As cryptocurrency begins to democratize, the number of users who get scammed increases accordingly. Investment fraud in particular is wreaking havoc in the crypto world.
Banking on a Ponzi scheme to defraud cryptocurrency users
This is how two Estonians managed Scammed out of nearly $575 million from hundreds of thousands of crypto users. The story begins in 2013 when two Estonian citizens, Sergei Potapenko and Ivan Turgin, started their own cryptocurrency mining company.
The indictment indicates that the two partners imported the materials instead of designing them as declared. Orders have been placed, but no deliveries made. So Sergey Potapenko and Ivan Turgin offered cloud mining contracts to their clients via the mining service. This is forAvoid any refund.
This service was launched in 2015 via a new company called HashFlare. The two partners promised their clients that they would receive a percentage of the profits commensurate with their investment. It was the beginning of a major investment scam campaign.
The defendants are also said to have launched another company called the Polybius Foundation in Estonia. This is an encryption project to be exact. they have He invited potential investors to invest in the project as part of an ICO (initial coin offering). This corresponds to the range of capital inCrypto and blockchain environment.
As with the crypto project of Sergey Potapenko and Ivan Turgin, scammers use all tricks to put investors (victims) in confidence. They do not hesitate to pay the early investors with the money of those who have invested later.
Investors who seem to benefit from dividends tend to invest more. Those who invested in the past got wind of the profits of the early investors and can continue to invest. This is the classic style of Ponzi scheme, one of the most common investment scams.
With a Ponzi scheme, scammers promise high financial returns or dividends that are not available through investments. Instead of investing the victims’ money, the scammers pay dividends to the initial investors using money from later investors.
The scheme usually ends when the trader runs away with all the profits or when the funds to continue paying dividends are depleted. Thanks to the crypto project alone, Sergey Potapenko and Ivan Turgin managed to raise $31 million. From 2013 to August 2019, they managed to scam $575 million cryptocurrency users.. If convicted, they each face 20 years in prison.