OneCoin co-founder pleads guilty to $4B fraud
theregister.com
theregister.com
People who think that all crypto is worthless may be confused by this. The actual reason was far more silly. They blatantly admitted to the scam in writing making it an open and shut case:
> OneCoin was a multi-level marketing (MLM) pyramid scheme
> As Ignatova allegedly put it in an email to Greenwood, "We are not mining actually – but telling people shit."
> OneCoin's value, according to the Feds, was simply set by those managing the company – they manipulated the OneCoin exchange to simulate trading volatility but the price of OneCoin always closed higher than it opened.
> Ignatova allegedly told Greenwood that one of the goals for the OneCoin trade exchange was "always close on a high price end of day open day with high price, build confidence – better manipulation so they are happy
> Email correspondence between Greenwood and Ignatova, as cited by the Justice Department, describes how the defendants referred to OneCoin privately as "trashy coin." And in an August 9, 2014 email exchange with Greenwood, Ignatova's first option on a list of possible exit strategies is said to have been, "Take the money and run and blame someone else for this…"
It's sad that the only reason this case was prosecuted is because the founders were stupid enough to admit to fraud in writing. How many blatant scams are out there where the founders are using purely euphemistic language & making sure to have short data retention periods (~1 yr is standard in businesses).
Wait so crypto is only worthless if you prescribe it worthlessness in writing first?
There wasn’t any cryptocurrency in OneCoin. They didn’t even literally have any cryptocurrency. It was all completely 100% MLM.
That’s different from, say, BitConnect, that was a MLM with some sort of cryptocurrency. Or of course all the “DeFi” that’s MLM but with more steps.
But yeah OneCoin had literally nothing to do with any cryptocurrency. They said they are planning one one day.
A good definition for "real" cryptocurrency is whether or not it's possible for it to be banned.
Yes? I am assuming you are either not very technical, or do not know a lot about how cryptocurrencies work.
Disclaimer: I am not a proponent of cryptocurrency, I don't own any cryptocurrency, and I am only arguing the technical issue.
If you're talking about banning the hardware, it's probably possible to essentially stop the production and sale of ASIC miners since they have no other purpose, but that's only one type of hardware. People would still be able to use regular CPUs and GPUs to mine.
If you're talking about completely banning the participation in a blockchain, this would be impossible to detect as long as the traffic is encrypted -- if you constantly look for IP addresses and keep a blocklist up to date, you could essentially null-route them (breaking DNS is not enough).
If you do all of the above, which is a lot of work and already completely untenable to sort out on an international level, you still haven't solved the issue of darknets, like Tor or any similar solution.
Take the Silk Road for example, probably one of the most famous darkweb marketplaces for illicit drugs ever. We can only guess how much money and time the FBI spent building a case, and even when they managed to find him by bending every opsec weakness they could find, they still had to ambush him in a library and catch him with his laptop unlocked.
My point here is that nobody claims darknets will protect you completely, but it raises the bar immensely for the amount of necessary work to catch you. If blockchains (currencies) were made illegal globally, it's a pretty safe bet this would accelerate technology for doing the exact same things as before, just in an anonymized fashion.
Then what? Do you illegalize writing code that facilitates cryptocurrency? Illegalize darknets?
Just saying "make it illegal" is naive. It chooses to ignore the massive violations of our rights that would have to be made to not even succeed, but create the appearance of succeeding.
If you have a concrete proposal on how it would be technically possible to ban miners and exchanges, without also banning encryption and anonymity online, I'm listening.
Any system that uses decentralized verification to wrap trading deals is DeFi.
The core quality of a MLM is that early adopters benefit more, which is totally unrelated.
Monero/XMR kind-of-sort-of falls into the second category, with "fresh" coin minting being a part of the mining process, although probably not at a rate that outpaces regular rot/deflation.
the mindset of securities trade, even when they have some external utility, will always be "getting in before it gets big". this is the idea behind essentially all analytical stock trading, yet the NYSE never seems to get called a ponzi scheme.
> It's sad that the only reason this case was prosecuted is because the founders were stupid enough to admit to fraud in writing.
A prosecutor worth their salt will never have one damning piece of evidence. They got a warrant to get access to their suspects emails and electronic files based on other evidence sent to a judge.
Incriminating files and emails don't necessarily exist when smart people who see each other in person all the time do crime.
We can't even say that its price crashed, because there was never a market for it. It's closer to Madoff's securities than it is to, say, Terra.
I'm all for hating on cryptocurrencies, but this doesn't even qualify as one.
https://coingeek.com/sam-bankman-fried-reveals-how-defi-work...
https://www.nytimes.com/2018/02/02/your-money/stock-market-a...
The common case these days is to keep a company private for as long as possible, relying on private investment to grow huge. Only once you've maxed out rapid growth do you go public. Rather than going public being something you do to raise capital and keep growing, it's primarily something you do cash out and dump your shares on the plebs who are left holding the bag on a stalled out or even potentially a dying company. As in the off hour trading, insiders and rich people capture most of the gains.
This is why actively trading to try to beat the market as a part time hustle is purely a suckers game. The game is entirely rigged against retail traders.
Regulation protects retail from making money as much as it protects retail from loosing money.
That's a bizarre claim. If I buy and hold for weeks/months/years, no alpha was sucked from me.
If I day-trade, well, I get what I deserve if I have no edge or don't understand how the market works.
And extended hours trading has minimal liquidity, just because AAPL jumped 10% in after hours doesn't mean someone made billions entering/exiting during this interval, because it's just the market makers repricing minimal volumes.
“Simply holding shares while you sleep will do it. So for buy-and-hold investors, these findings are particularly encouraging: Get your rest, ignore the temptation to trade and you can do just fine.”
Its worse than that, they didn't issue a cryptocurrency at all. They didn't deliver the product they said they were giving people, thats the reason this is fraud.
All they had to do was create any token on any blockchain - including a new blockchain - and didn't.
Our entire society is running on scams where nobody writes anything down, and any inadvertent records are destroyed through very short retention policies. I worked at an agency whose primary reason for revising a data retention policy was to keep things hidden that FOIA requests threatened to reveal. While that goal was mentioned constantly, it was never put in email or any meeting minutes.
But alas, the mainstream is busy buying into Bitconnect, Onecoin, Potcoin, PonziCoin (yes, that was a real coin and people lost money when the operator - you won't believe this now - exit scammed them and ran off with the money). And trades them on FTX.
How do you solve this problem? Checks and balances and strong institutions that actively work to remove moral hazards from society AND themselves. Sure, if you weaken institutions and then claim they’re ineffective, you’re just creating self-fulfilling prophecies. In a well-designed system, you don’t need to audit the auditors. Make sure that the auditors are secret and that randomly chosen (ie there’s no incentive to collude with the entity being audited). Provide strong incentives (training, compensatory, social, rewards) and protection (ie people with power going after them / their reputation) for both rooting out corruption/scams and that when they say a business isn’t a scam then it’s most likely not (eg clawbacks on money, prestige, recognition, etc).
Additionally, the FBI, IRS and other state and federal law enforcement agencies should be proactively auditing the largest businesses OR outsourcing to very trusted auditors (ie ones for whom the cancellation of the contract would be a death sentence which is easy to enforce by requiring that 100% of revenue for the outsourced agency comes from the federal government and there’s N such agencies that all split the pie so that if one fails and gets corrupt the others take over (the FBI is authorized to have wiretaps and secretly monitor the auditors to ensure there’s no kind of collusion communication happening between auditing agencies (ie we allow leadership in these trusted position to require that you give up more of your rights to be in it and we publish job-relevant details from ~5 years ago without any FOIA battles allowed - only personal details can be omitted and only on-the job details are revealed so no marital secrets). Additionally, anyone caught leaking or losing these records before they are released to the public is punished by getting fired and criminal charges being mandatory. If an audit of the FBI reveals the director is asleep / didn’t properly establish best practices to keep the data in control, the president fires them.
Anyway these are all obvious wildly radical ideas and not necessarily possible to implement due to various laws / there may be flaws in the specific details. My overall point still stands. It’s fraud because we let it exist, not because it’s impossible due to human nature / the way society works.
It was in reply to the above comment saying our entire society is run on scams, which is true. We can start cleaning it up from the top, which is the smart way to go about it instead of tilting at legal windmills. In the current system, you're more likely to get caught and punished as a petty criminal than someone who siphons off millions. Yes, some fraud will always be possible in free societies but it doesn't have to be the way it currently works. More transparency and better record keeping are a positive thing. Even if we take your example of someone inputting wrong data, they're more likely to be found than if there is no data at all and thus nothing to scrutinize. People who falsify data make mistakes just like anyone does.
It's precisely because crypto is worthless that where ever crypto is, there is only scams.
People point to FTX and say "see it's not crypto that's the cause, it's classic corruption!" but that misses the point critics of crypto are making.
Because crypto has no real practical value, its only function is as a tool for traditional scams and corruption.
Critics of crypto generally don't believe that crypto itself is a tool that creates fraud, but because it is a useless tool, when you see it being "used" what you must be seeing is fraud.
We've seen this borne out over and over again.
I think it is more likely that she bought a new look and identity as a rich widow and is living the life.
However, on a different level... how is this really any different from all the cryptocurrencies that are also only co-opting the language of cryptocurrencies to push a scam, but that go the extra mile to make the grift realistic by creating a cryptocurrency in the process?
Think of, for example, Helium, which goes as far as to have a realistic-sounding business model behind it (it certainly fooled me) but in practice is just funnelling money from investors into their pump-and-dump shitcoin, and from miners into their expensive certified devices that they take a cut from.
Is Helium any less of a scam, or did they just put more effort into their scam?
Also (as per usual) The Register includes this tongue-in-cheek comment
"For information that leads to her [Dr. Ruja Ignatova's] arrest, the US Federal Bureau of Investigation is offering a reward of $100,000 – in fiat currency".
Also worthwhile taking a read of the (linked in article ) links to
https://www.justice.gov/usao-sdny/pr/co-founder-multi-billio...
And
https://www.justice.gov/usao-sdny/press-release/file/1558436...
I've really enjoyed Coffeezilla's YouTube account [1] that does in-depth investigations of them, and Molly White's site [2] that tracks the scams + aggregate total losses (>$12B)
[1] On Tether: https://www.youtube.com/watch?v=W4OdvcCfQlY
The developer also alluded to getting shot, if I recall correctly, an incident that the podcast did not explain or return to. The whole thing was a scam thunk up by smart but criminal MLM pros whose success had clearly already attracted the attention and involvement of Eastern European organized crime.
"In fact, OneCoins were entirely worthless"
What, the other imaginary digital currencies were somehow more 'real' and were not entirely worthless? That's a curious stance.
IIRC, it was basically just a website where you could purchase OneCoins - and your account would show a balance. If you tried to withdraw funds, you'd get stuck in some limbo.
Like most MLM scams, they targeted people with extremely little knowledge. One hallmark of these scams, from that period, shared the aesthetics and strategy of old-school MLM scams: Hold some lavish show at the local conference room/hall, trick all the villagers and rural folks to these shows, and shower them in big hopes and dreams. Parade some successful "early investor" at the shows, wearing expensive suit and arriving in a rented lambo. Make him/her tell the crowd some emotional testimony on how to turn $1k into $1M, how it transformed their life.
The person is of course not some early investor, but an accomplice.
That's how these people went about it. They trawled countries in Asia, East-Europe, South America, etc. and went straight for the life savings of uninformed and naïve country folk.
It should also be mentioned that many of the scammers around that time came directly from the previous MLM scams. Sometimes they changed their names, often times they all knew each others. Think of it as some kind of grifters network that spanned across EU and North-America. Before Crypto they were shilling BS membership programs, MLM products, timesharing flats, consumer product subscriptions, and what not.
I also know a lot more people who use cocaine (in any form) recreationally than are addicts.
> most people eventually end up in rehab or dead from an overdose
This is factually false. I think perhaps you are going off of selection set/survivorship bias. A lot of people have smoked crack. A minority of them destroyed their lives as a result.
I'm not sure this comparison holds up.
[1] https://www.michiganpsychologicalassociation.org/index.php?o...
I can also believe that the absolute numbers of a victims of using drugs, alcohol, smoking is very high and so are the direct and collateral damage costs to society.
But is that relevant to the discussion in any way?
You can't snort crack, you can't IV crack. You can only smoke crack, the onset is super fast and doesn't encourage you to rapidly redose. Dosage tends to be limited by your lung capacity.
Maybe with some very impressive lung capacity?
It's easy to overdose on Cocaine HCl using any of the popular RoAs. Insufflated, the onset is very slow, enabling you to take way too much before you actually start to feel the effects. Intravenously, your dosage is not limited by your lung capacity as it would be while smoking crack.