Ponzi Scheme scam in the cryptocurrency sector

Cryptocurrencies have become an increasingly popular investment option, with many people seeing the potential for high returns on investment. However, with the development of digital currencies, the number of scams associated with them has also increased. There are many types of cryptocurrency scams, such as fake ICOs, Ponzi schemes, phishing scams, malware scams, and market manipulation. Each of these scams is designed to mislead people into sending their money or cryptocurrencies to scammers. This article will focus on Ponzi schemes. 

A Ponzi scheme is an investment scam in which existing investors are paid out of money raised from new investors. Ponzi scheme organizers promise to invest and generate high returns with little or no risk. However, scammers do not invest the money collected. Instead, they use them to pay out those who have invested before and can keep some for themselves. A Ponzi scheme is characterized by little or no real income, as it requires a constant influx of new money to survive. When it becomes difficult to attract new investors or when large groups of existing investors withdraw their funds, the pattern breaks down. 

One of the biggest cryptocurrency scams in history was OneCoin. It was founded by Karl Sebastian Greenwood and Ruje Ignatova, who known as the "Cryptoqueen". They created OneCoin, which operated as an MLM network. MLM stands for multi-level marketing and is also known as network marketing or direct sales. It is a business model based on the use of a network of independent distributors for marketing and selling products or services. The main feature of MLM is the multi-level sales force structure, where distributors receive a commission not only on their own sales, but also on the sales made by the distributors they recruit and introduce to the network. Within this network, members received commissions for recruiting others to purchase cryptocurrency packages. This MLM structure has contributed to the rapid growth of OneCoin's membership network. This Ponzi scheme  promised high returns on investment in a digital currency that did not exist, and encouraged investors to recruit more people to invest in this scheme. When the scheme collapsed, investors lost billions of dollars. 

Another interesting Ponzi scheme was the Dekado Coin; masterminded by Divyesh Darji, Ranjeet Saxena and their partners. It emerged with a catchy enough tagline “Anyone who says there is nothing like earning free bitcoin is wrong”. Dekado was a unique case as it managed to scam people twice. The introductory sessions promised 40-70% monthly returns on Dekado Coin. However, when a global user base; especially from India, Indonesia, the Netherlands, and the African continent; came on board soon after the launch, the website went down. People could no longer access their accounts on the website Dekado.io. In April 2018, Darji and his team launched another website called Dkdpower2all.io, and Saxena, Darji’s partner, promised that the Dekado.io investors would get their crypto back. But that never happened. These scams have affected the digital asset market. 

When a Ponzi scheme approaches the moment of disclosure or breakdown, the creator may use various tactics, such as: 

• Disappearing with money, 

• transfer of investors to a new or existing storage unit, which is eventually liquidated, 

• the creation of a new management board, which may include the creator or a selected group of investors, 

• sale of business, 

• satisfying investors' complaints by returning money, 

• attempting to influence, manipulate and redirect any regulatory inquiry into the scheme to gain investor loyalty. 

Looking at it from a number point of view, at least 60 Ponzi schemes were discovered in 2019, involving more than $3 billion in investor funds. Due to Covid-19, the number of Ponzi schemes discovered dropped significantly in 2020. In 2021, only 34 Ponzi schemes were discovered. The number of Ponzi schemes discovered increased again in 2022 with 57 schemes uncovered. This represents an almost 70% increase compared to the 34 schemes discovered in 2021. The total value of all 57 schemes was $5.3 billion in investor funds. An intriguing conclusion from the data shows that more than 25% of the revealed Ponzi schemes were closely related to cryptocurrencies, with many promoting supposedly high returns from digital asset trading. It is not surprising that these schemes were often global in scope and involved large sums of money. In fact, despite accounting for only about a quarter of the identified schemes in 2022, the total funds at risk in these cryptocurrency-related schemes amounted to nearly $3 billion, which accounted for more than half of the $5 billion total for the 57 schemes uncovered that year. Given the decline in cryptocurrency prices since mid-2022 and ongoing regulatory oversight, it can be assumed that this trend is likely to continue into 2023 as well. 

A disturbing pattern was noted involving the use of cryptocurrency assets in several suspicious scams that were revealed in the first half of 2022. At least five different schemes were discovered that were linked to or based on cryptocurrency assets and included activities related to allegedly fraudulent exchanges, mining platforms, trading, and mutual funds. As the total capitalization of the cryptocurrency market fell from over $2 trillion in January 2022 to about $800 billion in November, regulations have intensified their actions on cryptocurrencies and digital assets, which have faced significant difficulties. 

Ponzi schemes have common features: 

• High returns with little or no risk – each investment carries some degree of risk, and investments with higher returns tend to involve more risk. If there are "guaranteed" investment opportunities, there is a high probability that it is a scam. 

• Excessively stable returns – investments are usually subject to fluctuations over time. We should be skeptical of investments that regularly generate positive returns regardless of general market conditions. 

• Unregistered investments – Ponzi schemes usually include investments that are not registered with the SEC or state regulators. Registration is important because it allows investors to access information about company management, products, services, and finances. 

• Unauthorized Sellers – Federal and state securities laws require investment professionals and companies to be licensed or registered. Most Ponzi schemes involve unlicensed individuals or unregistered businesses. 

• Mysterious, complicated strategies – avoid investments if you don't understand them or can't get full information about them. 

• Documentation problems – errors in account statements may indicate that funds are not being invested as promised. 

• Difficulty receiving payments – be suspicious if you are not receiving payments or have difficulty withdrawing funds. Ponzi scheme promoters sometimes try to stop participants from withdrawing funds by offering even higher returns to continue their participation in the scheme. 

In conclusion, Ponzi schemes continue to be a recurring menace in our society, deceiving innocent people with promises of extraordinary investment returns. These fraudulent actions exploit human greed, trust, and the attraction of quick wealth, leaving a trail of destruction in its wake. As we've seen throughout history, from Charles Ponzi to modern offenders, the temptation of financial gain can blind even the most cautious individuals. 

However, it is important to remember that awareness and education are our most powerful tools against these fraudulent schemes. By understanding the warning signs, asking critical questions, and doing our due diligence, we can protect ourselves and our loved ones from becoming victims of such scams. Regulators, law enforcement agencies and financial institutions must continue their efforts to combat Ponzi schemes and bring perpetrators to justice. 

In addition, society in its entirety must cultivate a culture of financial education and ethical investing. Teaching individuals the principles of sound financial management, risk assessment, and legal investment opportunities can help build resilience to the false promises of Ponzi schemes. 

Ultimately, eliminating Ponzi schemes requires a combined effort by all stakeholders. By collaborating on education, regulation, and enforcement, we can create a society better equipped to identify and avoid these fraudulent schemes. Let us strive to protect those who are vulnerable, to strengthen our financial systems and to ensure that the promise of prosperity does not become a tool of exploitation. Only through shared vigilance and an unwavering pursuit of integrity can we hope to minimize the effects of Ponzi schemes and build a more secure and trustworthy financial landscape for future generations.