As for the traditional finance industry, the cryptocurrency industry is also attracting scammers or attackers. Several reasons can explain this.
First, crypto markets are currently very popular, attracting a growing number of people and thus funds, which is attracting in turn scammers looking for easy money. Second, cryptocurrencies are known as being difficult to trace, making scammers think that it would be easier to run away with crypto funds rather than fiat for example.
In this article, we will take a look at 3 cryptocurrency scams that hook the cryptocurrency industry.
- The Bitconnect Ponzi scheme
Bitconnect is surely one of the most famous cryptocurrency scams. Created in 2016, Bitconnect was an exchange platform and an open-source cryptocurrency, Bitconnect Coin (BCC), offering high-yield investment programs. Bitconnect was later recognized as a Ponzi scheme, one of the most frequent investment scams, defrauding investors for more than $2 billion.
A Ponzi scheme is a kind of scam attracting investors by paying older investors with newer investors’ funds, making them believe that the funds are legit. However, once the new investors don’t bring enough funds to pay older investors, the scheme will collapse.
In January 2018, Bitconnect shut down after the Texas State Securities Board ordered the company to cease operations. Even though the company refunded its investors, the price of BCC plummeted due to the legal issues faced by the company and left investors with serious losses.
In September 2021, Bitconnect has been charged with $2 billion for crypto fraud1.
- The Twitter Hack
Let’s go back to summer 2020. On July 15, 2020, an attacker managed to hack 130 Twitter accounts from high-profile celebrities such as Barack Obama, Joe Biden, Bill Gates, or Kanye West. Those accounts were used to promote a very simple bitcoin scam. (Read more: We we know about the Twitter hack)
The hacker tweeted asking people to send funds to a cryptocurrency address (bc1qxy2kgdygjrsqtzq2n0yrf2493p83kkfjhx0wlh) promising to double their donations. Coupled with the legitimacy of the hacked Twitter accounts, many people fell for the scam and lost funds.
This address has been active since July 13, 2020, and received 12.9 BTC in 456 transactions. At the time of the scam, the BTC price was around $9,000, defrauding people of more than $116,000.
This led to the arrests of three individuals in late July 2020; two of them were charged with money laundering and intentional access to a protected computer while the third one was charged in a juvenile court.
- MTI Ponzi scheme
The last cryptocurrency scam we’ll cover today is yet another Ponzi Scheme. MTI (or Mirror Trading International) was a scam investment scheme. The scheme was offering a passive income on minimum deposits of $100 worth of BTC with daily 0.5% return and up to 500% return a year. The scheme allegedly stole R16.9 billion ($1.18 billion) from investors.
The FSCA (Financial Sector Conduct Authority) in South Africa launched an investigation on the company as it believed it was conducting illegal activity breaking several laws. In October 2020, the FSCA event informed MTI that it was offering unregistered financial services2.
In late December, MTI’s CEO fled South Africa, bringing the scheme to collapse and confirming the suspicions of the police. The company has been provisionally liquidated on December 29, 2020, by the Cape Town High Court and the final liquidation has been ordered in June 20213.
It has been difficult for the court to rule whether MTI should be declared illegal as several parties had different opinions on the matter. In September, it has been announced that the hearing ruling this matter was postponed until March 2022.
These three example shows that the cryptocurrency market can be the target of malevolent actors and that it could be risky for companies and investors in the market.
It is important for companies dealing with cryptocurrencies to put in place proper AML/CFT controls on the transactions they process and implement due diligence on their counterparties being thus able to mitigate the risks they could be facing and to protect their customers as well.
Scorechain Blockchain Analytics platform offers a suite of tools allowing compliance teams to adopt a risk-based approach on crypto transactions monitoring, helping them to comply with local and global crypto AML regulations.
Would you like to discover how Scorechain can help your company in its compliance journey? Don’t hesitate to reach out to us.
Scorechain is a Risk-AML software provider for cryptocurrencies and digital assets. As a leader in crypto compliance since 2015, the Luxembourgish company helped more than 200 customers in 40 countries, ranging from cryptocurrency businesses to financial institutions with crypto trading, custody branch, digital assets customers onboarding, audit and law firms, and some LEAs.
Scorechain solution supports Bitcoin analytics with Lightning Network detection, Ethereum analytics with all ERC20 tokens and stablecoins, Litecoin, Bitcoin Cash, Dash, XRP Ledger, and Tezos. The software can de-anonymize the Blockchain data and connect with sanction lists to provide a risk scoring on digital assets transactions, addresses, and entities. The risk assessment methodology applied by Scorechain has been verified and can be fully customizable to fit all jurisdictions. 300+ risk-AML scenarios are provided to its customers with a wide range of risk indicators so businesses under the scope of the crypto regulation can report suspicious activity to authorities with enhanced due diligence.