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Venezuelan Investors File Lawsuit With US Court in Connection With $30M Crypto Fraud

Seven Venezuelans claim to have been lured into a $30 million Ponzi scheme with a cryptocurrency pegged to diamonds

A group of Venezuelans has filed a lawsuit with a Florida Federal Court in connection with a Ponzi scheme involving $30 million in cryptocurrency promoted by Canadian investment radio host Harold Seigel.

Payment and commerce news outlet Pymnts.com reported today, July 16, that seven Venezuelans claim to have been lured into a $30 million worth digital currency Ponzi scheme conducted by companies such as Eagle Financial Diamond Group Inc. and Argyle Coin. The cryptocurrency involved into the fraud was reportedly pegged to diamonds.

The frauds allegedly used raised funds to pay back earlier investors

The plaintiffs accuse Canadian financial commentator Harold Seigel, his son Jonathan Seigel and his partner Jose Angel Aman — the principal behind Argyle Coin — of misleading with promises of huge returns on the investments.

The plaintiffs have reportedly never seen documentation indicating allocation of the invested funds, nor have they had access to their crypto wallets holding claimed Argyle Coins. The fraudulent investment scheme operators allegedly used the raised funds to pay back earlier investors. The complaint reportedly reads:

“The plaintiffs bring this lawsuit to get back not only their initial investment money, but also their owed interest on their invested funds, as per their contracts, and their owed attorneys’ fees and costs incurred in bringing forth this action.”

The U.S. SEC’s crackdown on the confirmed cryptocurrency Ponzi scheme

In late May, the United States Securities and Exchange Commission (SEC) halted the aforementioned crypto Ponzi scheme after it had taken funds worth $30 million, with Aman becoming subject to legal action in connection with the fraud. Eric I. Bustillo, director of the SEC’s Miami Regional Office, said at the time:

“As alleged, Aman operated a complicated web of fraudulent companies in an effort to continually loot retail investors and perpetuate the Ponzi schemes as well as divert money to himself.”

That same month, the SEC initiated court proceedings against California resident Daniel Pacheco for allegedly operating a multimillion-dollar crypto pyramid scheme. The SEC accused Pacheco of conducting a fraudulent, unregistered offering of securities through two California-based companies, IPro Solutions LLC and IPro Network LLC, from January 2017 through March 2018.

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Co-Founder of Now-Defunct BitFunder Gets 14 Months Imprisonment

The co-founder of defunct Bitcoin exchange BitFunder has received 14 months imprisonment in connection with federal charges of obstruction of justice and securities fraud.

The operator of now-defunct Bitcoin (BTC) exchange BitFunder, Jon Montroll, has received a 14 months prison sentence following federal charges of obstruction of justice and securities fraud, finance and trading industry news outlet FinanceFeeds reported on July 12.

The proceedings against Montroll began last year. In July 2018, Montroll pleaded guilty to obstruction of justice, admitting that he provided false balance statements to the United States Securities and Exchange Commission in an investigation of the fake 6,000 BTC BitFunder hack in 2013.

The proceedings against Montroll ended on July 11, 2019, wherein Judge Richard M. Berman of the New York Southern District Court ruled to imprison Montroll for 14 months and determined 3 years of supervised release. Although Montroll’s counsel argued in favour of a probationary sentence, the government made a case for a sentence from 27 to 33 months’ imprisonment.

Recently, U.S. District Judge Sandra J. Feuerstein sentenced 44-year old New Jersey resident Blake Kantor to 86 months in prison for running a cryptocurrency-related scheme. Feuerstein also ordered Kantor to pay a total restitution of $806,405 distributed to the victims who invested in his scam, as well as forfeiture of $153,000 in stolen proceeds.

In May, the SEC initiated court proceedings against California resident Daniel Pacheco for allegedly operating a multimillion-dollar cryptocurrency pyramid scheme. The SEC accused Pacheco of conducting a fraudulent, unregistered offering of securities through two California-based companies, IPro Solutions LLC and IPro Network LLC, from January 2017 through March 2018.

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Indian Authorities Arrest 4 Individuals Accused of Crypto Ponzi Scheme

Indian authorities arrest four individuals believed to be behind the crypto KBC, which allegedly used a pyramid scheme to encourage investments, promising a 100x ROI.

The Criminal Investigation Department (CID) of India has arrested Vijay Prajapati, Dhiraj Patel, Kamruddin Syed, and Ashiq Shaikh, the alleged creators of the cryptocurrency KBC Coin, according to a report by The Times of India on July 4.

As per the report, the CID argues that KBC is a Ponzi Scheme

KBC reportedly launched 6 months ago, and its price has not moved since. KBC coins were reportedly issued at 10 paisas apiece, with the promise that they would skyrocket in value to 10 rupees in a short time ⁠— a 100-fold return on investment. 

According to a CID member, an individual named Baljeetsingh Lashkariya promoted KBC via a pyramid scheme, saying that the “first investor in the chain would get an incentive from the last circle of investors. This offer played a major role in bringing more investors to the company.” 

Lashkariya and another promoter, Mohan Patel, have reportedly “gone underground.”

As previously reported by Cointelegraph, Indian legislators have recently proposed a bill that would punish crypto enthusiasts in the country with up to 10 years in jail for violating the country’s anti-crypto laws.

This enforcement policy is apparently part of the proposed bill “Banning Cryptocurrencies and Regulation of Official Digital Currency Bill 2019,” said The Block.

Early drafts of this bill appeared at least as far back as April as a means to ban crypto activities in India.

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Exit Scam? Dublin-Based Exchange Bitsane Vanishes With Users’ Funds

Ireland-based cryptocurrency exchange Bitsane has apparently vanished, taking as many as 246,000 users’ crypto deposits with it.

Ireland-based cryptocurrency exchange Bitsane has apparently vanished, taking as many as 246,000 users’ crypto deposits with it. The news was reported by Forbes on June 27.

Launched in 2016, Dublin-registered Bitsane LP was formerly listed as one of Ripple’s approved exchanges — a January 2018 CNBC article had also pitched the exchange as an option for investors seeking to trade XRP ahead of its listing on major platforms such as Coinbase.

According to Forbes, user withdrawals on Bitsane began faltering in May of this year, with allegedly technical reasons cited as the reason for their temporary disabling. By June 17, both the Bitsane site and its social media accounts had been deleted, with emails to Bitsane accounts bouncing back as undeliverable.

Moreover, neither the exchange’s CEO — Aidas Rupsys — nor its chief technology officer, Dmitry Prudnikov, could be reached by Forbes during the magazine’s investigation into the case. At press time, Prudnikov’s LinkedIn profile appears to have been deleted.

As of May 30 2019, Bitsane counted 246,000 registered users, with a daily traded volume of just over $7 million on March 31, per CoinMarketCap.

User groups on messaging platform Telegram and Facebook reveal users claiming to have typically lost up to $5,000, with Forbes citing an anonymous U.S. resident who says he had $150,000 in XRP and bitcoin (BTC) on the exchange prior to the company’s disappearance.

Forbes further reports on a separate firm, incorporated in the United Kingdom as Bitsane Limited by Maksim Zmitrovich in August 2017, which apparently attempted to purchase the intellectual rights to Bistane’s code and use it as the basis for its own platform, dubbed Azbit. 

According to Zmitrovich, the firm has assumed the Bitsane name to fulfil a condition set by Bistane’s developers, yet the desired partnership between the two firms failed to materialize. 

In a blog post published earlier this month, Zmitrovich has vehemently denied any substantive link between Azbit and the apparent exit-scam, noting that the Bitsane team has failed to respond to any of his correspondence since April of this year.

While Forbes notes that multiple Bistane users based in the U.S. have reportedly filed complaints with the F.B.I., solutions for those affected by the platform’s disappearance currently remain unclear.

Earlier this month, reports surfaced that Polish crypto exchange Coinroom reportedly shut down its operations and disappeared with customer funds, having notified users they had just one day to withdraw funds before their contracts would be terminated.

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U.K.’s Biggest Store Tesco Pumps Bitcoin With ‘Bill Gates’ Twitter Scam

No consumers sent funds to an address promoted via the social network, with Tesco managing to restore order.

The largest supermarket chain in the United Kingdom was left red-faced this week after hackers took over its Twitter account to promote a bitcoin (BTC) scam. The news surfaced via IT magazine Bleeping Computer on June 25.

Tesco, which has almost 550,000 Twitter followers, lost control of its account and began claiming it would give away free bitcoins in return for investments.

The hackers appeared to have an affinity with Microsoft founder, Bill Gates, using his avatar and changing Tesco’s handle to ‘Billgatesmsc.’

“Bitcoin is on the rise again! One day, it will without doubt replace fiat currencies,” one deleted tweet read in a style which closely mimicked previous scams involving ethereum (ETH) which pervaded Twitter last year.

“I’d like to give back to the community, therefore any bitcoin you send to this address, I will send back double! Comment your BTC address below when done.”

The address the hackers supplied never received any funds. Tesco subsequently regained access to its account, deleting all traces of the episode. 

It remains unknown how the hackers managed to compromise the account.

The timing appeared deliberate; as Cointelegraph continues to report, bitcoin is currently trading at its highest since the end of its record-breaking bull market in December 2017. 

The cryptocurrency has broadly returned to public consciousness, thanks mainly to increased mainstream media coverage. 

“It’s been about a month since this new wave of scammers started up again. Last time was August-December 2017,” educator and ‘Mastering Bitcoin’ author, Andreas Antonopoulos, wrote last week about the increasing prevalence of scammers this year. 

“The price dump in crypto made them go away and now they’re back.”

Scams such as Tesco’s meanwhile continue to appear outside the crypto industry, with Sweden’s government another recent victim. In April, attackers successfully managed to tweet that the country had changed its official currency to bitcoin. 

In an interview later on, the person responsible told local press outlet Trijo that personal political leanings formed his motivation for compromising the Social Democrats’ Twitter page.

“I simply think socialism is wrong,” he said.

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Europol Arrests Six People Allegedly Behind $27 Million Bitcoin Theft

Europol arrests 6 unnamed individuals in the U.K. and the Netherlands under suspicion of involvement in a multimillion-dollar crypto theft.

Europol, in conjunction with the United Kingdom’s South West Regional Cyber Crime Unit, the Dutch police, Eurojust, and the U.K.’s National Crime Agency (NCA), has coordinated the arrests of six people suspected of stealing over $27 million in cryptocurrency, according to a press release on June 25.

The attackers reportedly were involved in typosquatting, a fraudulent means to steal credentials by setting up a scam website with a similar name to an established one—hence the “typo” in “typosquatting”—and then recording login data. 

In this case, the report notes that Europol believes the hackers were able to use typosquatting to steal login details, letting them gain access to client wallets and the funds inside. Europol reports that the hackers used this scheme to steal from at least 4,000 bitcoin (BTC) users in 12 different countries.

The six individuals were reportedly based in the U.K. and the Netherlands. As per the report, Europol provided coordination for the British and Dutch agencies, who shared information and evidence at their headquarters preceding the arrests.

As previously reported by Cointelegraph, malware watchdogs found a Cryptohopper clone website stealing crypto login credentials. The website uses the same logo as the genuine crypto trading tools website Cryptohopper to trick users into installing its executable, which downloads and runs mining and clipping trojans designed to steal cryptocurrency.

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CabbageTech Crypto Scheme Operator Pleads Guilty to Wire Fraud

A 46-year-old New York resident Patrick McDonnell admitted to stealing funds obtained from his clients instead of investing them in cryptocurrency.

46-year-old New York resident Patrick McDonnell admitted to stealing funds obtained from his clients instead of investing them in cryptocurrency, Bloomberg reports on June 21.

Per the report, McDonnell — who calls himself the “coyote of Wall Street” — pleaded guilty to wire fraud on Friday in federal court in Brooklyn. He allegedly declared:

“I claimed to invest it in virtual currency and spent it on personal expenses.”

McDonnell attracted investors to his firm CabbageTech by claiming on social media to have traded over $50 million worth of bitcoin (BTC) for thousands of clients. Bloomberg reports that, instead of investing in the interest of his clients, McDonnell appropriated the funds for his own use and spent at least $194,000.

U.S. Attorney for the Eastern District of New York Richard P. Donoghue unsealed a nine-count indictment against McDonnell on March 26, the same day as his arrest. Donoghue stated in a press release:

“As alleged, the defendant defrauded investors by making false promises and sending them fraudulent balance statements, hiding the fact that he was stealing their money for his personal use.”

Per the terms of a plea agreement, McDonnell will reportedly serve between two and 2 1/2  years in prison. CabbageTech has been permanently barred for fraud after the United States Commodities Futures Trading Commission (CFTC) won a court order in August of last year.

Earlier this month, the CTFC launched an enforcement action against a reportedly fraudulent $147 million bitcoin investment scheme. The commission claims that United Kingdom-based Control-Finance Ltd defrauded more than 1,000 investors to launder at least 22,858 bitcoins.

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Riviera Beach City Council Agrees to Pay $600,000 in BTC to Ransomware Attackers

The city council of Riviera Beach, Florida, has agreed to pay nearly $600,000 worth of BTC to regain access to data lost in a hacker attack.

The city council of Riviera Beach, Florida has agreed to pay nearly $600,000 worth of Bitcoin (BTC) to regain access to data encrypted in a hacker attack, the New York Times reported on June 19.

On May 29, the city experienced “a data security event” when a police department employee opened an allegedly infected email attachment, which eventually resulted in the online system breakdown. The hackers allegedly encrypted government records, blocking access to critical information and leaving the city without an ability to accept utility payments other than in person or by regular mail.

A city spokeswoman, Rose Anne Brown said that the city had to spend over $900,000 on new computer software that had been planned for next year. Following the event, the city council unanimously agreed to pay 65 BTC ($592,000 at press time) to restore access to the data and get their systems back online, although there is purportedly no guarantee that the hackers will release the data upon receiving payment.

Michael van Zwieten, director of technology services at the Florida League of Cities, said:

“All cities, whether large or small, are by nature very cost-conscious when it comes to budgeting for technology investments. The mid- to small-sized cities are especially strained when it comes to finding the necessary resources to keep their technology current. There are only a finite amount of dollars that can be divvied up within the city to fund the services its citizens are expecting.”

In May, the city of Baltimore experienced a similar hacker attack, wherein cybercriminals allegedly took over roughly 10,000 government computers and paralyzed the work of the local utility system using a ransomware called RobbinHood. The hackers demanded nearly $100,000 worth of BTC to release the back up. The hackers threatened to increase the ransom in the event of not paying in four days.

In response, Baltimore Mayor Jack Young said that the city officials are “well into the restorative process” and “engaged leading industry cybersecurity experts who are on-site 27-7 working with us.”

As recently reported, blockchain intelligence firm Chainalysis claimed that 64% of ransomware attack cash-out strategies involve the laundering of funds via cryptocurrency exchanges. Among other ransomware cash-out strategies analyzed, 12% involved mixing services and 6% involved peer-to-peer networks, while others went via merchant services providers or dark web marketplaces. 9% of ransomware proceeds reportedly remain unspent.

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Recent Firefox’s Zero-Day Flaw Was Used in Attacks Against Coinbase’s Employees

The recently reported Firefox’s zero-day flaw was used by hackers to attack Coinbase employees on June 17.

The recent Firefox’s zero-day security flaw was used in attacks against major crypto exchange and wallet service Coinbase, according to a tweet from Coinbase security researcher Philip Martin posted on June 20.

As Martin found, the reported critical zero-day vulnerability in Mozilla’s Firefox web browser, which was announced on June 18, has actually emerged along with another zero-day flaw that targeted Coinbase employees, meaning that there were two separate Firefox zero-day attacks.

The Coinbase security expert tweeted:

“On Monday, Coinbase detected & blocked an attempt by an attacker to leverage the reported 0-day, along with a separate 0-day firefox sandbox escape, to target Coinbase employees.”

Martin continued that Coinbase was not the only crypto-related company targeted in the campaign, adding that the firm is working to report other businesses that they believe were also targeted. He emphasized that the company’s security team has seen “no evidence” that the exploit targeted Coinbase customers.

Coinbase Security first reported on the security flaw along with Samuel Groß, security researcher with Google Project Zero’s security team, who argued that he first reported the bug to Mozilla on April 15, 2019.

Following these reports, Mozilla released security updates for its browser, admitting that the company is “aware of targeted attacks in the wild abusing this flaw.”

Specifically, Mozilla released Firefox 67.0.3 and Firefox ESR 60.7.1 to fix the reported zero-day flaw tracked as CVE-2019-11707, describing it as a “confusion vulnerability can occur when manipulating JavaScript objects due to issues in Array.pop.”

Recently, crypto enthusiast John McAfee’s crypto trading platform suffered a denial of service (DOS) attack by hackers immediately after its launch.

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QuadrigaCX Co-Founder Used User Deposits for His Own Trading, Created Fake Accounts

The exchange’s deceased owner was transferring user funds off the exchange and using them in his own margin trading on other platforms.

The deceased owner of the now-defunct Canadian crypto exchange QuadrigaCX was allegedly transferring user funds off the exchange and using them as a security for his own margin trading on other platforms.

The news was revealed in the fifth report from court monitor Ernst & Young (EY), filed on June 19 with the Supreme Court of Nova Scotia.

EY has outlined its principal concerns in relation to the exchange, noting that its operations were “significantly flawed from a financial reporting and operational control perspective.”

In addition to most of the activities being directed by a single individual — the now-deceased co-founder Gerald Cotton — EY notes that there was neither segregation between duties and basic internal controls, nor any segregation of assets between Quadriga’s and user funds.

In this context, EY adds, Quadriga did not have any visibility into its profitability. Users’ crypto, the report states, was not exclusively maintained in the exchange’s wallets. Moreover:

“Significant volumes of Cryptocurrency were transferred off Platform outside Quadriga to competitor exchanges into personal accounts controlled by Mr. Cotten. It appears that User Cryptocurrency was traded on these exchanges and in some circumstances used as security for a margin trading account established by Mr. Cotten.”

In addition, Cotten reportedly created fake “identified” accounts on Quadriga under multiple aliases “into which unsupported Deposits were deposited and used to trade within the platform.” This, EY, states, resulted in “inflated revenue figures, artificial trades with Users and ultimately the withdrawal of Cryptocurrency deposited by Users.”

In his trading on competitor exchanges, EY notes that Cotten incurred trading losses and incremental fees that subsequently adversely affected Quadriga’s cryptocurrency reserves.

Notably, EY says it has been unable to confirm the identity of wallet holders to which substantial sums of crypto were transferred. As of the filing date, a reported 76,000 users are owed a combination of fiat and crypto by Quadriga, at an aggregate value of CD$214.6 million ($162.2 million).

Competitor exchanges reportedly received multiple forms of crypto from Quadriga wallets from 2016-19 including 9,450 bitcoin (BTC), 387,738 ether (ETH) and 239,020 litecoin (LTC).

The report outlines in detail the crypto transfers and liquidations that EY identified from Quadriga to date, with varying success — among which CD$80 million ($60.5 million) in BTC remains unaccounted for, having been sold via an unnamed third-party exchange.

As previously reported, Quadriga had initially filed for creditor protection when — following the death of its co-founder Gerald Cotten — the exchange ostensibly lost access to its cold wallets and corresponding keys that allegedly held the assets owed to its clients.