Category: Fraud

HK SFC Details JPEX Probe; CEO Affirms Hong Kong’s Web3 Commitment

by Blockchain News

Key Takeaways

Hong Kong’s Securities and Futures Commission (SFC) has provided details on its investigation into the unlicensed virtual asset trading platform JPEX.

Over 2,000 people have reported being defrauded by JPEX, involving more than HKD 1.4 billion.

SFC CEO Leung Fung-yee emphasizes that the incident will not change Hong Kong’s direction in developing a Web3 ecosystem.

Background and Investigation Timeline

The Hong Kong Securities and Futures Commission (SFC) has shed light on its investigation into JPEX, an unlicensed virtual asset trading platform accused of fraud. The platform has received complaints from over 2,000 individuals, involving assets exceeding HKD 1.4 billion. The SFC began monitoring JPEX in early 2022, suspecting false claims on its website and advertisements. By July 2022, the platform was put on a watchlist due to its evasive responses. Formal investigations were initiated in June 2023, leading to an official warning issued on September 13, 2023.

Regulatory Stance

SFC CEO Leung Fung-yee stated that the incident underscores the importance of regulation. She emphasized that Hong Kong’s commitment to developing a Web3 ecosystem remains unchanged. “If there is no regulatory system, investors cannot identify which platforms are relatively safe and reliable,” Leung added.

Ongoing Police Investigation

When asked about the possibility of halting or collaborating with overseas financial regulators to block JPEX’s asset transfers, Christopher Wilson, Executive Director of the Regulatory Enforcement Department, said that the police are currently leading the related investigation and declined to disclose further details.

Transition Period Concerns

Regarding the 12-month transition period for virtual asset platforms to comply with new regulations, Huang Lexin, head of the SFC’s fintech group, said that the arrangement is to give platforms operating in Hong Kong reasonable time to apply for licenses and meet regulatory requirements.

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EminiFX CEO Sentenced to Nine Years for $240 Million Crypto Fraud Scheme

by Blockchain News

Eddy Alexandre, the CEO of a purported cryptocurrency and forex trading platform known as EminiFX, has been sentenced to nine years in prison for a $240 million fraud scheme. The sentencing was announced by Damian Williams, the United States Attorney for the Southern District of New York, on July 19, 2023.

Alexandre was found guilty of defrauding over 25,000 investors of more than $248 million through the EminiFX trading platform. The fraudulent scheme was operational from September 2021 to May 2022. Alexandre had promised investors high returns of at least 5% weekly through a “Robo-Advisor Assisted account” for automated investments in cryptocurrency and forex trading. He claimed this technology was his “trade secret” and refused to disclose any details about it.

However, the reality was far from the promises made. EminiFX did not generate 5% weekly returns for its investors. Alexandre did not invest a significant portion of the investor funds entrusted to him and incurred millions of dollars in losses on the limited funds he did invest. Furthermore, he misdirected at least approximately $14.7 million to his personal bank account, using $155,000 of investor funds to purchase a BMW car for himself and spending an additional $13,000 on car payments, including to Mercedes Benz.

The case against Alexandre is a stark reminder of the risks associated with cryptocurrency investments. It also underscores the importance of due diligence and skepticism towards promises of guaranteed high returns. 

In addition to his prison term, Alexandre was sentenced to three years of supervised release. He was also ordered to pay forfeiture in the amount of $248,829,276.73 and restitution in the amount of $213,639,133.53.

The Securities and Commodities Fraud Task Force of the Office handled the case, and Assistant U.S. Attorneys Nicholas Folly and Jared Lenow were in charge of the prosecution. The inquiry included participation from the Federal Bureau of inquiry and the Commodity Futures Trading Commission, which filed a separate civil lawsuit.

This sentencing follows Alexandre’s guilty plea earlier in February 2023, where he admitted to the fraudulent scheme. The case serves as a warning to cryptocurrency executives and investors alike, emphasizing the Southern District of New York’s commitment to prosecuting misconduct in the crypto markets.

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Terraform Labs Co-Founder Indicted for Terra Stablecoin Collapse

by Blockchain News

The Seoul Southern District Prosecutors’ Office has indicted Shin Hyun-seong, co-founder of Terraform Labs, and nine other individuals for their role in the collapse of the Terra stablecoin ecosystem. The 10 individuals were charged with fraud, breach of trust, and embezzlement after 11 months of investigation, with suspected illicit profits of nearly $350 million.

Shin is accused of misleading investors and falsely advertising the product despite knowing that the project was unfeasible, leading to significant losses. The indictment comes just days after a Seoul district court ruled that the Luna token was not a security and did not fall under the purview of the Capital Markets Act. The court had earlier refused the prosecution’s ten demands of charging Shin for violating security law.

Prosecutors have seized assets worth a total of $180 million from the indicted individuals. This includes assets belonging to Shin, who co-founded Terraform Labs, one of the budding crypto ecosystems that popularized the concept of algorithmic stablecoins. The collapse of the native stablecoin, TerraClassicUSD (USTC), de-pegged from its dollar value in May 2022, and the $40 billion ecosystem came crashing down.

The indictment of Shin and nine other executives comes just a month after former CEO Do Kwon was arrested in Montenegro. Prosecutors in Montenegro indicted Kwon on charges of document forgery, and he is also facing multiple charges of security fraud from the United States Securities and Exchange Commission.

Terra was a prominent crypto ecosystem that offered algorithmic stablecoins, which gained immense popularity. The Terra stablecoin ecosystem’s collapse has raised concerns about the credibility and reliability of stablecoins in the crypto market. Stablecoins are widely used in the cryptocurrency market to hedge against market volatility, and their reliability and stability are crucial for investors.

The indictment of Shin and his associates highlights the need for stricter regulations in the crypto market to prevent fraudulent activities and ensure investor protection. The Korean government has been taking significant steps to regulate the crypto market, with the latest being the amendment of the Act on Reporting and Use of Specific Financial Information to strengthen anti-money laundering regulations in the cryptocurrency sector.

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Turkish Crypto Exchange Founder Arrested

by Blockchain News

The founder of Turkish cryptocurrency exchange, Thodex, Faruk Fatih Ozer, has finally been arrested after two years on the run. Ozer was detained by the Istanbul Airport Police Department on April 20, following his arrival at Istanbul Airport from the Albanian capital of Tirana. The 27-year-old is facing charges of fraud and money laundering relating to allegations of an exit scam involving at least $2 billion worth of cryptocurrency stolen from Thodex.

The saga of the Thodex exchange began on April 22, 2021, when the platform abruptly halted trading and withdrawals amid reports of police raids at its offices. Local publications speculated that the suspension was part of an exit scam involving Ozer, who was alleged to have fled Turkey with the stolen cryptocurrency. Interpol subsequently issued a red notice for Ozer, who reportedly ran to Albania.

About a year after Thodex collapsed, Ozer was arrested in Albania in August 2022, and Turkish authorities issued a warrant for his extradition. After several months of legal proceedings, Ozer was finally extradited to Turkey to face charges. The detained founder is expected to undergo health check-ups and then will be taken to the Istanbul Police Department for questioning.

Following the collapse of Thodex, Turkish police detained 62 people over alleged involvement in the exit scam, including some of the then-missing CEO’s siblings. The detainees were charged with fraud, money laundering, and membership of a criminal organization. Turkish authorities have been working with international law enforcement agencies to track down the missing funds, which have been reported to be in various cryptocurrency accounts and exchanges.

The Thodex saga highlights the risks associated with investing in unregulated cryptocurrencies, particularly in countries where the legal and regulatory framework is still evolving. The collapse of Thodex and the subsequent arrest of Ozer has sparked a debate in Turkey about the need for greater oversight and regulation of the cryptocurrency industry. The Turkish government is reportedly working on a new regulatory framework for cryptocurrencies, which is expected to be unveiled later this year.

In conclusion, the arrest of Thodex founder Faruk Fatih Ozer marks a significant development in the ongoing investigation into the alleged exit scam involving the Turkish cryptocurrency exchange. While the recovery of the stolen funds remains a challenging task, the arrest of Ozer sends a strong message to other would-be cryptocurrency fraudsters that they cannot evade justice indefinitely.

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Terraform Labs CEO Sends Millions to Law Firm Before Collapse

by Blockchain News

South Korean prosecutors have confirmed that Terraform Labs CEO, Do Kwon, sent 9 billion won ($7 billion) to Kim & Chang, a top South Korean law firm, right before the spectacular collapse of the Terra ecosystem. This move by Kwon has been flagged by prosecutors as deliberate, reaffirming his awareness of the impending collapse and anticipated legal problems.

The Terra ecosystem, a blockchain-based payments platform, was launched in 2018 by Terraform Labs. The company’s cryptocurrency, LUNA, reached an all-time high in November 2021 before experiencing a sharp drop. Following this, Terraform’s system became unstable, leading to a spectacular collapse of the ecosystem.

KBS News reported that prosecutors believe Kwon’s decision to send millions to the law firm was a deliberate move to prepare for the anticipated legal issues that would arise following the collapse of the Terra ecosystem. Prosecutors are now trying to tie Kwon’s ill intent in prepaying the law firm, and they believe the information will help in the ongoing fraud case.

In addition to Kwon’s payment to the law firm, lawyers from Kim & Chang also visited Montenegro to meet with Kwon and Terraform’s former chief financial officer, Han Chang-joon. Kwon was later arrested at Podgorica airport in Montenegro after trying to fly to Dubai using fake documents. Following his arrest, both United States and South Korean authorities have sought Kwon’s extradition. However, the court is yet to decide.

On April 7, South Korean prosecutors revealed that they suspected Kwon of converting illicit funds from Terra (LUNA) to Bitcoin (BTC). The prosecutors requested Binance, a cryptocurrency exchange, to halt all withdrawal requests linked to Kwon.

Prosecutors have identified over $314 million in illicit assets associated with Terraform Labs co-founder Kwon and his associates, out of which about $69 million is reportedly directly linked to Kwon. The ongoing investigation is likely to reveal more information, shedding light on the Terra ecosystem’s collapse and the role played by Kwon and his associates.

In summary, Terraform Labs CEO Do Kwon’s prepayment of millions to a South Korean law firm right before the collapse of the Terra ecosystem has raised suspicions among prosecutors that his actions were deliberate. Prosecutors suspect Kwon of converting illicit funds from Terra to Bitcoin and have identified over $314 million in illicit assets associated with Kwon and his associates. The investigation is ongoing and is likely to reveal more information on the collapse of the Terra ecosystem and Kwon’s role in it.

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Former Banker Charged with Crypto Investment Fraud

by Blockchain News

In a recent case in the federal court in Brooklyn, New York, a former investment banker and registered broker named Rashawn Russell has been charged with defrauding numerous investors. According to court documents, Russell misled investors by promising profits on fake cryptocurrency investments and then used the funds he received to finance his personal lifestyle. It is alleged that Russell took advantage of the growing interest in cryptocurrency investments to deceive multiple investors into reinvesting their fiat savings into cryptocurrencies. He promised significant or even “guaranteed” returns on their investments, but instead used their money to fund his own lavish lifestyle.

The court documents indicate that Russell’s fraud involved a scheme where he would convince investors to invest their money in cryptocurrency, promising high returns. However, rather than investing the money as promised, Russell is accused of diverting the funds to his personal accounts to finance his lifestyle. The documents also reveal that Russell made false statements to investors, providing them with misleading information and financial reports to give the impression that their investments were profitable.

The alleged victims of Russell’s scheme suffered significant losses as a result of his fraud. According to the court documents, Russell’s scheme caused his victims to lose over $1 million. The victims include a retired police officer, a retired teacher, and a small business owner. Russell is facing multiple charges related to securities fraud, wire fraud, and money laundering.

This case highlights the risks of investing in cryptocurrency and the importance of due diligence when making investment decisions. Investors must be wary of promises of high returns and conduct thorough research before investing their money in any investment opportunity. The case also emphasizes the need for regulatory oversight and enforcement to protect investors from fraudulent activities.

In conclusion, Rashawn Russell, a former investment banker and registered broker, has been charged with defrauding investors with fake cryptocurrency investments and misappropriating funds to finance his lifestyle. This case serves as a reminder of the risks associated with investing in cryptocurrency and the importance of conducting due diligence before making any investment decisions. It also highlights the need for regulatory oversight and enforcement to protect investors from fraudulent activities.

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NFA issues new rule for digital asset commodities

by Blockchain News

The National Futures Association (NFA), the self-regulatory organization for derivatives markets in the United States, has issued a new compliance rule for its members engaged in digital asset commodities. The rule, which takes effect on May 31, is aimed at addressing fraud and misconduct committed by the over 100 NFA members involved in activities related to Bitcoin and Ether.

The NFA submitted the proposed new rule to the secretary of the Commodity Futures Trading Commission (CFTC) in a letter dated Feb. 28, 2023. The organization explained that while it has over 100 members engaged in activities with digital asset commodities, it had no way to address fraud or misconduct committed by those members. The new rule is designed to complement the requirements issued in 2018 and is modeled on the NFA’s antifraud rules for exchange-traded futures, swaps transactions, and retail foreign exchange.

As the only registered self-regulatory organization with delegated authority from the CFTC, the NFA has an analogous status to the Financial Industry Regulatory Authority with the Securities and Exchange Commission. Under the new rule, NFA members engaged in digital asset commodities will be subject to guidance on fraud, trade principles, and employee supervision.

Currently, the NFA only imposes disclosure requirements on its members engaged in spot commodity activities with digital assets. These requirements are detailed in a single document. However, with the new rule, members will be subject to more comprehensive guidelines that aim to promote fair and ethical conduct in the digital asset commodities market.

It’s important to note that the new rule applies only to Bitcoin (BTC) and Ether (ETH), as they are the only digital assets with related commodity interests certified by a registered entity for listing under Part 40 of CFTC Regulations. The NFA hopes that the new rule will help protect investors in the rapidly growing digital asset commodities market.

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Titanium Blockchain CEO Sentenced to Four Years in Prison

by Blockchain News

In a cryptocurrency fraud scheme that took place in late 2017 and early 2018, investors purchased BARs, a crypto token, to participate in an initial coin offering (ICO) for Titanium Blockchain Infrastructure Services (TBIS), a company founded by Michael Stollery. The ICO raised approximately $21 million from investors in the United States and overseas. However, in 2018, the United States Securities and Exchange Commission (SEC) accused Stollery of not registering the ICO with the regulator and other allegations.

In July 2022, Stollery pleaded guilty to one count of securities fraud for his role in the fraud scheme. He admitted to falsifying aspects of TBIS’ whitepapers, planting fake client testimonials on the TBIS website, and falsely claiming business relationships with the United States Federal Reserve, which misled investors about TBIS’ legitimacy and prospects for profit. He also admitted to commingling ICO investors’ funds with his own and using a portion to pay for unrelated expenses.

Although Stollery was facing up to 20 years in prison, he will instead serve a total of four years and three months for his involvement in the cryptocurrency fraud scheme. The SEC has been increasing its actions against the cryptocurrency space in recent years, with 30 enforcement actions against digital-asset market participants in 2022, up 50% from the 20 actions in 2021. Of the 30 enforcement actions in 2022, 14 involved initial coin offerings (ICOs), with more than half of these including a fraud allegation.

According to Abe Chernin, vice president of Cornerstone Research and co-head of its FinTech practice, the SEC continues to pursue actions alleging that tokens issued in ICO-related unregistered securities offerings were investment contracts subject to SEC regulation and enforcement. Chernin also noted an increase in assistance to the SEC from outside agencies and organizations during crypto-related investigations under the Gensler administration.

Overall, the sentencing of Michael Stollery is a reminder of the SEC’s increased scrutiny of the cryptocurrency industry and its commitment to prosecuting fraudulent activities.

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Terra co-founder sought for arrest

by Blockchain News

South Korean authorities are intensifying their efforts to track down and arrest Shin Hyun-Seong, also known as Daniel Shin, co-founder of cryptocurrency platform Terra. This follows the recent arrest of his fellow co-founder, Do Kwon, who was detained in Montenegro while attempting to board a plane using fake travel documents.

The authorities have suspected the involvement of numerous Terra colleagues in promoting unstable investment opportunities with Terra (LUNA) and TerraUSD (UST) tokens since November 2022. However, with Kwon’s arrest on March 23, 2023, they are now making a fresh attempt at Shin’s arrest, according to a Bloomberg report. The prosecutors are reportedly undertaking a renewed push to detain Shin, but no official announcement has been made public in this regard.

Authorities have previously alleged that Shin earned roughly $105 million in profits from illegal sales of LUNA tokens before Terra’s collapse. However, Shin claims to have had no involvement in Terra after January 2020, as evidenced by his LinkedIn profile. Nonetheless, arrest warrants have been sought for Shin, along with three investors and four engineers, on charges of fraud, breach of duty, violation of capital markets law, and illegal fundraising.

Meanwhile, Kwon remains detained in Montenegro after being caught with fake travel documents. While his legal representative claims that there was no intended use of fake documents, the Montenegrin court approved the extension of Kwon’s detention by 30 days upon request by the authorities. Kwon’s identity was not clearly identified, and he is considered a foreign national.

Terra, founded in 2018, is a blockchain-based platform that enables users to transact with stablecoins backed by fiat currencies. The platform’s main token, LUNA, has seen significant growth in recent years, with a market capitalization of over $20 billion as of March 2023. However, the platform has also been the subject of controversy, with allegations of insider trading and market manipulation.

The case against Terra’s co-founders and colleagues underscores the risks and challenges associated with investing in cryptocurrencies and other digital assets. As the market continues to evolve and attract greater scrutiny from regulators and law enforcement agencies, investors must exercise caution and due diligence to protect their interests.

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Former OneCoin Executive Charged with Fraud

by Blockchain News

The United States Department of Justice has charged Irina Dilkinska, a former executive of the fraudulent cryptocurrency scheme OneCoin, with wire fraud and conspiracy to commit money laundering. Dilkinska, who was extradited from Bulgaria, now faces up to 40 years in prison for her alleged role in aiding the laundering of over $400 million of OneCoin’s proceeds.

OneCoin was a cryptocurrency scheme that has been accused of being a Ponzi scheme and a fraudulent operation. The scheme was founded in 2014 by Ruja Ignatova, who was later indicted by the US government for her role in the scheme. Ignatova is currently a fugitive, and her brother, Konstantin Ignatov, has pleaded guilty to his role in the scheme.

Dilkinska was OneCoin’s former head of legal and compliance and is accused of aiding in the laundering of OneCoin’s proceeds. According to the Department of Justice, Dilkinska allegedly destroyed incriminating evidence and sent incriminating messages upon hearing of a co-conspirator’s arrest. Each count of wire fraud and conspiracy to commit money laundering carries a maximum potential sentence of 20 years in prison.

The OneCoin scheme has been accused of defrauding investors of billions of dollars, and the US government has been actively pursuing legal action against those involved in the scheme. The scheme operated by convincing investors to buy OneCoin tokens, which were then traded on the OneCoin exchange. However, the exchange was found to be fraudulent, and the tokens were worthless.

The OneCoin scheme has been the subject of numerous investigations and legal actions around the world. In addition to the charges against Dilkinska and Ignatova, several other individuals have been indicted in connection with the scheme. The US government has also seized millions of dollars in assets and bank accounts connected to the scheme.

The case against Dilkinska is another example of the US government’s commitment to pursuing those involved in fraudulent cryptocurrency schemes. The government has been increasing its efforts to regulate the cryptocurrency industry and crack down on fraudulent schemes in recent years. The Department of Justice has created a cryptocurrency enforcement framework to help prosecutors identify and investigate cryptocurrency-related crimes.

In conclusion, the charges against Dilkinska highlight the ongoing legal action against those involved in the OneCoin scheme. Dilkinska faces a potential prison sentence of up to 40 years for her role in aiding the laundering of OneCoin’s proceeds. The case is another example of the US government’s efforts to crack down on fraudulent cryptocurrency schemes and regulate the cryptocurrency industry.

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