OneCoin Leader Arrested Over Pyramid Scam
The leader of OneCoin, the cryptocurrency Ponzi scheme was arrested on 6th March 2019. The company, claims to have 3 million members worldwide, and has generated over €3.3 billion (about 3.7 billion USD) in fraudulent sales. It was later found out that OneCoin’s so called “cryptocurrency” did not even use a blockchain, scamming billions out of it’s investors.
OneCoin Ltd., which launched as a multi-level marketing (MLM) company, turned out to be a Ponzi scheme, as discovered by the investigators. In this scheme, the members received an amount of commission for recruiting new members to purchase “educational materials” which were attached to a certain sum of OneCoin. The documentation put forward by the company suggested a five to ten-fold return on investment.
Geoffrey S. Berman, the Manhattan US attorney said
“As alleged, these defendants created a multibillion-dollar ‘cryptocurrency’ company based completely on lies and deceit. They promised big returns and minimal risk, but, as alleged, this business was a pyramid scheme based on smoke and mirrors more than zeroes and ones. Investors were victimized while the defendants got rich.”
OneCoin Ltd, in their defense, claimed that OneCoins are mined on a server that is maintained and operated by the company and that the price of each OneCoin is based on the market’s supply and demand.
The investigations that were carried out by the Internal Revenue Service-Criminal Investigation (IRS-CI) and the Federal Bureau of Investigation (FBI) found out that OneCoin was indeed a fraudulent pyramid scheme that did not employ blockchain at all.
William Sweeney, Jr, Assistant director-in-charge, FBI, said
“Unlike authentic cryptocurrencies, which maintain records of their investors’ transaction history, OneCoin had no real value. It offered investors no method of tracing their money, and it could not be used to purchase anything. In fact, the only ones who stood to benefit from its existence were its founders and co-conspirators.”
During this investigation, it was also found that the company represented the value of OneCoin appreciating from €0.50 to about €29.95 by January 2019. However, since OneCoin is not freely traded, the value was determined internally by the company leaders.
Court documents uncovered that victims globally wired funds to bank accounts that were controlled by OneCoin to purchase cryptocurrency packages. Within the span of two quarters, the company was able to generate €3.35 billion in sales revenue and €2.23 billion in earned “profits”.
The investigation found that the main leaders of this scam are Ruja Ignatova and Konstantin Ignatova, along with various OneCoin representatives. The company was founded by Ruja in 2014 out of Sofia, Bulgaria.
The law enforcement officers arrested Ruja Ignatova in early 2019 at Los Angeles International Airport on one count of wire fraud, which carries a maximum prison sentence of 20 years. She was charged with wire fraud, conspiracy to commit money laundering, securities fraud and other charges.
OneCoin is being compared to BitConnect, which was in the news for similar way of defrauding unsuspecting investors.
Cyrus R. Vance, Jr., the New York County District Attorney said
“These defendants executed an old-school pyramid scheme on a new-school platform defrauding investors out of billions. Our Office urges all crypto investors to scrutinize investment opportunities, recognize the prevalence of fraud in this under-regulated space, and proceed with caution.”