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Belgium’s FSMA Blacklists More Crypto Investment Businesses Following Customer Complaints

Belgium’s Financial Services and Markets Authority (FSMA), a body mandated with the oversight and regulation of the nation’s financial services sector, has opted to add more crypto investment businesses to its blacklist for fraudulent activities. According to an official announcement, this decision was sparked by new cries aired by customers about cryptocurrency investment offers meant to swindle them.

Avoid enticing promises

The FSMA noted that victims of cryptocurrency fraud had risen at an alarming rate in Belgium, and this necessitated amicable measures. Nevertheless, it warned people against falling prey to crypto fraudsters as they usually claim to present offers that are easy, secure, and very lucrative. FSMA stated that this should be the first red-flag to show potential customers that the crypto investment is a scam.

FSMA acknowledged, “They try to inspire confidence by assuring you that you don’t need to be an expert in cryptocurrencies in order to invest in them. They claim to have specialists who will manage your investments for you. You are told that your funds can be withdrawn at any time or that they are guaranteed.”

Customers were, therefore, cautioned against joining such enticing offers because the ultimate result is usually the same as victims are not able to recover their money.

Crypto fraud is alarming

According to a report by CipherTrace, a blockchain forensics company, the cryptocurrency sector lost a whopping $4.4 billion in scams and thefts in 2019, up by more than 150 percent from $1.7 billion in 2018.

For instance, in 2019, Corner Up, a Ponzi scheme disguised as a crypto platform in South Korea, had its high-ranking staff indicted for multiple cases of fraud in the market. Corner Up managed to acquire over $380 million for the CEO and other company staff as it was promising estimated returns of up to 200 percent to investors for each investment made.

The FSMA, therefore, ascertains that whenever very lucrative crypto investment offers are presented, there is more than meets the eye because this is a gimmick used by fraudsters.

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CipherTrace Reveals $1.4 Billion Worth of Crypto Assets Stolen in the First Five Months of 2020

The world is gradually healing from the compulsory lockdown it was plunged into by the coronavirus pandemic. Businesses are beginning to open, borders are gradually opening and the market value of stocks and cryptocurrencies are hopeful for steady gains onwards.

Several businesses particularly those geared towards blockchain technology experienced quantifiable economic downturns. Some of these downturns are just coming to limelight with the CipherTrace reports released on June 2.

The CipherTrace Report

CipherTrace is a cryptocurrency intelligence platform with the capability of tracing about 800 digital currencies. The platform has algorithms that help monitor thefts and security compliance models in listed assets. With the company’s stride, it is helping to spread a widespread adoption of cryptocurrencies by world governments.

Built for cryptocurrency surveillance, the report released by CipherTrace gives a snapshot of how evil actors preyed on asset holders during the coronavirus lockdown. With losses estimated at about $1.4 Billion, this year may rank second to last year (2019) with a record of $4.5 Billion in crypto losses. The fraud came as a result of the impersonation of legitimate bodies fighting the coronavirus and soliciting funds from the public.

The implication for blockchain stakeholders

There is a general belief that assets in the form of cryptocurrencies are secure and free of theft. While this may be a newbie’s disposition to the nature of digital assets, there needs to be a clear cut analysis to help all understand what can compromise the safety of crypto assets.

Fraudsters most times capitalize on the lack of knowledge of their victims who part with their assets in ways they can not account for. Falling prey to phishing scams, and Ponzi schemes are some of the common ways people lose their digital assets. We can not declare digital assets invincible but crypto assets will be safe if all investors pay due diligence to extant safety and security precautions.

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Crypto Escrow Company Promises Bitcoin, Pleads Guilty to Defrauding Client Over $3 Million

The US District Court of The Southern District Of New York announced that Jon Barry Thompson, the principal of Volantis Market Making cryptocurrency escrow company, has pleaded guilty for allegedly conning a company out of $3.25 million.

The company transferred over $3 million to Thompson for the purchase of Bitcoins, which the victim said he never received. In the U.S district court, the U.S Commodities Futures Trading Commission (CTFC) charged Jon Barry Thompson, a 49-year-old Pennsylvania man, with commodities fraud.

Defrauding Clients Using False Claims

Holding huge sums of cryptocurrency is risky for individuals who are less competent in “private key management,” which is the safe storage of the strings of code that represent and can unlock cryptocurrency balances. Thompson promised to provide secure escrow services by holding client money and safely storing the crypto assets purchased by customers on their behalf.

According to an official statement from the United States Department of Justice (DOJ), Thompson stated that his cryptocurrency escrow company, Volantis Market Making LCC, minimized settlement default risk in crypto transactions. Thompsons further said that since Volantis acted as custodian of assets for both sides of the transactions, there were no risks of default.

In June and July 2018, Thompson made false statements to an undisclosed company from which he solicited over $3 million to make “no risk” Bitcoin purchases through a third-party firm.

Thompson falsely assured the company that Volantis would act as an escrow and that company’s money could not be lost.

In particular, Thompsons told the company that the transaction would be settled through an “atomic swap process” after Volantis had custody of both the Bitcoin and the company’s cash.

Based on these fraudulent claims, the company wired $3.25 million to Thompson.

Thompson then wired over $3 million of the company’s money to a third-party firm without first receiving any of the Bitcoin in hand. After taking the company’s money, Thompson lied about the status of the company’s Bitcoin and funds, which were never returned.

Thompson pled guilty to one count of commodities fraud, which carries a maximum term of 10 years in prison. He will face sentencing on January 7, 2021.

Ernst & Young Trustee Outline Options for Compensating QuadrigaCX Victims

Ernst & Young (EY), the trustee of the defunct Canadian cryptocurrency exchange QuadrigaCX, filed a report with the Ontario Superior Court of Justice. The Big Four accounting firm disclosed that it has an estimate of $29.8 million to pay the claimants who held assets on the exchange. However, it has stated that has received 17,053 claims from the clients who had entrusted their crypto assets and funds to QuadrigaCX.

Furthermore, EY said that the entire claims worth about $171 million, and such claims include almost $90.2 million in Canadian dollars, over $6 million worth of fiat US dollar, and also cryptocurrencies worth the following amounts: 24,427 Bitcoin (BTC), 65,457 Ethereum (ETH), 7,723 Bitcoin Cash (BCH), 87,031 Litecoin (LTC), 7,723 Bitcoin Cash (BCH), 7,098 Bitcoin SV (BSV), and 17,934 Bitcoin Gold (BTG).

EY further acknowledged that Gerald Cotten, QuadrigaCX’s founder and CEO, traded using funds of his 76,000 customers and thus contributed to the mismatch between liabilities and assets. EY said:

“Mr. Cotten proceeded to trade these account balances with Affected Users that had deposited real assets, as such, Quadriga’s assets likely never matched the liabilities owed to Affected Users.”

Moreover, EY revealed that so far it has recovered $29.8 million through selling properties from Cotten’s estate, the settlement agreement reached with Cotton’s widow who handed over most of Cotten’s assets, and recovering funds for Crypto Capital Corp, a shadow third-party payments company used by QuadrigaCX exchange.

The trustee’s plan is to convert all assets into the Canadian dollar and allocate funds to customers based on crypto prices from either April 15, 2019 (when QuadrigaCX exchange declared bankrupt, or February 5, 2019 when clients were blocked from accessing their funds at the crypto exchange.

EY, therefore, has requested the court to determine the date that would be used for the conversion rate. The trustee has also asked the court not only to deal with affected customers in the same way but also to process claims with minor errors as they are. The report shows that some claim forms had minor errors, including wrong account numbers and no witnesses or signatures. Since about 30% of the forms have defects, EY suggests the court to accept them and continue processing refunds. The trustee thinks that following up and fixing defective forms would be quite costly and time-consuming.

Fraud Caused QuadrigaCX’s Collapse

Gerald Cotten founded QuadrigaCX cryptocurrency exchange in 2013, and the company grew to become one of the largest exchanges in Canada. The firm was already facing liquidity issues before Cotten’s death. Employees were unable to access or locate most of the crypto assets after Cotten met his death in December 2018.

Credit monitor Ernst & Young conducted investigations and identified that the exchange had flawed financial reporting and found that Cotten had transferred significant volumes of cryptocurrencies to personal accounts. EY also found that losses from trading in those accounts affected the company’s reserves, while Cotten created fake accounts on the exchange to inflate revenue figures.

UK Regulator FCA Places 50 Crypto Firms Under Investigation

The Financial Conduct Authority (FCA), the United Kingdom’s apex market regulator, is taking a proactive approach to curbing scams as they are inherent in the fast-growing crypto world.

Per a report published by the regulator, as many as 16,400 inquiries were received on its ScamSmart website in the six months leading to September 2021.

Of these received reports, a total of 4,300 were explicitly related to cryptocurrency-focused scams, with as many as 300 specifically linked to crypto-focused firms. The FCA has reportedly opened active investigations into these indicted companies, re-enacting the regulatory crackdown at a time when it seems the world is distracted by the ongoing war between Russia and Ukraine.

The investigations on these crypto outfits have sparked live investigations and criminal probs into these firms. The FCA has maintained a very proactive measure with respect to bringing sanity and legitimacy. It will protect every member of the society when it comes to the entirely encroaching, but innovative blockchain industry.

While known to have granted exchanges like CEX.io the license to operate in the country, the regulator has also made a lot of headlines last year with its crackdown on Binance, the world’s largest trading firm.

While the jurisdictional powers of the FCA are limited to preventing unregistered exchanges from operating while ensuring the licensed ones adhere to Anti Money Laundering (AML) provisions, it has often maintained the main focus of protecting members of the public from potential scams in the crypto and broader market ecosystem.

“Consumers need to have confidence when making investment decisions and the data we’ve published today shows how prevalent scams can be,” said Sarah Pritchard, executive director, markets, FCA, “Before investing, check you know who you are really dealing with, check if they are authorised by the FCA and do your research to understand the risks that might be posed.”

Seoul Prosecutors Probe Crypto Fraud at Delio, Haru, Pica, and WeMade

The Seoul Southern District Prosecutor’s Office has launched an investigation into three cases of alleged cryptocurrency fraud, according to a report by Hankyung on July 27, 2023. The newly formed joint investigation team for cryptocurrency crimes, which was established on July 26, 2023, is spearheading the investigation.

The cases under investigation involve Delio and Haru Invest, Pica Project, and WeMade, all of which are suspected of fraudulent activities related to their management. The joint investigation team has taken over these cases from the Financial Investigation 1 Department of the Southern District Prosecutor’s Office.

WeMade, the issuer of the virtual asset WEMIX, has been under scrutiny since 2021 due to various controversies. The company had previously faced criticism for liquidating KRW 225.5 billion worth of WEMIX without notifying users between November 2020 and January 2022. This led to a significant controversy and highlighted the importance of regulatory disclosure in the virtual asset market.

Haru Invest, a Singapore-based crypto investment manager, faced a crisis when CEO Hugo Lee had to apologize to its members for concerns arising from a recent incident. The company had to halt interest payments to all users and cooperate fully with authorities in response to legal actions initiated against it. The company had previously suspended withdrawals and deposits on the platform due to increased market volatility.

Delio, one of South Korea’s largest cryptocurrency lending companies, also faced a crisis when it had to halt interest payments to users. The company’s operations were in doubt after prosecutors raided the company following a fraud lawsuit filed by Delio clients. The company had previously suspended withdrawals and deposits on the platform, and it was reported that Delio withdrew KRW 9.24 billion (US$7.2 million) worth of its crypto holdings to three anonymous external wallets not disclosed by the company or the executives.

The investigation team, which includes most of the prosecutors from the Financial Investigation 1 Department, including Deputy Chief Prosecutor Gino Sung, who previously led the investigation into cryptocurrency malpractices, is expected to expedite the processing of these cases.

In addition, the case involving independent lawmaker Kim Nam-guk’s alleged large-scale coin holdings continues to be investigated by the Criminal 6 Department. However, as some of Kim’s allegations are linked to WeMade’s suspected illegal market-making, a joint investigation with the joint investigation team seems inevitable.

SEC Freezes Assets of DEBT Box in $50 Million Crypto Fraud Case

The U.S. Securities and Exchange Commission (SEC) has obtained a temporary asset freeze, restraining order, and other emergency relief against Digital Licensing Inc., a Utah-based entity operating as “DEBT Box,” along with its four principals and 13 other defendants. The action is in connection with an alleged fraudulent scheme involving the sale of crypto asset securities, as announced in a press release dated July 28, 2023.

According to the SEC’s complaint, unsealed in the U.S. District Court for the District of Utah, the defendants have been engaged in an ongoing scheme since March 2021 to sell unregistered securities referred to as “node licenses.” Through various online videos, social media posts, and investor events, DEBT Box and its principals claimed that these licenses would generate crypto asset tokens via crypto mining activity, and that revenue-generating businesses in different sectors would drive the value of the tokens, resulting in significant gains for investors.

The SEC alleges that the “node licenses” were a sham, created by DEBT Box instantaneously using code on a blockchain, and that the company and its principals lied about virtually every material aspect of their unregistered offering. The complaint states, “We allege that DEBT Box and its principals lied to investors about virtually every material aspect of their unregistered offering of securities, including by falsely stating that they were engaged in crypto asset mining,” as per Tracy S. Combs, Director of the SEC’s Salt Lake Regional Office.

The fraudulent scheme reportedly raised approximately $50 million, along with unspecified amounts of Bitcoin and Ether. In total, 18 defendants have been charged with engaging in unregistered securities offerings, with additional charges for violations of the antifraud provisions of the federal securities laws against some of the defendants.

The Honorable Judge Robert J. Shelby, U.S. District Judge for the District of Utah, entered an order on July 28, 2023, imposing a temporary restraining order, asset freeze, and other relief. Josias N. Dewey of the law firm Holland & Knight LLP has been appointed as a temporary receiver over DEBT Box to marshal assets for the benefit of investors.

Investors who believe they were affected by the DEBT Box offering may seek further information at the receiver’s website or by calling a designated phone number.

The SEC’s action against DEBT Box highlights the regulatory body’s continued focus on ensuring compliance within the crypto asset space and protecting investors from fraudulent schemes. The investigation is ongoing, and the SEC has provided educational resources to help investors recognize the risks associated with crypto asset securities and unregistered offerings.

CFTC Whistleblower Program Gains Traction with $16 Million Awarded in 2023

The Commodity Futures Trading Commission (CFTC) has recently unveiled its 2023 Annual Report highlighting the significant achievements of the Whistleblower Program and Customer Education Initiatives. Commissioner Christy Goldsmith Romero, a former Inspector General, expressed strong support for the program on October 31, 2023, acknowledging the crucial role whistleblowers play in bolstering CFTC investigations and protecting the integrity of financial markets.

Romero appreciated the “outsized results” achieved by the program, which has cumulatively awarded almost $350 million to whistleblowers, facilitating over $3 billion in enforcement sanctions through associated cases. This year alone, the program awarded $16 million, with two whistleblowers receiving more than $15 million for their instrumental assistance in separate successful enforcement cases.

Whistleblowers: The Linchpin of CFTC Investigations

Whistleblowers have emerged as indispensable assets in CFTC’s endeavors to combat fraud and other illicit activities. Their contributions extend beyond identifying fraudulent activities, to interpreting key evidence, thereby accelerating the enforcement process, saving considerable Commission resources, and significantly mitigating customer harm. Their engagement is integral to CFTC’s capacity to safeguard both customers and market sanctity.

The CFTC has established a robust mechanism encouraging whistleblower participation while ensuring their protection. Recognizing the substantial professional and reputational risks faced by whistleblowers, the program offers confidential protection alongside monetary incentives to enhance whistleblower tip submissions. This approach has proven fruitful with a record 1,530 tips received in 2023, marking the highest tip count in any year.

Crypto-Related Fraud Dominates Tips

A notable mention in the report was the significant number of tips related to crypto, reflecting the persistent fraud and other illegal activities in this sector. As crypto’s popularity surges, the CFTC’s jurisdiction over retail customers broadens, underscoring the importance of both the Whistleblower Program and the Office of Customer Education and Outreach in tackling crypto scams and enhancing financial literacy.

Furthermore, Romero heralded the CFTC’s initiative to launch an Environmental Fraud Task Force, which aligns with the Whistleblower Program in soliciting tips for environmental fraud cases. This development resonates with Romero’s advocacy for environmental focus, and she anticipates fruitful outcomes from whistleblower involvement in this and other areas moving forward.

Romero concluded her statement by lauding the remarkable efforts of the Whistleblower Office and the Office of Customer Education and Outreach throughout the year, looking forward to witnessing the continued positive impact of whistleblower contributions.

LUNA Do Kwon's Trial Postponement Request Amid Extradition Delays

It was recently reported that Do Kwon, the co-founder of Terraform Labs, has made news by demanding that his trial in the United States, which is presently set to take place on January 29th, be postponed until the middle of March. The continuing extradition issues in Montenegro, which have made it difficult for him to physically attend the trial, are the source of this request.

In February of 2023, the United States Securities and Exchange Commission (SEC) brought fraud accusations against Kwon, tying him to a large crypto securities scam using Terraform Labs’ stablecoin TerraUSD (USTC) and the Terra (LUNA) token. These charges were filed against Kwon. There were significant repercussions for the market for digital assets as a result of the collapse of these cryptocurrencies. Due to the fact that it is one of the most significant losses in the cryptocurrency industry, Kwon’s role in this alleged scam involving several billions of dollars has garnered a lot of attention.

In a letter sent to Judge Jed Rakoff, the legal team representing Kwon highlighted the importance of Kwon’s wish to be present throughout the trial. On the other hand, the extradition procedure in Montenegro has been more drawn out than expected, which has made his return to the United States more difficult. It is the belief of his legal team that a postponement of the hearing until the middle of March would provide a reasonable opportunity for him to appear.

The Appellate Court of Montenegro issued a verdict in December 2023 that nullified the decision of the High Court of Podgorica that had approved Kwon’s extradition to either the United States of America or South Korea. This decision is the source of the complication that surrounds Kwon’s extradition status. Following the completion of Kwon’s sentence, this came about as a result of rumors that the authorities in the United States and South Korea were attempting to get an extension of his incarceration.

Due to the fact that Kwon was arrested in Montenegro in March 2023 for using forged travel papers, this high-profile case has been given an additional degree of complexity. His extradition is being vigorously sought by both the United States of America and South Korea, which raises the prospect that Kwon may be subject to multiple terms in both nations.

This request for a delay of the trial not only demonstrates the legal complexity that Kwon is facing, but it also highlights the larger obstacles and international dimensions of legal concerns that are associated with the bitcoin sector. Despite the fact that Kwon’s case is being investigated by a number of different countries, it continues to be an important illustration of the far-reaching effects of regulatory and legal scrutiny in the cryptocurrency industry.

Former IcomTech CEO Marco Ochoa Sentenced for Wire Fraud Involving Crypto Ponzi Scheme

Marco Ochoa, the former CEO of the crypto mining firm IcomTech, has been sentenced to five years in prison for his involvement in a Ponzi scheme using cryptocurrencies. The United States District Court for the Southern District of New York, under Judge Jennifer Rochon, ordered Ochoa to forfeit $914,000 and voluntarily surrender for a 60-month sentence starting March 19, with two years of supervised release following his imprisonment.

Ochoa’s tenure at IcomTech, which spanned from 2018 to 2019, was marked by deceitful practices that significantly harmed investors. He pleaded guilty to conspiracy to commit wire fraud in connection with the scheme. The case reflects a broader crackdown by U.S. authorities on fraudulent activities within the cryptocurrency sector.

The Ponzi scheme orchestrated by IcomTech promised investors daily returns on investment products. However, it was discovered that these returns were unattainable, and investors were unable to withdraw their funds. This scheme caused significant financial damage to numerous individuals who had placed their trust and investments in the company.

Ochoa’s sentencing is the most severe among the former executives of IcomTech involved in the case. This decision is part of a growing trend of U.S. regulatory and judicial scrutiny of the cryptocurrency industry, particularly focusing on fraudulent activities and scams. Other notable figures in the crypto industry have also faced legal challenges, including the former CEOs of FTX and Binance, who have been found guilty or pleaded guilty to various charges.

This case underscores the vital importance of regulatory oversight in the cryptocurrency industry and serves as a cautionary tale for investors about the risks associated with emerging financial technologies and markets.