In the little over 10 years Bitcoin has been in the picture, thousands of alternative cryptocurrency-related projects have shown up in the market. However, the crypto market is still very young compared to its traditional counterpart. This had its benefits for users, but it also means that regulatory matters are lagging behind. Sadly, this has caused the crypto space to become a mecca for fraudsters and scammers who trick other users through deceitful means. In this regard, exit scams, pyramid schemes, and Ponzi schemes became the most common scams in crypto, because they have proven to be the most effective.
In this article, we will take a look at the biggest scams in cryptocurrencies. Some of them are big because of the amount of BTC or millions of dollars they stole, but others rather because of the impact they made on the community.
If we look at it from the perspective of how much one BTC was worth between 2011 and 2012 (when this Ponzi scheme was operational), this scam pales in comparison to the others in this list, as it only resulted in $4.5M. However, if we take into account the amount of BTC that was stolen and consider its value today, then it becomes one of the biggest scams ever. It all started in November of 2011, when bitcointalk user pirateat40 opened a thread offering the Bitcoin savings and trust service (the original post was edited when the thread was closed, click here for a transcript of the original post). Basically, people would send their BTC to pirateat40 with the promise of daily earnings corresponding to an interest rate of 1%, although with a minimum investment of 50 BTC.
Today, 50 BTC as minimum investment is way too much, but back in late 2011, the price of Bitcoin was much, much lower. This is how Trendon Shavers, the person behind the pirateat40 moniker, raised at least 700,000, according to the SEC. At press time, that amount equates to $6.9B.
The service became so popular that it became difficult to manage. Shavers lowered the interest rates, but in the end he had to close the service because of the “general size and overall time required to manage the transactions”. He promised to pay back the money in all accounts within one week, but it was soon revealed that he had defaulted.
In the SEC complaint, it was revealed that Shavers transferred almost $150,000 to his personal checking account, which was spent in rent, car-related expenses, retail purchases, casinos, and others. He was charged a $40 million fine and subsequently sentenced to 18 months in prison.
It not only remains as one of the biggest scams in crypto in terms of the amount of money involved if we consider today’s value of BTC. It is also one of the earliest big-profile scams, which raised awareness among the crypto community regarding the risks of scams and Ponzi schemes in crypto. Even Charlie Lee, known as the creator of Litecoin, was a victim of Bitcoin Savings and Trust.
Charlie Lee, the creator of Litecoin, also fell for Shavers’s Ponzi scheme. The Bitcoin Savings and Trust was instrumental for reaching a higher level of awareness for scams in crypto.
While there have been other scams that are around the same ballpark as this one in terms of money, the Centra Tech exit scam gains relevance over the others due to the support from celebrities and the increased exposure that is associated with it. Back in October of 2017, Centra Tech had finished its ICO for its Centra (CTR) token, raising $32M in 2017 prices. One of the main selling points of Centra was that it had purportedly struck deals with established financial institutions such as Visa, Mastercard, and The Bancorp, which would have allowed traders to use their app, wallet, and proprietary Centra debit card to exchange cryptocurrencies and use them anywhere Visa and Mastercard were accepted.
As part of the promotional campaign, Centra worked out endorsement deals with celebrities Floyd Mayweather and DJ Khaled, who took to social media to recommend the debit card in September of 2017. DJ Khaled posted his endorsement on Instagram while Mayweather did it on Twitter, both at the time had roughly 7.5M followers.
Former boxer Floyd Mayweather and rapper DJ Khaled endorsed the fraudulent Centra Card on social media.
However, things came crashing down on April of 2018 when the SEC filed a complaint against Sohrab Sharma, Robert Farkas and Raymond Trapani, co-founders of Centra Tech, for orchestrating a fraudulent initial coin offering. In the complaint, it is revealed that the ICO was illegal as it was not previously registered with the regulator, that the relationship with the payment companies were nonexistent, and that the team had created created multiple fake people to be part of the Centra Tech team.
This would also mean trouble for the celebrities involved. According to a SEC press release, Khaled and Mayweather did not disclose that they were paid $50,000 and $100,000 respectively for promoting Centra. They were respectively fined more than $150,000 and $600,000 for their involvement, but later reports indicate that they escaped the lawsuit. Still, the Centra Tech controversy taught a valuable lesson to celebrities: to get thoroughly acquainted with a company before doing any endorsement deals.
At press time, all three co-founders of Centra Tech are incarcerated, and the operation was shut down by the SEC.
Rather than a specific company, this scam is linked to a specific individual and the multiple crypto-related startups he established. The list includes online retailer HighKart; mining companies Amaze Mining & Blockchain Research, GBMiners, and AmazeMiners; Bitcoin wallet CoinBank; and cloud-mining service GainBitcoin. According to reports, GainBitcoin, founded back in 2013, was a service that supposedly guaranteed a 10% monthly return within 18 months of the user’s investment, but in reality, it was yet another Ponzi scheme. The problems started when people wanted to withdraw their money, only to realize that they could only take it in MCAP tokens (GainBitcoin’s proprietary token) instead of BTC. According to Cointelegraph, the MCAP token price was often manipulated in order to have an artificially high value. At the time of its $44M ICO, each MCAP token was valued at $4, now, they’re valued at $0.0046. This led to the arrest of Amit Bhardwaj, his brother Vivek and two software developers on Apr. 4, 2018, for running a $300M Ponzi scheme.
However, that would prove to be only the tip of the iceberg. According to local reports, a plethora of investors noted to have been scammed by Amit Bhardwaj and his startups and notified the authorities after the arrest, with the total tally of affected investors surpassing 100. According to the Pune Mirror, the investigators of the case believe that the scam has affected roughly 90 countries, and that in total, it could equate to roughly $5.07 Billion. Earlier in the year, the Bhardwaj brothers received an interim bail, though for Amit it was for medical reasons.
All the bad press and scam reports have affected the landscape of crypto in India. After all, personalities such as Amit Bhardwaj played an important role in “introducing Bitcoin” to investors in India.
Amit Bhardwaj was important in popularizing cryptocurrencies in India, though this reputation would be tainted after the Ponzi scheme behind GainBitcoin was revealed
One of the biggest exit scams ever in crypto was the result of two simultaneous ICOs orchestrated by the same company, Modern Tech. The Vietnam-based company would launch their ICO for Pincoin in 2017. Pincoin was an Ethereum-based token from an alleged startup from Dubai, for an advertising network that promised 40% returns to investors. Modern Tech even held conferences in different cities to lure investors, in which they’d promise a 48% profit rate after a month and full return of their investments in just 4 months. Another one of the tactics the company used to draw more investors was the referral program, proper to pyramid schemes, in which investors received an 8% commission bonus for the people they brought in. Pincoin investors began receiving cash returns for their investments, and later in January 2018, when the iFan ICO was released, investors began to receive rewards in the form of iFan tokens.
iFan was a social media platform meant for celebrities to sell merchandise and connect with fans, serving as a method of payment between artists and their fans. After people stopped receiving their returns in cash, red flags were raised among investors and the media and attention was drawn to the company. In February 2018, financial scam directory Behindmlm released an analysis stating Modern Tech had all the characteristics of a Ponzi scheme.
After several reports accusing Modern Tech to be a scam, the company went silent and on Apr. 8, 2018 investors held signs and protested outside the offices demanding their money back, with no response. Modern Tech’s office building owner stated that the office had been vacated a month earlier in March, and that no one knew where the company was located now.
Victims of Modern Tech’s scam protest outside the offices in Ho Chi Minh on Apr. 8, 2018.
The Bitconnect scandal is so famous (or infamous, rather) that it inadvertently introduced cryptocurrencies to many internet users who stumbled upon Carlos Mato’s unforgettable speech at Bitconnect’s annual ceremony. Launched in 2016, Bitconnect was an exchange and lending platform where people sent their BTC in exchange for Bitconnect Coin (BCC), which supposedly yielded investors massive gains. Its lending platform worked under a tiered system where people would benefit from daily interest rates depending on the amount of BCC tokens they lent, which could only be bought in the Bitconnect exchange by using Bitcoin. This drove the price of BCC all the way up to almost $450, and it quickly became a top 10 coin in terms of market cap.
The red flags of a Ponzi scheme were there from the start, yet many traders decided to give in to the hype despite the lack of transparency as to how Bitconnect really worked. All the buzz from Bitconnect possibly being a Ponzi scheme led to its eventual demise—in January of 2018, it received cease and desist orders from Texas and North Carolina regulators, which signified the end of the exchange. Back in August of 2018, Divyesh Darji, who has said that he was the India head of Bitconnect, was arrested due to his involvement in Bitconnect and another scam, called Regal Coin. Latest reports indicate that, after a bail release in May, he was on the run.
The effect was immediate. In a matter of days, the token would see an almost 90% drop in value, to the dismay of traders who invested in the scam. Soon after, its value was below $1. Since then, a Twitter profile for Bitconnect 2.0 surfaced along a short-lived website with a countdown, pointing at a July 2019 release. However, the coin has remained below the $1 mark, and at press time the coin is not listed anywhere.
A screenshot of the Bitconnect subreddit days after Bitconnect was shut down, featuring posts of suicide hotlines.
According to the FBI, the amount of money that people lost to Bitconnect is hard to determine, but traders reportedly lost between $2.5B to $3.5B, making it one of the biggest and the most famous scam in crypto.
OneCoin is a marketing company launched in 2014 that aims to “simplify and demystify” digital currency by providing educational tools in their e-learning platform. Throughout the years, various claims have been made regarding OneCoin and its operations as a multi-level marketing Ponzi scheme. Despite this, the company is still operating to this day. Essentially, OneCoin is a platform where investors buy educational packages which contain lessons about finance and trading, along with tokens which can supposedly be used for mining or exchanged for fiat. However, time proved that these tokens were largely unusable. Thanks to the purchase of these packages by new users, existing users receive their pay—the definition of a Ponzi scheme.
As Cointelegraph reports, its directory members have been involved in past scams. The leader of OneCoin, Konstantin Ignatov, was arrested on Mar. 6, 2019 for charges of wire fraud conspiracy, while his sister, Ruja Ignatova, was indicted with three separate charges, including wire fraud and money laundering. She had been previously arrested for similar charges. He is facing up to 20 years in prison, and he recently had his bond application denied.
Most notably, OneCoin is not listed on any exchange, except for its own xcoinx exchange, which is supposed to work 24/7 even though is currently “under maintenance”. There’s no actual proof of mining, and it is believed that “mining” is actually just creating coins and putting them into a wallet, without proof of an underlying blockchain.
According to prosecutors of an ongoing lawsuit, OneCoin generated $3.8B in revenue from 2014 to 2016, and their token went from $0.56 to $33.60, even though it doesn’t have a real value as it can’t be used.
Konstantin Ignatov, leader of OneCoin, is currently facing up to 20 years in prison for charges of wire fraud.
For a complex and ever-developing world such as cryptocurrencies, the word “big” has multiple meanings. Exit Scams such as Centra Tech pale in comparison to scams that raked hundreds of thousands or even billions of dollars, and they’re certainly not the only cryptocurrency project that has been backed by a celebrity, but they were one of the most notorious by paying well-established celebrities to publicly endorse a product, thereby showing the world of crypto to millions of sports and music fans. Likewise, a scam such as Bitcoin Savings and Trust can’t compare to the amount of money that Bitconnect or Bhardwaj’s products scammed out of its users’ pockets, but it is still significant to this day, since many long-time traders wisened up and learned from their rookie mistakes back when this scam blew up in 2012.
However, given this year’s bull run in crypto and the recent exposure from things such as Facebook’s Libra or Donald Trump’s tweets, many users from all around the world are only beginning to learn about crypto, which is an incentive for scammers. This could potentially lead to a new scam that could very well be a contender in this list, which is why traders, both learners and experienced, should pay special attention to any suspicious project. The golden rule will always apply in cases like these: “if something is too good to be true, it probably isn’t.”
Thanks for reading, The COIN360 Editorial Team