto in the past ten years, there is one problem the industry cannot get rid of: the prevalence of scams and fraudsters. These individuals target inexperienced investors for hundreds of thousands, enabled, oftentimes, by their targets’ lack of understanding of crypto.
The first three months of 2019 saw heists amounting to more $1.2 billion worth coins. This figure includes only the traceable funds; the actual losses are much higher. In May, the crypto community was struck by several more multimillion hacks and scams, including the comeback of legendary fraudsters. CryptoHound singled out top 6 crypto crimes in May.
$4 billion pyramid
In early spring, US authorities announced an investigation against crypto project OneCoin and arrested one of its founders, Konstantin Ignatov. According to prosecutors, OneCoin is a financial pyramid scheme that robbed investors of almost $4 billion since 2014.
The next big twist in the story came this month. On May 7, former OneCoin investor Christine Grablis sued the founders of the project. Grablis alleges that she invested $130,000 in the project and lost everything.
Grablis’ lawyer stated that OneCoin “fraudulently promoted cryptocurrency investments and violated federal securities laws” and that the company should return funds, as well as compensate damages.
OneCoin denies the allegations and argues that it is neither scam nor financial pyramid.
Ignatov is currently awaiting trial, where he will face a prison term of up to 20 years. Officials have also put out an arrest warrant for his sister, Ruja Ignatova. They believe that she is the true mastermind of OneCoin and, if found, she could end up with 25 years in prison.
The United States is not the only country in which OneCoin targeted investors. The company is also being investigated by authorities in Belgium, Great Britain, Uganda, Italy, Nigeria, Germany, India, Hungary, Vietnam, Austria, Finland, Luxembourg, Bulgaria, and Samoa.
$40 million hack
Binance, one of the most popular crypto exchanges in the world, was hacked in May and robbed of more than $40 million worth of coins. The hackers targeted the platform’s hot wallets, but cold storages remained untouched.
According to Binance CEO Zhao Changpeng, hackers used various methods to achieve their goals, “including phishing, viruses and other types of attacks.”
Although the amount stolen is impressive, $40 million is just 2% of all BTC assets that were stored on the exchange. Furthermore, the robbery had limited effect on the operation of the exchange, as Binance was able to recover secure functionality and reopen operations within just two days. Binance promises to refund the stolen assets of all customers affected by heist and assures that the security vulnerability has been repaired.
The legendary comeback
BitConnect, the company that in 2018 became a household name for fraudulent cryptocurrency projects, has announced plans to reopen its doors this July.
It appeared in 2016 and offered its investors incredible returns – 3% per day. The pyramid grew at an unprecedented pace, luring in thousands of investors around the world. By 2018, BitConnect’s total estimated value was $2.5 billion and spokesperson Carlos Matos had become an iconic meme.
The BitConnect bubble burst in January 2018, when authorities from several countries, including the United States, opened criminal probes against a number of managers, founders and promoters of the coin.
In May 2019, news of BitConnect’s reopening appeared on the company’s website and Twitter. According to the posts, BitConnect will restart on July 1 of this year.
Without any further details, it remains to be seen if the news is genuine or simply someone’s idea of a practical joke. But if the restart does take place, it will be the spit in the face of the entire crypto industry.
$75 million for SIM-card
The perpetrator of a SIM-card heist worth $75 million was brought to justice on May 13, when the California Supreme Court found 21-year-old Nicholas Truglia guilty in the state’s first-ever “SIM-swap” case.
In early 2018, Truglia was able to steal the crypto assets of plaintiff Michael Terpin after convincing Terpin’s mobile operator that he, and not Terpin, was the owner of Terpin’s mobile number. He then acquired access to the calls, messages, and apps of the victim, including his crypto wallet. In this way, Truglia stole $23.8 million worth of cryptocurrency from Terpin.
In between the SIM-swap and the trail, the value of the stolen crypto assets had increased to $75.8 million. The California court sided with the plaintiff’s demand that Truglia compensate him for the current value of the coins, not their value at the time of the robbery.
Apart from this case, Truglia is accused of another six similar crimes.
Crypto in the sky with diamonds
In May, American authorities shut down Argyle Coin, another crypto pyramid. Jose Angel Aman, the man behind it, convinced more than 300 investors to buy coinage supposedly backed by diamonds.
In reality, investors’ money was spent on payouts to previous participants in the pyramid and to the Aman’s personal goals. For example, Aman paid rent, purchased a horse, and even paid for his son’s horse riding lessons with investor funds.
According to the Securities and Exchange Commission (SEC), Aman and other Argyle Coin managers defrauded investors of more than $30 million.
€2.2 million mining scam
Dutch police arrested entrepreneur Barry van Mourik in May on charges of creating a fake crypto mining project.
Van Mourik allegedly lured investors into the scam with promises of returns of 0.3 BTC (about $2,300) per month. Rather than spending investor funds on business development, he used the money to support a luxury style of life. In total, he managed to steal $2.2 million from contributors.
Chronic illness or passing bug?
For now, the crypto industry has not yet been able to cure its most dangerous diseases — scams and crypto exchanges hacks. Investors now, more than ever, need to be smart about where to invest and with whom. As we see fraudulent projects like BitConnect starting to return to the industry, it’s particularly important to research the history of any fund before investing.
At the same time, crypto isn’t a complete “wild West”. Globally, authorities worldwide are taking crypto and crypto crime more seriously. As time goes on and investigative bureaus further develop their capacity to prevent and address crypto crime (and investors get wiser about the types of projects in which they put their money), it will become more difficult for fraudsters to gain the upper hand.