Post by anenro on Dec 16, 2019 14:20:35 GMT 4
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The £4bn OneCoin scam: how crypto-queen Dr Ruja Ignatova duped ordinary people out of billions — then went missing
Mark Scott’s wife, sitting in the spectators’ gallery just behind him, wailed uncontrollably after the New York jury passed down its verdict last month. Bank fraud — guilty. Money laundering — guilty. The 51-year-old Scott, turned out in a smart suit and expensive tan, consoled his wife over the railings. Scott used to boast to friends about earning “50 [million] by 50”, something he had achieved by laundering £300m worth of profits from the “OneCoin” cryptocurrency via layered private equity investment funds and offshore bank accounts. Now he faces up to 50 years in prison.
Money laundering cases are ten a penny, but Scott was involved in what may be the biggest financial scam since Bernie Madoff was convicted of fleecing investors of almost £12bn a decade ago. Scott is due to be sentenced in February, but the mastermind behind OneCoin, a German-Bulgarian businesswoman called Dr Ruja Ignatova, remains at large, and several billion pounds of investors’ money is missing.
Six years ago, Dr Ruja, as she styles herself, was a high-flying consultant working in international finance. Then she heard about bitcoin, the strange new digital money not backed by central banks or governments. As the price of bitcoin started to rise, Ignatova spotted an opportunity. Rather than invest, she went one better and designed her own: OneCoin. It was, she claimed, simpler and safer than its better-known rival. You don’t need to be a computer whizz to buy OneCoin, she said. Just send some money to a bank account and you’ll receive them in a personal online account. Because it’s designed for the mass market, she promised, it will soon be bigger than bitcoin.
Propelled by the cryptocurrency gold rush, OneCoin started to grow. Ignatova addressed enormous crowds in London, Macau, Dubai and Singapore. Potential investors were shown photos of her on the front cover of prestigious business magazines. Videos of her giving a speech at a glitzy event organized by The Economist circulated on Facebook. All over the world people were sending their money and setting up OneCoin accounts. Small villages in Uganda clubbed together to buy what coins they could afford; rich American investors were wiring over tens of thousands of dollars. By the middle of 2017, OneCoin had reached 175 countries and is estimated to have pulled in £4bn — some say as much as £12.7bn — of investment from around 1m people.
Just as Ignatova predicted, the price of OneCoin started to increase, from 43p in early 2015 to £10 by mid-2017. She speculated it would soon reach £100, and beyond that, who knows? Very soon, she told supporters, they’d be able to cash in, selling the coins in their accounts for real money on a public exchange, becoming rich in the process.
The exchange, however, never seemed to open. There was always a reason for a delay — perhaps an IT quirk or a minor legal issue. Investors started to get jittery. In October 2017, Ignatova was scheduled to speak to a large audience of European OneCoin investors in Lisbon and tell them when they would finally be able to get their money out. She is famously punctual, and when she didn’t arrive on time, panic started to spread. Frantic calls and messages went unanswered.
Some people wondered if she had been kidnapped by the traditional banks.
Ignatova never arrived, and no one has seen her since. Her “revolutionary” cryptocurrency was, in fact, an old-fashioned pyramid scam. OneCoin’s “price” was just a number they invented from her office in Sofia, Bulgaria, and there was no cryptocurrency tech behind her coin. In March 2019, the United States Department of Justice charged Ignatova in absentia with fraud and money laundering. Around the same time, her brother, Konstantin Ignatov, who took over the operation after she disappeared, was arrested at Los Angeles International Airport. In October he pleaded guilty to several counts of fraud in exchange for a reduced sentence — and testified for the US government against Scott. Although many investors held what they believed were millions of dollars worth of OneCoin, they had actually bought into the digital equivalent of Monopoly money.
How the buzz was created — and amplified
All financial scams are bad, but some are worse than others. Because of the way they spread, pyramid scams such as OneCoin are uniquely insidious. It was sold using a technique called multilevel marketing (MLM). This is when people make a commission by selling stuff to their friends and family, who in turn sell to their friends and family, and on and on, cascading into a huge pyramid-shaped structure. Growth is exponential — if everyone recruits two people, it would take only 26 rounds of pyramid selling to reach everyone in the UK.
MLM is legal provided you have a real product to sell, and Ignatova’s genius was to realize it was the perfect vehicle to sell her fake coin. She recruited some of the world’s top MLM sellers, who made 10% commission on any direct sales — plus extra bonuses depending on how big the pyramid became. Many become extremely rich as the coin spread like wildfire. Whereas Madoff is thought to have conned a few thousand rich investors, most of the money laundered by Scott for Ignatova came from the hundreds of thousands of ordinary people languishing near the base of the OneCoin pyramid.
“We were hyper, we were buzzing,” Jen McAdam told me and the podcast producer Georgia Catt, as part of our investigation into the scam, recalling the moment her friend first told her about OneCoin in early 2016. “When this came along, I thought my prayers had been answered.” After watching an online webinar, McAdam invested about £8,000 — most of which was an inheritance from her late father. “You’re told you’re so lucky that you’re seeing this webinar, you’re in such early stages — it’s going to go like bitcoin, it’s going to go higher.” When she told her friends, they all wanted in too. Within three months, McAdam’s Glasgow-based network had collectively poured in £250,000. She made about £3,000 commission on that — which she immediately used to buy more OneCoin.
Although the full scale of the fraud is being revealed, we estimate that UK investors such as McAdam parted with about £100m between 2014 and 2017. There are pockets of victims all over the country, often from communities that are relatively tight-knit. British Muslims were hit hard, having been told that OneCoin was compliant with Islamic law. The deaf community in the Midlands invested. Ultra-Orthodox Jewish groups in London — who have had to cut back their community bursaries as a result — were targeted with the same techniques that promoters used everywhere from Hong Kong to Palestine: don’t miss out on this once-in-a-lifetime opportunity. People are generally either too scared or too embarrassed to admit they have been conned — and who is going to report their uncle or sister or best friend to the police for having brought them into the scheme?
The £4bn OneCoin scam: how crypto-queen Dr Ruja Ignatova duped ordinary people out of billions — then went missing
Mark Scott’s wife, sitting in the spectators’ gallery just behind him, wailed uncontrollably after the New York jury passed down its verdict last month. Bank fraud — guilty. Money laundering — guilty. The 51-year-old Scott, turned out in a smart suit and expensive tan, consoled his wife over the railings. Scott used to boast to friends about earning “50 [million] by 50”, something he had achieved by laundering £300m worth of profits from the “OneCoin” cryptocurrency via layered private equity investment funds and offshore bank accounts. Now he faces up to 50 years in prison.
Money laundering cases are ten a penny, but Scott was involved in what may be the biggest financial scam since Bernie Madoff was convicted of fleecing investors of almost £12bn a decade ago. Scott is due to be sentenced in February, but the mastermind behind OneCoin, a German-Bulgarian businesswoman called Dr Ruja Ignatova, remains at large, and several billion pounds of investors’ money is missing.
Six years ago, Dr Ruja, as she styles herself, was a high-flying consultant working in international finance. Then she heard about bitcoin, the strange new digital money not backed by central banks or governments. As the price of bitcoin started to rise, Ignatova spotted an opportunity. Rather than invest, she went one better and designed her own: OneCoin. It was, she claimed, simpler and safer than its better-known rival. You don’t need to be a computer whizz to buy OneCoin, she said. Just send some money to a bank account and you’ll receive them in a personal online account. Because it’s designed for the mass market, she promised, it will soon be bigger than bitcoin.
Propelled by the cryptocurrency gold rush, OneCoin started to grow. Ignatova addressed enormous crowds in London, Macau, Dubai and Singapore. Potential investors were shown photos of her on the front cover of prestigious business magazines. Videos of her giving a speech at a glitzy event organized by The Economist circulated on Facebook. All over the world people were sending their money and setting up OneCoin accounts. Small villages in Uganda clubbed together to buy what coins they could afford; rich American investors were wiring over tens of thousands of dollars. By the middle of 2017, OneCoin had reached 175 countries and is estimated to have pulled in £4bn — some say as much as £12.7bn — of investment from around 1m people.
Just as Ignatova predicted, the price of OneCoin started to increase, from 43p in early 2015 to £10 by mid-2017. She speculated it would soon reach £100, and beyond that, who knows? Very soon, she told supporters, they’d be able to cash in, selling the coins in their accounts for real money on a public exchange, becoming rich in the process.
The exchange, however, never seemed to open. There was always a reason for a delay — perhaps an IT quirk or a minor legal issue. Investors started to get jittery. In October 2017, Ignatova was scheduled to speak to a large audience of European OneCoin investors in Lisbon and tell them when they would finally be able to get their money out. She is famously punctual, and when she didn’t arrive on time, panic started to spread. Frantic calls and messages went unanswered.
Some people wondered if she had been kidnapped by the traditional banks.
Ignatova never arrived, and no one has seen her since. Her “revolutionary” cryptocurrency was, in fact, an old-fashioned pyramid scam. OneCoin’s “price” was just a number they invented from her office in Sofia, Bulgaria, and there was no cryptocurrency tech behind her coin. In March 2019, the United States Department of Justice charged Ignatova in absentia with fraud and money laundering. Around the same time, her brother, Konstantin Ignatov, who took over the operation after she disappeared, was arrested at Los Angeles International Airport. In October he pleaded guilty to several counts of fraud in exchange for a reduced sentence — and testified for the US government against Scott. Although many investors held what they believed were millions of dollars worth of OneCoin, they had actually bought into the digital equivalent of Monopoly money.
How the buzz was created — and amplified
All financial scams are bad, but some are worse than others. Because of the way they spread, pyramid scams such as OneCoin are uniquely insidious. It was sold using a technique called multilevel marketing (MLM). This is when people make a commission by selling stuff to their friends and family, who in turn sell to their friends and family, and on and on, cascading into a huge pyramid-shaped structure. Growth is exponential — if everyone recruits two people, it would take only 26 rounds of pyramid selling to reach everyone in the UK.
MLM is legal provided you have a real product to sell, and Ignatova’s genius was to realize it was the perfect vehicle to sell her fake coin. She recruited some of the world’s top MLM sellers, who made 10% commission on any direct sales — plus extra bonuses depending on how big the pyramid became. Many become extremely rich as the coin spread like wildfire. Whereas Madoff is thought to have conned a few thousand rich investors, most of the money laundered by Scott for Ignatova came from the hundreds of thousands of ordinary people languishing near the base of the OneCoin pyramid.
“We were hyper, we were buzzing,” Jen McAdam told me and the podcast producer Georgia Catt, as part of our investigation into the scam, recalling the moment her friend first told her about OneCoin in early 2016. “When this came along, I thought my prayers had been answered.” After watching an online webinar, McAdam invested about £8,000 — most of which was an inheritance from her late father. “You’re told you’re so lucky that you’re seeing this webinar, you’re in such early stages — it’s going to go like bitcoin, it’s going to go higher.” When she told her friends, they all wanted in too. Within three months, McAdam’s Glasgow-based network had collectively poured in £250,000. She made about £3,000 commission on that — which she immediately used to buy more OneCoin.
Although the full scale of the fraud is being revealed, we estimate that UK investors such as McAdam parted with about £100m between 2014 and 2017. There are pockets of victims all over the country, often from communities that are relatively tight-knit. British Muslims were hit hard, having been told that OneCoin was compliant with Islamic law. The deaf community in the Midlands invested. Ultra-Orthodox Jewish groups in London — who have had to cut back their community bursaries as a result — were targeted with the same techniques that promoters used everywhere from Hong Kong to Palestine: don’t miss out on this once-in-a-lifetime opportunity. People are generally either too scared or too embarrassed to admit they have been conned — and who is going to report their uncle or sister or best friend to the police for having brought them into the scheme?
