Government crackdowns on cryptocurrency scams worldwide
As cryptocurrencies rose from an obscure project to a major sphere for investment and trading with a total capitalization measured in billions of dollars, their deregulated nature inevitably gave rise to a great number of schemes. Why did this sphere become so seedy? It seems the answer is not just deregulation.
- The extremely volatile nature of cryptocurrencies allows risky but potentially very profitable trades;
- The reputation of “getting rich quick” attracted a lot of adventurous people with little understanding of how cryptocurrencies work;
- The ease of starting one’s own blockchain-based project.
All this resulted in millions of inexperienced people seeking where to invest their hard-earned money to multiply it by a factor of ten overnight. Of course, scammers emerged, it’s the law of supply and demand. And the deregulated nature of cryptocurrencies made it particularly hard to oppose scammers; the only weapon against them was seemingly public outrage and exposure on the Internet. Until the governments intervened.
A scam, it turns out, is a scam no matter what kind of air is sold; cryptocurrency fraud is no less punishable by law than any other fraud. A trend of government law enforcement agencies intervening in cryptocurrency scams developed in recent years.
Russia and Kazakhstan vs Unnamed Scheme
Russian Ministry of Internal Affairs (MVD) reported in 2019 that a Kazakh citizen wanted for operating a local cryptocurrency-based Ponzi scheme was arrested in Barnaul, Altai Krai. The name of the con man was not made public, but it is reported by MVD that the criminal was wanted internationally by the Interpol after being declared so by the Kazakhstani police. The details on the scheme, including its name, were not made public either, but it is possible to deduce from the official reports that it was a Ponzi style pyramid scheme that promised exorbitant profits to its investors.
The con man escaped Kazakhstan shortly after being exposed by the Kazakh government and fled to the Russian city of Barnaul. After residing there for a short time, he attempted to board a train to Moscow, and that was where Russian police apprehended him.
US SEC vs IPro
Another recent scandal occurred in the U.S. state of California, where the federal Securities and Exchange Commission exposed a businessman named Daniel Pacheco as a fraud. Mr Pacheco was the founder of two cryptocurrency-based start-up companies, IPro Solutions and IPro Network. Pacheco’s companies offered a new cryptocurrency token (or, perhaps, what was advertised as a new cryptocurrency) in exchange for other forms of money; the company, however, did not sell any actual cryptocurrency, but rather entirely fiat “points”.
A court case was filed against Mr Pacheco, who is charged with operating a Ponzi scheme and appropriating investors’ funds, as reported by SEC . So far, the legal process is still ongoing, but it is highly likely that Daniel Pacheco will be found guilty of fraud.
Brazil vs Unknown Scheme
Another report from Spring 2019 comes from Brazil. Local police conducted a complex operation, codenamed “Operation Egypto”, against a major cryptocurrency scheme, the name of which was not made public. It was reported by the Brazilian news outlet Correio do Povo that the scheme, while advertising cryptocurrency, did not perform any actual transactions, making it a classic air salesman scheme. Despite such primitivism, the scammers managed to collect an equivalent of 200 million dollars; arrests and seizures resulted in the confiscation of luxury cars, gemstones and other expensive items bought for these ill-gained funds.
The official position of the Brazilian Federal Police is that trading and investing in cryptocurrency is not illegal according to Brazilian law, but this scheme was shut down due to a violation of a number of actual laws, including operating without official registration and accepting money for a nonexistent traded item.
Analyzing the trend
In the previous years, the prevailing reaction of authorities to the growing market of cryptocurrencies was general distrust. There were notions that the entire market must be banned and made illegal. Politicians and legislators claimed that all cryptocurrencies are harmful to a number of reasons:
- Making money from money without manufacturing any real goods harms the economy;
- Cryptocurrencies are used in the darknet to purchase illegal goods and services;
- The entire concept of cryptocurrency is allegedly a scam, they are not real currency;
- Mining cryptocurrency consumes a lot of electric power without immediate benefits to society;
Despite these notions, a mass ban of cryptocurrencies never happened. Some countries outlawed cryptocurrencies, some legalized them and produced laws that should regulate the cryptocurrency market, but mostly it remained in the grey zone of being neither regulated nor forbidden. This is exactly the situation in Russia, Kazakhstan and Brazil; cryptocurrency is neither regulated nor illegal in these countries.
Despite that, the governments of these countries still intervene in cases of obviously deleterious schemes while abstaining from general cryptocurrency crackdowns. This can be seen as a movement towards legalization and regulation of cryptocurrency in these countries; their governments no longer see all blockchain based currency as a criminal but prosecutes actual crimes where it is involved. Will the next step be legalizing, regulating and taxing cryptocurrency trade in these countries? Only time will tell. The prospect of taxing it alone could motivate them to legalize the trade.
Some countries such as China, on the other hand, stay adamant in their conviction to ban cryptocurrencies. China’s stance is motivated mostly by the over-consumption of electricity by the numerous cryptocurrency miners residing within the country.