Crypto has had its share of fraud cases, which is true for the financial industry in general. In this article, Bankless Times delves into the circumstances surrounding the people behind the ten biggest crypto fraud cases in history. Who were they, what did they do, and how much damage did their enterprises cause investors and the broader market? Most of these crypto fraud masterminds were highly educated and quite convincing, fooling venture capital firms and individual investors alike.
1. Sam Bankman-Fried, FTX
Sam Bankman-Fried graduated from MIT, and his parents are faculty members at Stanford University. The 31-year-old founder of the collapsed cryptocurrency exchange FTX masterminded one of the biggest crypto fraud cases in US history, inflicting damages of $10 billion. He squandered the money of FTX customers on luxurious properties and trips, high-profile ads, and political donations to amass influence, all while hiding a mountain of debt.
He fooled the tech elite of Silicon Valley with breathtaking ease. One example is Sequoia Capital, one of the Valley’s leading venture capital firms. FTX was raising funds amid the booming wave of cryptocurrency in 2021, which facilitated the biggest crypto fraud case. SBF’s pitch immediately convinced Sequoia Capital.
He said he wanted “FTX to be a place where you can do anything you want with your next dollar” and gave examples: buying Bitcoin, buying bananas, and sending money to anyone, anywhere, in whatever currency. According to the Guardian, he delivered that crypto fraud pitch while playing video games. Sequoia even shared it on its website.
Anthony Scaramucci’s investment company SkyBridge Capital invested $10 million in FTX after the now-defunct exchange purchased a 30% share. When FTX collapsed, SkyBridge lost$9.6 million of that amount. Scaramucci had been a huge fan of the man who perpetrated one of the most significant crypto fraud cases, accompanying him to numerous events and promoting FTX on social media.
Sam Bankman-Fried’s crypto fraud brought him a sentence of 25 years in prison.
2. Do Kwon, Terraform Labs
Do Kwon, a Stanford University Graduate and native of South Korea, is the founder of Terraform Labs, which issued the cryptocurrency Luna and the stablecoin TerraUSD. This stablecoin led to the Terra ecosystem’s collapse and enabled one of the most prominent crypto fraud cases to occur.
According to the US Securities and Exchange Commission, Kwon and Terraform misled investors about the stability of the “stablecoin,” which was supposed to maintain a value of $1. In addition, they misrepresented that Chai, a popular Korean mobile payment app, ran on Terraform’s blockchain.
In May 2021, TerraUSD slipped from its currency peg to the US dollar. In the next stage of his crypto fraud scheme, Kwon arranged for a third party to buy a large amount of the stablecoin to restore the peg. He lied about the stablecoin’s algorithm being behind the recovery. Exactly a year later, TerraUSD lost its peg, and its value sharply declined.
Terra was the third-biggest cryptocurrency ecosystem after Bitcoin and Ethereum, but it collapsed in just three days, wiping out$50 billionfrom the market. Dozens of companies declared bankruptcy thereafter.
According to Bloomberg, the crypto fraud mastermind has lost almost all his wealth, and hundreds of investors lost their life savings. A jury in Manhattan found Do Kwon and Terraform liable oncivil fraud charges. Do Kwon fled South Korea and Interpol issued a notice on him. His whereabouts were unknown for about a year.
In March 2023, the crypto fraud mastermind was arrested in Montenegro, trying to board a plane to Dubai with a fake passport. Both the US and his native South Korea want him extradited on criminal charges. He was recently released on bail from prison in Montenegro. His crypto fraud seems to have caught up with him.
3. Ruja Ignatova, OneCoin
OneCoin, widely regarded as one of the biggest crypto fraud cases in history, was launched in late 2014. It claimed to be a decentralizedcryptocurrencybut emerged as a centralizedPonzi schemerunning via OneCoin’sservers. Ruja Ignatova, a doctor of law, set up the scheme, with Karl Sebastian Greenwood responsible for the distribution.
Crypto fraud project OneCoin claimed its main activity was selling educational material. The lowest price of an “educational package” was 100 euros, with some going up to 225,500 euros.According to alawsuit former investors filed, a lot of the content had been copied from free sources.
Customers also got tokens they could supposedly use tomineOneCoin.Mining was said to take place at two locations in Bulgaria, Dr. Ignatova’s native country, and one in Hong Kong. The crypto fraud masterminds organized meetings, in which they focused on cryptocurrency investments, not education.
According to US prosecutors, the crypto fraud scheme brought in as much as $4 billion globally. Most of the victims were Chinese, and Chinese law enforcement authorities recovered the equivalent of $267.5 million in yuan.
Dr.Ignatova was put on the FBI’s 10 Most Wanted list after disappearing in 2017. Her last public sighting was over five years ago, and Newsweek speculated that the crypto fraud mastermind had undergone plastic surgery to change her appearance.
New documents obtained by theBureau for Investigative Reporting and Data (BIRD) indicate she may have been murdered. According to the documents, she was killed in 2018 on orders from a Bulgarian drug lord, Christophoros Amanatidis-Taki.
Greenwood was caught, found guilty of crypto fraud, and sentenced to 20 years.
4. Satish Kumbhani, BitConnect
Satish Kumbhani of India founded BitConnect, a purported crypto platform that was nothing more than another crypto fraud scheme. Customers of the platform could lend its native tokens in exchange for investment payments. BitConnect amassed $4 billion in the multi-level marketing Ponzi scheme, claiming its nonexistent trading algorithm was unbeatable.
Crypto fraud perpetrator Kumbhanideceived customers about BitConnect’s “lending program,” which actually involved paying early investors with later investors’ money. Eventually, the platform collapsed, and Kumbhani launched BitconnectX, another scam.
According to prosecutors, investors lost a total of $2.4 billion to Kumbhaniand his accomplices. The maximum possible sentence in this crypto fraud case is 70 years in prison.Reports emerged in August 2022 that Kumbhani had been arrested in India, but they were false, and he remains at large.
5. Faruk Fatih Özer, Thodex
Turkish crypto exchange Thodex was launched by Faruk Fatih Özer in 2017. It had a successful run until April 2021, when it had to undergo emergency maintenance. Thodex never reopened. Crypto fraud perpetrator Özer fled to Albania. More than 100,000 people lost over $2 billion in total, which he made away with.
He was caught and extradited to Turkey in June 2021, found guilty of fraud, money laundering, and organized crime, and jailed for 11,196 years.
6. Alex Mashinsky, Celsius Network
US prosecutors charged Alex Mashinsky, the ex-CEO and founder of crypto lending platform Celsius, with wire fraud and other crimes in July 2023. Allegedly, he masterminded an elaborate crypto fraud scheme to deceive customers, which eventually led to Celsius Network’s collapse. When the platform went bankrupt, its debt exceeded $1 billion.
Mashinsky is accused of committing crypto fraud by inflating the Celsius token price to attract customers, pocketing tens of millions in the process. He pled not guilty and will stand trial in September 2024.
7. Matthew Brent Goettsche, Bitclub Network
Bitclub Network was a crypto fraud endeavor that ran from 2014 to 2019. According to the US Department of Justice, it was a typical Ponzi scheme, where older investors were rewarded for recruiting new ones. In addition, the masterminds promised shares in crypto mining pools in exchange for investors’ funds. They wasted the money of “gullible” investors, whom Bitclub founder Matthew Brent Goettsche described as “dumb sheep.” He added he had designed “the whole model on the backs of idiots.”
All in all, the crypto fraud ploy earned its creators $722 million. Multiple people were charged, including Goettsche, who pled guilty to offering and selling unregistered securities and conspiring tocommit wire fraud as part of a plea agreement.
8. Gerald Cotton, Quadriga
Once Canada’s main and most trusted crypto exchange platform, Quadriga was found to have been based on crypto fraud right from the start. The people behind the exchange, which collapsed in 2019, were experienced scammers. The only person who had access to the platform’s wallets was the founder, Gerald Cotton. The wallets held scammed customers’ crypto worth $250 million.
Cotton died while on a honeymoon in India with his newly wedded wife, Jennifer Robertson. She testified in court that her late husband’s laptop was encrypted and she had never received the recovery key or password. Cotton had been the only one who had access to Quadriga’s cold storage system. As of 2023, the claims for crypto fraud against the exchange totaled $305.66 million.
9. William Ulbricht, Silk Road
Ross William Ulbricht created and operated Silk Road, a now-inactive online marketplace. It was a crypto fraud platform in the sense that Bitcoin was used to buy fake passports, drugs, and other illegal items. The San Francisco native was found guilty of conspiring to distribute illegal goods, drug distribution, and five other offenses.
He created Silk Road to let people buy and sell illegal items beyond law enforcement’s reach and ensured transactions were anonymous.
Ulbricht, who went by the nickname Dread Pirate Roberts, is doing a life sentence without the possibility of parole.
10. Mark Karpeles, Mt. Gox
Everyone has heard of Mt. Gox, but did you know the former CEO of this massive crypto fraud endeavor did less than a year in jail? Mark Karpeles, a French businessman and programmer, took over the world’s first Bitcoin exchange in 2011 and launched a software overhaul. In 2014, the platform faced a huge setback, losing Bitcoin worth almost $500 million at the time. It collapsed soon thereafter.
Authorities arrested crypto fraud mastermind Karpeles in Tokyo in 2015 and he spent around a year in custody. In 2019, prosecutors were able to prove he manipulated Mt. Gox’s records, falsely inflating its assets by $33.5 million.He was sentenced to 30 months in prison, but the sentence was suspended for four years: if he committed no additional crimes in the next four years, he wouldn’t do any time. And he didn’t.
Final thoughts
Some of these genius masterminds of crypto fraud paid for their crimes; others didn’t. The only thing they have in common is that their crimes were revealed.
