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Accused Co-Founder of $9 Million Crypto Ponzi Scheme Declares Not Guilty in Court

The Co-Founder of Zima Digital Assets, Zachary Salter and his associate, 28-year-old John Caruso jointly declared not guilty to charges of money laundering and conspiracy to attempt wire fraud during arraignment in an Arizona court on March 4.

A report explained the criminal charges leveled against the pair who allegedly operated a cryptocurrency-based investment scheme that was eventually used to defraud their customers of a huge $9 million now referred to as a classical Ponzi scheme besides the notorious OneCoin episode.

Mode of operation that aided the success of the scheme

Approximately $1.9 million in deposits were systematically returned to early investors as assumed investment returns. The purported profits served as a means to validate the scheme to lure in participants which eventually resulted in a further wave of deposits to the platform.

The remaining funds totaling $7 million was spent in a lavish manner by the co-founders who now stand trials. Vacationing, purchase of luxurious cars, rentals of private jets, and gambling habits were the highlights of both accused. Despite flaunting such a lavish lifestyle on social media, the pair claimed now taxable income.

The accused successfully defrauded more than 90 investors including elderly citizens and former professional baseball players. Both men were arrested on Jan. 30 this year and are now charged by criminal complaint with conspiracy to commit wire fraud and money laundering among the charges leveled against them

Guilty or not Guilty?

The indictment included allegations of false statements in investor contracts and misinterpretations in direct messages to clients and both have pleaded not guilty. Caruso separately pleaded not guilty during his initial arraignment on Feb. 26. He also has a pending criminal record and was last released from prison in 2017.

Having pleaded not guilty, both men will now face a jury trial on July 4, 2020. If found guilty of the charges leveled against them, Salter and Caruso will have the properties allegedly obtained from the Ponzi scheme forfeited.

Image via Shutterstock

Crypto Project Baer Chain Has Been Classified as a Ponzi Scheme by the Chinese Police Department

The police department of the Haizhou district in Lianyungang, a coastal city in China published an announcement on ” information verification and registration of investment members of the Baer Chain case” on June 15. According to the notice, the project has been classified as a Ponzi scheme.

As shown on CoinMarketCap, the trading volume of Baer Chain (BCR) in the past 24 hours has been around $4,700. The cryptocurrency currently trades at less than a dollar.

Source: CoinMarketCap

According to local news site Hexun, Baer Chain price reached a peak of 127 Chinese Yuan (around $18) in July 2019, with a market cap of 23 billion Chinese yuan ($3 billion). The founder and CEO, Vincent successfully swept away huge amounts of money, which was pumped up to over $730 million in just half a year.

The extreme surge in Bitcoin price and altcoin prices in 2017 featured a series of stories of many of the ICO-made millionaires. The “fear of missing out” (FOMO) often prevails in these scenarios; in the meantime, certain groups of bad actors found cryptocurrency as the best fit for their scams. Another well-known crypto Ponzi scheme was the PlusToken wallet scam — which was estimated to have resulted in the loss of over $3 billion worth of crypto assets.

There is no substantial cost for creating a new cryptocurrency thanks to Ethereum’s smart contract and open-source feature. Ethereum has brought a whole realm of new possibilities in the crypto industry with its tokenization capabilities.

However, Ethereum 2.0’s upgrade to a proof-of-stake system may have an effect on the decentralized finance and decentralized apps industry. With the new improvements aiming to solve network congestion issues and low transaction times, this could mean Ethereum could see more adoption.

With Ethereum gaining more popularity, more Dapps would be rolled out and more people would be using them, meaning more resources would be needed.

Chinese Police Arrest 27 Kingpins of Plus Token Bitcoin Scam Worth $5.7 Billion

Chinese authorities have arrested all 27 primary criminal suspects involved in the Plus Token Ponzi scheme that defrauded nearly 40 billion Chinese yuan, approximately $5.7 billion from victims.

According to the announcement by local outlet CLS on July 30, two million people with at least 3,000 hierarchies were involved, and it was the first online Bitcoin pyramid scheme to be flagged down by Chinese security organizations.

Crypto scam headache

Apart from the 27 masterminds arrested, 82 key members involved in the case were also nabbed as reported by the Ministry of Public Security.

As per the announcement, “The public security organization has opened a case to investigate the “Plus Token platform” network pyramid scheme, and successively absconded all 27 major criminal suspects and 82 key members of the case.”

Scams continue wreaking havoc in the crypto space as victims lose vast amounts of money. For instance, a Romanian programmer recently confessed to helping create Bitclub Network, a Bitcoin mining Ponzi scheme that siphoned off funds valued at $722 million. Scammers have gone a notch higher to impersonating high-profile figures like Bill Gates and Elon Musk, as witnessed in the Twitter hack that involved Bitcoin.

The Plus Token Ponzi scheme was not any different as it was a multinational pyramid network that was entrenched on Chinese soil and abroad. It caused a wide-ranging panic in June 2019, after some Korean and Chinese investors could not withdraw Bitcoin funds from their wallets. However, this issue was dismissed as a mere hacker attack.

Notable milestone

The Chinese authorities view the Plus Token masterminds’ arrest as a great stride in cracking down crypto Ponzi schemes. The first breakthrough was made in August 2019 after six suspects linked to this scam were seized. Nevertheless, the 27 kingpins arrested were still on the run.

There seems to be light at the end of the tunnel when tackling crypto scams as cryptocurrency intelligence company CipherTrace recently unveiled a predictive risk-scoring mechanism to mitigate crypto theft and hacks.

Ethereum, Cardano and Other Altcoins Slandered by Blockstream CEO as Ponzi Schemes

Blockstream CEO Adam Back publicly stated that Ethereum and other altcoins were Ponzi schemes, angering Ethereum co-founders Vitalik Buterin and Charles Hoskinson.

Bitcoin Pioneer Not Warming Up to Altcoins

The Bitcoin enthusiast took to his Twitter platform and compared Bitconnect, Ethereum, Cardano, Ripple, and other altcoins as being similar to well-known Ponzi schemes. Adam Back’s rant on Twitter called out a lot of big names in the game, as he tweeted:

“Bitconnect, Charles Ponzi, Ethereum, Onecoin, Cardano, Ripple, Bernie Madoff, Stellar, Dan Larmer. All looking very similar grade to me.”

Bitconnect and Onecoin consist of two famous cryptos that were later revealed to be Ponzi schemes —investment scams that promise high rates of return but operate similarly to pyramid schemes by generating a return for earlier investors by recruiting new investors to the Ponzi. These scams originated from Bernie Madoff and Charles Ponzi.

Vitalik Buterin on Ethereum

Needless to say, Buterin and his counterpart Hoskinson, who recently announced big news pertaining to his crypto empire Cardano with the launch of Shelley hard fork. Vitalik Buterin took his frustrations to his Twitter account and retorted:

“Ethereum is rising, proof of stake and sharding are rising, and rollups are here, all through a large distributed ecosystem working in parallel.”

The Ethereum founder stood by his blockchain company and countered Back’s statement by classifying it as old, ineffective propaganda.

Ethereum Announces Testnet Launch

The blockchain network had recently announced exciting news, coming forward with their long-anticipated final ETH 2.0 testnet launch, that was released on August 4, at 1 pm UTC. The testnet operates using a multi-client principal and is the test blockchain that will enable a transition from a Proof-of-Work to a Proof-of-Stake protocol for Ethereum.

Cardano — One Step Closer to Full Decentralization

Cardano founder Hoskinson also did not let Back’s comment slide, as he addressed Back and stated that it was pathetic that the Blockstream CEO lumped Cardano, Charles Ponzi and Bernie Madoff together.

The Cardano founder has been hard at work lately, with performance updates coming out for the Shelley network. Cardano is inching towards full decentralization, adding onto its existent features by adopting smart contracts, and decentralized applications (Dapps).

Cardano’s next development phase is the Goguen era, which is expected to begin in the third quarter of 2020 with its testnet release.

US Prosecutors Unseal Indictment of $20 Million Dollar Cryptocurrency Ponzi Scheme

US prosecutors have recently indicted a group of investment scammers who have orchestrated a cryptocurrency mining fraud following a Ponzi scheme protocol.

Ponzi Scheme Promises High Return, Minimal Risk

The five scammers involved were reported to have traveled around countries in Latin America, Asia, Eastern Europe, and around the United States to promote memberships for their company AirBit Club. Through membership subscriptions, the five individuals – Pablo Renato Rodriguez, Gutemberg Dos Santos, Scott Hughes, Cecilia Millan, and Jackie Aguilar – promised new recruits that they would be rewarded financially for their registration to AirBit Club.

The five cryptocurrency scammers operated with a Ponzi scheme, promising investors high crypto returns with minimal risk. They promoted their company as a “multilevel marketing club in the cryptocurrency industry.” Rodriguez, Dos Santos, Hughes, Millan, and Aguilar promised new AirBit members that the latter would earn returns on cryptocurrency mining and trading, and that passive income could be generated through any membership purchased.

In truth, it was disclosed in an indictment by US prosecutors that the cryptocurrency mining operation was actually non-existent. Rather, through membership subscriptions to AirBit Club, the five cryptocurrency scammers reaped profits. The investment fraudsters have reportedly money laundered approximately $20 million through their Ponzi scheme.

How Did Crypto Scam Group Pull Off Their Heist?

Through marketing pitches and recruitment events, the group was able to accumulate that gigantic sum and allegedly spent it on lavish jewelry, expensive cars, and homes.

They are currently charged with “running a multimillion-dollar cryptocurrency investment fraud and money laundering ring.” US States Attorney Audrey Strauss declared:

“As alleged, the defendants put a modern-day spin on an age-old investment scam, promising extraordinary rates of guaranteed return on phantom investments in cryptocurrencies. Thanks to HSI, the defendants are in custody and facing serious criminal charges.”

According to the unsealed indictment, Rodriguez, Dos Santos, and Millan were charged with single counts of conspiracy to commit wire fraud, conspiracy to commit money laundering, and conspiracy to commit bank fraud.

As for Hughes, who had previously represented Rodriguez and Dos Santos as a practicing attorney for a US Securities and Exchange Commission investigation, the soon-to-be disbarred lawyer is charged with one count of conspiracy to commit money laundering and one count of conspiracy to commit bank fraud. Lastly, Aguilar was charged with conspiracy to commit wire fraud.

Crypto Scam Videos on the Rise

Ponzi schemes and crypto scam videos are not uncommon in the crypto world. One of the most common types of cryptocurrency-driven crimes is that in which online impersonators pose as high-profile industry personalities to funnel digital assets into their wallets.

Last month, co-founder of Apple Steve Wozniak filed a lawsuit against YouTube for allegedly failing to take down fraudulent crypto scamming videos that ran on its channel, and that impersonated Wozniak. The videos were Bitcoin scams that promised a return of cryptocurrency investment.

Wozniak directed his legal complaint against YouTube, stating that the multibillion-dollar video-sharing company benefitted indirectly from the ads that streamed along with the scam Bitcoin videos running on its platform. The Apple co-founder further asserted that YouTube should have taken down the Bitcoin scam videos.

CFTC Demands $572 Million in Penalty and Restitution for Bitcoin Scam, Defendant Nowhere to be Found

The United States Commodity Futures Trading Commission (CFTC) has filed a complaint with the New York Southern District Court against Benjamin Reynolds for his involvement in a fraudulent Bitcoin Ponzi scheme operating under a Bitcoin trading and investment company, Control-Finance.

According to the proposed judgment submitted by the CFTC, Benjamin Reynolds will have to pay a total of $572 million as a penalty and restitution fee. Of that sum, $429 million would be allocated towards the penalty and $143 million would be for the restitution fee. Reynolds failed to answer the CFTC’s complaint, which was originally submitted to the US district court of New York in June 2019.

All That Glitters Is Not Gold

The CFTC filed an initial complaint in June 2019, seeking answers concerning the Control-Finance Ponzi scheme. However, the owner of the fraudulent cryptocurrency company, Benjamin Reynolds, failed to appear in court and never responded to the investigative questions raised by US federal agencies.

In its complaint document, the CFTC stated that Reynolds launched a fraudulent scheme known as the Control-Finance “Affiliate Program” on May 1, 2017, and consequently defrauded more than 1000 customers with the pyramid scheme, earning at least 22,858.822 Bitcoins (BTC), which translates to at least $147 million during that time. Currently, the laundered funds are worth more than $270 million.

The managers of the alleged Bitcoin trading company used the Control-Finance website to advertise the cryptocurrency pyramid scheme. Marketing of the Bitcoin scam was done through popular social media platforms such as Facebook, YouTube, Twitter, and more to attract customers and lure Bitcoin investors. The scheme worked through the affiliate program.

Ponzi Scheme Raises Huge Bitcoin Funds

Control-Finance accepted Bitcoin funds from customers and guaranteed trading returns of as much as 45% per month. However, the collected Bitcoin funds were distributed throughout the company to those in charge of asset management services, therefore generating profits from Bitcoin through a Ponzi scheme.

Despite Reynolds promising his clients returns of up to 45% per month for their Bitcoin investments, that promise was never fulfilled. Rather, the company ended up misappropriating clients’ BTC deposits and did not conduct any Bitcoin trades on customers’ behalf. According to the CFCT’S report, customers never earned any trading profits out of their Bitcoin investments at any given time.

Reynolds and his team managed to launder about $150 million in misappropriated Bitcoins through thousands of blockchain transactions. The Bitcoin investment scammers suddenly stopped their operations in September 2017 by removing the Control-Finance website from the internet, shutting down all accounts and payments to customers, and deleting advertising contents from the company’s social media channels.

Apart from the restitution and penalty, Reynolds also faces some other penalties. He will also be permanently prohibited from trading Bitcoin and will be banned from any transactions involving “commodity interests.”

Carving Up Crypto

In the recent few previous years, the emergence of cryptocurrencies into the mainstream finance industry came at a meteorite rate, attracting public attention and financial institutions. Regulators such as the CFTC and others are “playing catch up”, tasked with the role of protecting the public from cryptocurrency scams and maintaining market stability. The CFTC and other regulators such as the SEC (Securities and Exchange Commission) continue to police cryptocurrency markets, including fraudulent trading activities. Fraud in such trading markets harms customers and, if left unchecked, could hinder innovation.

Crypto Token Backed by $25M Diamond Ponzi Scam Flagged by DoJ

The US Department of Justice has charged a 51-year-old Florida native with wire fraud, for soliciting investors in a diamond-backed cryptocurrency Ponzi and investment scam.

Jose Angel Aman was charged and made his appearance in court last week. According to FBI investigations, the Florida native and his partners in crime targeted investors throughout the United States and Canada. Aman initially started off with a rough diamond business, touting that he had rough colored diamonds and a storage inventory worth $25 million in value. Aman also falsely promised his investors that the diamond business was a guaranteed high return investment, with no risk.

At the end of each investment cycle, Aman along with his accomplices would tout a sham called “Reinvestment Contracts” to investors, and through this ruse, the fraudsters were able to buy more time to recruit new investors and launder more money.

Diamond and Crypto Ponzi Scheme Generates $25M

All allegations were false. The scammer was alleged to have operated following a Ponzi scheme, in which he made interest payments to earlier investors with new recruits’ fiat funds. When his diamond Ponzi scheme was on the brink of collapsing, Aman turned to a new business plan and launched Argyle Coin, LLC, a cryptocurrency-based business that touted its own token, Argyle Coin.

Aman once again promised high rates of return, with no risk, and the token was said to be diamond-backed. Once again, the Florida native employed a Ponzi scheme to repay solicited investors. The total amount of his investment and crypto scams were said to have generated over $25 million.

Using only a fraction of the money received from Argyle, LLC investors to develop a cryptocurrency token, Aman employed the rest of his fraudulent profits to support “a lavish lifestyle,” pay off his accomplices and make interest payments to earlier targeted investors.

The US Securities and Exchange Commission (SEC) had moved to stop Aman’s cryptocurrency and Ponzi operation back in May. Aman is alleged to have conducted multiple operations through similar Ponzi schemes.

BitClub Crypto Ponzi Scheme

Ponzi schemes have been on the rise, with the US Department of Justice (DoJ) recently charging a Californian man for conspiracy in fraud and for his role in a cryptocurrency mining scam that generated at least $722 million.

The cryptocurrency mining scheme, BitClub Network, was a fraudulent scam that solicited money from investors in exchange for shares in purported crypto asset mining pools.

Dave Portnoy Calls Bitcoin “A Ponzi Scheme,” but Says He Will be Back for Crypto

Barstool Sports founder Dave Portnoy revealed in an interview with Bitcoin bull Anthony “Pomp” Pompliano that he had previously bought $1.25 million worth of Bitcoin (BTC), despite thinking that the largest cryptocurrency by market cap was just a “just one big Ponzi scheme.”

The eccentric “Davey Day Trader” previously invested heavily in cryptocurrencies, after getting briefed about the ins and outs of Bitcoin trading from the Winklevoss twins. In a Twitter post, he had called out Bitcoin billionaires Cameron and Tyler Winklevoss, summoning their help regarding Bitcoin investments and asking them to “just show him how to ‘do it.’”

Following the Gemini co-founders’ advice, Portnoy invested heavily in Bitcoin and DeFi tokens such as Chainlink (LINK) but pulled his funds when he underwent a loss of $25,000 with LINK tokens.

He then declared that he owned zero Bitcoin, having sold them all. The Barstool Sports founder then said that “losing of any kind is unacceptable” and announced his exit from the cryptocurrency market. However, he claimed that he will be back and said that “his heart is crypto.”

Now, in Portnoy’s interview with Pomp, the Davey Day Trader announced that he missed crypto and that he would eventually get back into Bitcoin. He said:

“I’ll get back into Bitcoin. I don’t know when. I don’t have much liquid really – it’s all invested.”

Pomp applauded Portnoy’s stock investment strategy, as he referenced the US dollar’s quick devaluation.

This may sound controversial for the crypto community, as the Davey Day trader also called BTC a Ponzi scheme. He was criticized in the past by Bitcoin bulls for using a “pump and dump” strategy with the “digital gold” crypto asset, and for devaluating the crypto community with these actions.

Portnoy has not been the only one to call Bitcoin a Ponzi scheme. The CEO of Irish-based airline RyanAir, Michael O’Leary, had also classified BTC as a Ponzi scam after he was impersonated by online scammers posing as the CEO to tout the digital currency. Several media outlets portrayed an interview of Michael O’Leary with him allegedly saying, “I’m glad I tried (Bitcoin) because it was some of the biggest and easiest money I have ever made.”

The RyanAir CEO had however rectified the false claims and the scam and disclosed to The Sunday Times:

“I have never, and would never, invest one cent in bitcoin, which I believe is equivalent to a Ponzi scheme, I would strongly advise everyone with any shred of common sense to ignore this false story and avoid bitcoin like a plague.”

China-Based Crypto Ponzi Scheme Generates $1 Billion Before Being Flagged

A cryptocurrency Ponzi scheme was reported by Chinese law officials, but not before criminals reaped a profit of more than $1 billion from it.

Four Chinese men, Li Qibing, Wang Xiaoying, Gao Yudong, and Tian Bo have been arrested by law officials in Yancheng after their fraudulent billion-dollar crypto Ponzi scheme was uncovered by Chinese officials. Local authorities have seized around $60 million of the funds, but the whole profit reaped from the fraudulent pyramid scheme has yet to be recovered.

The four culprits touted their trading services under a platform dubbed WoToken. They promoted WoToken’s native crypto, named WOR, and attracted investors by promising high returns with low risks. The operation was coordinated following a pyramid scheme, where older investors were rewarded with funds generated by new members of the platform.

It was reported that around 715,250 Chinese investors joined WoToken. Together, they gave up Bitcoin (BTC), EOS, Ether (ETH), Tether (USDT), and Litecoin (LTC), which amounted to more than $1 billion in funds for the Ponzi scheme operators.

As law officials have stipulated, the Ponzi scheme promoters have been arrested and they are now facing anywhere between 2-9 years of prison.

OneCoin Ponzi scheme

Cryptocurrency Ponzi schemes have been on the rise, even making its way through traditional financial banking institutions. Last month, through a trove of leaked Financial Crimes Enforcement Network (FinCEN) files, funds generated from OneCoin Ponzi scheme was allegedly wired through one of America’s oldest banks, the Bank of New York Mellon (BNY Mellon).

OneCoin Ponzi Scheme’s founder Ruja Ignatova is said to have fled after the scandal, after the pyramid scheme generated at least $400 million dollars.

PlusToken Crypto Scam Masterminds to Serve 11 Years in Prison

A Chinese court in the Eastern province of Jiangsu has slapped the ringleaders of the PlusToken Ponzi scheme with 11 years of prison after they made off with cryptocurrencies worth 14.8 billion yuan, which translates to approximately $2.25 billion from investors.

One of the biggest Ponzi schemes in China

PlusToken has set the record of being one of the biggest uncovered Ponzi scams in China. Emerging in mid-2019, it expanded to over 3,000 pyramid scheme layers after targeting more than 2 million investors in the country.

Nevertheless, it caused a wide-range of panic after some Korean and Chinese investors could not withdraw Bitcoin funds from their wallets. However, this issue was dismissed as a mere hacker attack.

The Ponzi scheme lured victims with lucrative crypto investments and promised high returns based on the investment amounts and the members they recruited. Payments were channeled through cryptocurrencies like Bitcoin, and this was a classic example of a Ponzi scheme where returns for earlier investors were generated from those who joined later.

In July, 27 primary criminal suspects involved in this scam were arrested by Chinese authorities. It served as the first online Bitcoin pyramid scheme to be flagged down by Chinese security organizations.

The promise of arbitrage returns

Per the report:

“After PlusToken went bust in mid-2019, and Chinese authorities started chasing its ringleaders domestically and abroad, the price of bitcoin plunged almost 30 percent from its highest price of the year, to about US$10,000 per coin.”

It was also revealed that the masterminds deceived investors with arbitrage returns, which proved to be non-existent.

The announcement of this imprisonment sentence comes days after Colin Wu, a Chinese cryptocurrency and blockchain journalist, disclosed that the huge amounts of Bitcoin (BTC) and Ethereum (ETH) seized by the Chinese government from the PlusToken Scam had been converted to fiat currency and reserved in the Central Treasury managed by China’s central bank.