The biggest crypto scam in history?

In today’s Finshots, we tell you how an Oxford alumnus pulled off the biggest crypto scam in history.

The Story

In 2016, Ruja Ignatova, a Bulgarian-born German businesswoman addressed a cheerful crowd at Wembley Football Arena in the United Kingdom.

She passionately exclaimed, “OneCoin is on course to becoming the world’s biggest cryptocurrency so everyone can make payments everywhere!” She swore that it would be a “Bitcoin Killer”, and that nobody would ever speak of Bitcoin in the years to come.

By then, the British had already spent almost €30 million on OneCoin. And extravaganzas like the one at Wembley only helped increase the rate at which these folks poured money into this strange opportunity.

They’d seen how the renowned success of Bitcoin, a groundbreaking decentralised digital currency, reaped substantial profits for its early backers. And many of them who could not capitalise on this trend, did not want to miss the bus again.

Between 2014 and 2017 investors from Hong Kong to Pakistan to Canada … and even Palestine invested over €4 billion in OneCoin.

But in 2017, OneCoin’s anxious investors, who failed while desperately trying to convert their coins into cash, attended a gathering at Lisbon, Portugal. They wanted answers and waited for explanations from Ignatova. And guess what?

She never showed up.

Ever since, many international agencies including the FBI (Federal Bureau of Investigation) have been investigating her whereabouts.

But who is this mysterious woman? And how did she even manage to pull off such a legit looking cryptocurrency scam?

Well, let’s take it from the top.

In 2014, Ignatova partnered with Karl Sebastian Greenwood to start a cryptocurrency. They called it OneCoin.

Now you’d think that it would work just like any other cryptocurrency. It would probably have to be mined on a decentralised network of sorts called a blockchain. For context, a blockchain is a ledger where every cryptocurrency transaction gets recorded and validated. And it’s decentralised because it can run without any oversight or control from a single person, a central authority or even a government.

But with OneCoin things were different. Investors would just have to enrol for a OneCoin membership. These packages cost anything between €140 to €118,000. The bigger the package, the wealthier you’d become because the scheme was simple. OneCoin would sell educational course material with every package their investors bought. These courses covered stuff like cryptocurrencies, trading and investing. And this was considered OneCoin’s main business.

Another thing that also came with these memberships was tokens to buy OneCoins. These OneCoins could be converted into cash on an exchange that the company built. So investors could buy expensive Guccis, Lamborghinis, villas or anything else they wanted. And since their coins would determine their value from the demand and supply on a blockchain it operated over, more people would mean a stronger OneCoin and richer investors.

It was quite a sparkling get rich quick scheme. And people were getting rich for real too. Because here’s what we didn’t tell you.

OneCoin’s packages also lured its investors to sell OneCoins to their friends, family and acquaintances, so that it would eventually build a network and rake in more money.

To put things into perspective, imagine that you pay €1000 and buy a OneCoin package. You get access to courses, and tokens to more OneCoins. You then tell two of your friends to buy it. You tell them how amazing OneCoin’s content is and that they can actually buy expensive stuff a few years later with the OneCoins they have. If you successfully convince them, you earn a cut for hiring new people. They carry forward this chain and the more people all of you have working under you, the more money you make.

If your friends don’t want to join the scheme, that works perfectly too. You can still make money by just selling OneCoins.

And for it to seem genuine, OneCoin started off with large multi level marketing agencies that already had established networks of people. These agencies would obviously be able to quickly sell more OneCoins and memberships. So it would create the perfect mirage of huge earnings.

One successful multi level marketer based out of the Netherlands for instance, was able to make a whopping €90,000 in his first month itself! And many marketers like these would be invited to expensive parties and events like the one Ignatova hosted at Wembley. That’s how tactfully OneCoin expanded its network. It was an apt pyramid scheme.

But for OneCoin’s investors it was a flawless money minting machine backed by an Oxford alumnus, a PhD holder from Konstanz and an ex-employee of McKinsey and Company, a respected management consultancy firm. Yeah, Ignatova had quite an impressive background.

All of it seemed to be working just fine until one phone call changed everything. A few months after the Wembley’s event, Bjorn Bjercke, a blockchain expert got a rather shocking job offer. The recruitment agent who contacted him offered him a hefty pay package and perks.

His role? ― Create a blockchain for OneCoin!

Now, you can imagine what a whammy that would be. A cryptocurrency company had been operating for nearly 3 years without a blockchain!

And that tip off was enough to bring everything down like a house of cards. Bjercke blew the whistle on OneCoin and soon enough cryptocurrency enthusiasts discovered the truth. They found out that Ignatova and her partners in crime were manually assigning values to OneCoin. That’s how its value really exploded. The course material they sold was mostly plagiarised as well.

These folks tried to alert OneCoin investors too. But the trust Ignatova had built was hard to break. Several global governments like Bulgaria, Finland and Norway even began cracking down on OneCoin’s shenanigans. And in 2016, the Hungarian Central Bank warned that ‘OneCoin’ was a pyramid scheme. But despite these red flags, investors refused to believe that their ‘Cryptoqueen’ could be a scamster.

They only began to smell something fishy when OneCoin’s exchange began to fall apart. See, investors who owned coins could convert their coins to cash whenever they wanted, on a private exchange called xcoinx dot com. OneCoin obviously paid them from a pool of wealth they’d created. It was like paying old investors with new investors’ money. That’s how pyramid schemes work.

And since this exchange set daily limits on how much of their OneCoin balance investors could sell, there wasn’t a risk of investors withdrawing their money all at once.

But at the beginning of 2017, OneCoin abruptly shut down its exchange on the pretext of being under maintenance. Investors couldn’t cash out. And weirdly, it never reopened.

The only way for investors to know what was really happening was to attend the OneCoin event at Lisbon where Ignatova would make an appearance. That unfortunately, never happened and it all began to make sense. Ignatova vanished into thin air, leaving her accomplices in trouble. Greenwood was sentenced to 20 years in prison and was ordered to pay up $300 million last year.

As for Ignatova, chatter around her plausible death has been doing the rounds since the last few days. Investigations suspect that a Bulgarian drug lord who she hired to protect her may have actually killed her.

But without real proof the FBI won’t strike her name off their top 10 most wanted fugitives list. Could that mean that Ignatova is still alive?

Well, we can’t really tell. For all you know, she could be smartly faking her death to divert the attention of investigators, while living her best life on a yacht with the billions she swindled.

Until next time…

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