U.S. Department of Justice Announces Charges Against Leaders of Fraudulent Cryptocurrency Scheme That Took in More Than €3.3 Billion of Investor Funds

On March 8, 2019, the United States Attorney’s Office for the Southern District of New York announced that two Bulgarian nationals, Konstantin Ignatov and Ruja Ignatova, have been charged in connection with their leadership of an  international pyramid scheme related to the marketing of a fraudulent cryptocurrency called “OneCoin.” As a result of misrepresentations that Ignatov, Ignatova, and others made about OneCoin, victims allegedly invested billions of dollars worldwide in the fraudulent cryptocurrency.

Ignatov was arrested March 6, at Los Angeles International Airport, on a criminal complaint charging him with wire fraud conspiracy.  He is the alleged current leader of OneCoin Ltd, which marketed the fraudulent cryptocurrency OneCoin.  Ignatova, reportedly known as “Cryptoqueen,” was the subject of an indictment unsealed on March 7 in the Southern District of New York, charging her with wire fraud conspiracy, wire fraud, money laundering conspiracy, securities fraud conspiracy, and securities fraud.  She was allegedly the co-founder of OneCoin Ltd., but “disappear[ed] from public view, in October 2017” and currently is listed as “at large.”

A third defendant, Mark S. Scott, was the subject of a prior indictment for his role in the scheme and was arrested in September 2018.  Scott allegedly participated with Ignatova in money laundering more than $400 million through purported investment funds holding bank accounts at financial institutions in the Cayman Islands and the Republic of Ireland.

According to the U.S. Attorney’s Office press release, OneCoin Ltd., which is still operating,

operates as a multi-level marketing network through which members receive commissions for recruiting others to purchase cryptocurrency packages.  This multi-level marketing structure appears to have influenced rapid growth of the OneCoin member network.  Indeed, OneCoin Ltd. has claimed to have more than 3 million members worldwide, including victims living and/or working within the Southern District of New York.

Among other alleged misrepresentations, OneCoin Ltd. falsely claimed that the OneCoin cryptocurrency is “mined” using mining servers that the company maintained and operated, that the value of OneCoin is based on market supply and demand, and that it had a private “blockchain” (i.e., a digital ledger identifying OneCoins and recording historical transactions).  In addition, by approximately March 2015, Ignatova and her co-founder allegedly had begun allocating to OneCoin members coins that did not even exist in OneCoin’s purported private blockchain, and referred to those coins as “fake coins.”

As a result of misrepresentations that Ignatov, Ignatova, and other OneCoin representatives allegedly made,

victims throughout the world wired investment funds to OneCoin-controlled bank accounts in order to purchase OneCoin packages.  Records obtained in the course of the investigation show that, between the fourth quarter of 2014 and the third quarter of 2016 alone, OneCoin Ltd. generated €3.353 billion in sales revenue and earned “profits” of €2.232 billion.

Note: Within the past year, the Department of Justice has prosecuted multiple individuals allegedly connected with cryptocurrency schemes, including AriseBank, Blue Bit Banc, CentraTech, My Big Coin Pay, pressICO LLC, and RECoin.  These latest charges emphasize, yet again, the importance of would-be cryptocurrency investors conducting sound due diligence before investing any funds in any purported cryptocurrency firm or investment product.  As the Securities and Exchange Commission has warned about cryptocurrency investments, “In many cases you may not know exactly who you are dealing with, where your money is going or what you are getting in return.”

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