Bottom line: Three people have been indicted by United States authorities for operating an international multi-billion dollar cryptocurrency pyramid scheme. The fraudsters allegedly scammed about three million investors out of more than $3.8 billion since 2014.
Konstantin Ignatov was arrested March 6 at the Los Angeles International Airport on a wire fraud charge for his role in operating a fake cryptocurrency called OneCoin. If found guilty he could face up to 20 years in prison.
Mark Scott, a former partner of a "major US law firm," was arrested the day before charged with one count of conspiracy to commit money laundering. This charge also carries a maximum 20-year sentence.
On March 7 the US Attorney for the Southern District of New York Geoffrey Berman unsealed an indictment of Ignatov's older sister Ruja Ignatova. She is charged with wire fraud, conspiracy to commit wire fraud, securities fraud, and conspiracy to commit money laundering, each carrying a maximum sentence of 20 years. She is also charged with one count of conspiracy to commit securities fraud, which could tack on another five years in prison if convicted. Ignatova is currently in hiding.
"These defendants executed an old-school pyramid scheme on a new-school platform, compromising the integrity of New York's financial system and defrauding investors out of billions."
According to the US Department of Justice, Ruja Ignatova co-founded OneCoin Ltd in 2014. She ran the company from its headquarters in Sofia, Bulgaria until October 2017 when she disappeared from public view. Her brother took over the top seat of the firm around the middle of 2018.
The company operated as a multi-level marketing scheme where members would get a commission for selling OneCoin investment packages. OneCoin claims over three million members and is still in operation, says the DoJ.
Between Q4 2014 and Q3 2016, the scam generated over €3.353 billion ($3.8 billion) in revenues and made around €2.2 billion ($2.5 billion) in profit.
OneCoin claimed to have a "private blockchain." However, investigators found no evidence that this was true. The company has been issuing "fake coins" since March 2015.
"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."
Konstantin Ignatov attended a meeting with OneCoin members in Las Vegas earlier this month. He was asked at the beginning of the conference about how members could monetize their investments.
"If you are here to cash out, leave this room now because you don't understand what this project is about," he reportedly answered.
In a prepared statement, Federal Bureau of Investigation Assistant Director-in-Charge William Sweeney, Jr. warned investors to do their homework before laying down money.
"As we allege, OneCoin was a cryptocurrency existing only in the minds of its creators and their co-conspirators. 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. Whether you're dealing with virtual currency or cold, hard cash, we urge the public to exercise due diligence with any investment."
Anyone who believes they may have been a victim of OneCoin or has any information that would be helpful in the case is urged to contact the US Department of Justice. Contact information can be found in the US Attorney's press release.