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  • Writer's pictureKen Yormark

The Prevalence of Crypto Ponzi Schemes




To most investors, the technology behind crypto and the soundness of the investment has been a mystery. Many crypto projects being unregulated, lacking traditional investment data, and regulatory materials, have become prime targets for Ponzi schemes over the past several years.

In the span of just three years, Sam Bankman-Fried built FTX into a crypto exchange valued at $32 billion. In a blink, it imploded into a massive bankruptcy filing.


Like many fraudsters, Bankman-Fried The used his pedigree and connections to seduce sophisticated investors and regulators into missing “red flags” hiding in plain sight.


Bankman-Fried contributed heavily to election campaigns and hired former US regulators for senior management positions. He graduated from MIT and his parents are both professors at Stanford Law School.


But FTX was not the first and won’t be the last we see in the space. Here are just a few other recent examples:


Bitconnect - Bitconnect was a purported crypto lending platform that touted proprietary technology including the “Bitconnect Trading Bot” and “Volatility Software” that claimed would net investors guaranteed returns. It promised to return an average daily compounding interest of 1% or 3,700% annually.

The DOJ described the platform as a “textbook Ponzi scheme," with early investors paid in funds supplied by new investors. The crypto platform launched in 2016 but collapsed in 2018 after stealing $2.4 billion from over 4,000 people from 95 countries. The United States District Court for the Southern District of California ordered the restitution for the “massive” scheme on Jan. 12, 2023. Unfortunately, only about 800 victims from 40 countries will receive a slice of $17 million in restitution.


The alleged founder, Satish Kumbhani, was charged by the DOJ and his whereabouts are currently unknown.


Trade Coin Club- On November 4, 2022, The Securities and Exchange Commission announced charges against several individuals in their roles in Trade Coin Club. This fraudulent crypto Ponzi scheme raised more than 82,000 bitcoin, valued at $295 million at the time, from more than 100,000 investors worldwide.

According to the SEC’s complaint, the entity was a multi-level marketing program that promised profits from the trading activities of a purported crypto asset trading bot. They lured investors with false representations that the bot made “millions of microtransactions” every second, and that investors would receive minimum returns of 0.35 percent daily. However, instead of deploying investor funds for the purported trading bot, they allegedly siphoned off investor funds for their benefit and to pay a network of worldwide Trade Coin Club promoters.


OneCoin- Karl Sebastian Greenwood, the co-founder of the multi-billion dollar fraudulent cryptocurrency scheme based out of Bulgaria, OneCoin, pleaded guilty on Dec 16, 2022, to multiple charges brought forward by the DOJ. This was both a Ponzi and pyramid scheme as investors could recruit other investors who were paid with the money from earlier investors.


So what should you look for before you invest?

Don’t be fooled by reading the manager is an outstanding citizen with a notable social media impression including pictures with the influential and famous. Do a background check on their credentials and the claims they are making. Review the entity's documents or have a financial advisor do so. Understand what they plan to do with your investment and ultimately see proof they are in fact using funds currently in their possession as they stated.

Investments that are ripe today; cryptocurrency, artificial intelligence, and COVID-related ideas are great storylines for big returns. Most people don’t understand the deal's concepts and rationale, so be skeptical.


Don’t think you have no exposure if you get out before the fraud is revealed. I have performed forensic accounting investigations relating to many high-profile Ponzi schemes and spent many days in court testifying regarding claw-backs of investor gains. Judges and receivers want to equalize the damage across all investors. Being in first and reaping the initial benefits doesn’t free you from exposure.

For more information email me at ken@yormarkconsulting.com

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