Fake-Crypto Ponzi Scheme Perpetrators Laundered More Than $1 Billion: US Prosecutors

The alleged orchestrators of a Ponzi scheme based on “OneCoin,” a fictional cryptocurrency, laundered $1.3billion in stolen investments through banks and sham investment funds in Ireland, Dubai and at least 20 other jurisdictions, according to the U.S. Justice Department.

On Friday, federal prosecutors in Manhattan disclosed wire-fraud and money-laundering charges against the scheme’s alleged leader, 33-year-old Bulgarian national Konstantin Ignatov, two days after he was arrested at Los Angeles International Airport following a meeting with OneCoin promoters at a casino in Las Vegas.

According to a 32-page criminal complaint, the OneCoin scheme began in Sofia, Bulgaria in 2014 with the goal of siphoning funds from investors by promising them access to cryptocurrency “mining servers” in Bulgaria and Hong Kong.

OneCoin also promised greater returns for clients who recruited new investors into the scheme. Ignatov’s sister, Ruja Ignatova, 38, was also charged Friday for helping run OneCoin from its inception in 2014 until ceding control in October 2017. Her brother had allegedly taken control of the scheme by the following
summer.

Investors were led to believe via a fraudulent website run by the alleged perpetrators that their “shares” in OneCoin had risen in value from less than €1 in January 2015 to roughly $33 by January of this year. Ignatov, Ignatova and their alleged co-conspirators also payed limited returns to early investors to keep them
onboard, prosecutors said.

The Ponzi scheme grew to €3.3 billion over the two years leading up to December 2016 despite shares in OneCoin never trading on a public exchange. Victims purchased “trader packages” by wiring funds to accounts controlled by OneCoin Ltd., one of four corporate entities used by the alleged conspirators, or by
paying those who had already invested.

Bank accounts were opened by the conspirators in more than 20 jurisdictions, including Bulgaria, the United Arab Emirates, Hong Kong, Singapore, Germany, Georgia, the United Kingdom, Tanzania and the United States.

The case places among the largest cryptocurrency-related investigations ever disclosed but still relied on mainstream channels of the global financial system to move and launder the proceeds, according to Robert Whitaker, a former federal investigator.

OneCoin’s lack of a blockchain—a public record that displays and is used to verify Bitcoin and other cryptocurrency transactions in real-time—perhaps represented the largest red flag for potential investors, Whitaker, now a consultant with Blockchain Intelligence Group in Austin, Texas, said. “It’s an old scam with new money,” Whitaker said. “Crypto was the promised vehicle, but the money was fiat, and fiat is still the money launderer’s number-one dream.”

U.S. investors were responsible for just $56 million, or 3 percent, of OneCoin’s total investments in the two years’ worth of financial records reviewed by investigators. Sixty percent of the firm’s investments during that time frame originated from China, while 18 percent came from European investors.

Prosecutors did not identify where all the proceeds bilked from OneCoin victims eventually terminated, but claimed $207 million flowed through “a series of bank accounts” before arriving at an investment fund in Ireland. The Irish fund then wired the entire sum in 11 installments to another investment firm, this time based in the UAE.

A “purported investment fund manager” opened the second fund, and vaguely described its business model as “investment in retail trade enterprises in management” during the onboarding process.

Prosecutors did not name the bank that agreed to open the account, but said that the onboarding documents associated with the investment fund do not mention any ties to OneCoin and falsely describe the Irish firm as a “major client.”

“The Ireland fund was not a client of the UAE investment fund,” prosecutors wrote in the complaint. “In fact, the Ireland fund was being used to launder OneCoin fraud proceeds.”

Prosecutors also accused 50-year-old Florida attorney Mark Scott with helping launder $400 million in fraudulent OneCoin proceeds through investment funds with bank accounts in the Cayman Islands and Ireland, but did not indicate whether he facilitated the transfers from the Irish fund to the fund in Dubai.

The complaint against Ignatov briefly refers to ongoing investigations in Germany and Bulgaria, but, according to an individual familiar with the case, OneCoin triggered probes in several other nations as well.

Suspects in those investigations may seek to obscure their assets even further now that U.S. prosecutions have been announced, the individual said on condition of anonymity.

“We’re all angry at New York for popping this right now,” he said. “They caught some top dogs [but] I don’tknow that they caught everybody.”

Calls and emails to the U.S. Attorney’s Office for the Southern District of New York were not returned by press time.

Contact Daniel Bethencourt at [email protected]