Tom has over 30 years of experience in the payments industry, including serving as CFO for various Visa International entities from 1980 until 1999, retiring with the title of Group EVP and Treasurer.
Tales of Ponzi schemes that are perpetrated upon Chinese citizens often escape mainstream news channels, but news travels fast when $3 billion is at stake. Yes, that figure is correct, based on a confession to Chinese Police by one of the insiders of, perhaps, the largest Initial Coin Offering (ICO) fraud on record. The “insider” that was recently apprehended also disclosed that over 10,000 investors were defrauded in an obvious Ponzi scheme that has gone by the name of Plus Token.
The word on the street now is that these crooks, after moving the funds about in a multitude of money laundering layering transactions, are now beginning to liquidate their holdings. Sell orders from 50 to 100 BTC are being dumped “incessantly”, per one source, on the open market, during this latest downturn. This is the first time that analysts have cited fraudulent transaction conversions, as a cause for BTC carnage.
As Ponzi schemes go, this one is approaching Bernie Madoff status. The ICO promoters began their sales campaign in mid-2018. According to Dovey Wan, founding partner of blockchain-based investment company Primitive Ventures, the marketing program touted above-market returns, anywhere from 6% to 18%, a classic trait of Ponzi-ism, but these guys went one step further – they offered four levels of membership, based on your deposit amount, with returns escalating upwards as you went up their tiered membership criteria. Wan is also known for her unique perspective on crypto happenings in the Chinese ecosphere.
Wan has been diligently following wallet addresses connected to the theft and claims that BTC, ETH, and EOS, the primary tokens used by the Plus Token criminals, and she is now pleading with various exchanges to “blacklist” these addresses. To track these capital flows, she has also employed the security audit firm Peckshield and implored Chainalysis, another crypto analysis firm, to assist her in the process.
Time is of the essence. Wan is very concerned that funds are now on the move and understands that it is impossible to roll back any of these transactions. She explains: “Many of their BTC addresses are started with P2SH which commonly used for mutil-sig, most likely some people who hold the keys are not being caught hence police can’t unlock the wallet. For EOS/ETH wallet can be diff case but so far police was not able to touch any of those.”
As for the Plus Token ICO that went bad, CipherTrace, a respected blockchain security firm, recently reported in its latest crypto industry fraud update that this fraud was by far the largest theft in 2019. Of the $4.3 billion in aggregate crypto losses thus far in 2019, Plus Token was the major contributor, an exit scam to beat all exit scams to date. It may also be the largest ICO fraud in history, since total losses over the previous years in the ICO space have never exceeded $2 billion in a single year. Chinese traders have also openly stated that someone is constantly sending 100 BTC sell orders to Binance, one of the crypto exchanges that the crooks are using to launder their funds.
Blockchain analysis tools have been evolving almost as fast as crooks find new ways to hide their ill-gotten gains by funneling them through “mixers” or other devices to cover their tracks. There is also the promise that new rules pressed forward by the Financial Action Task Force (FATF) may also help to curb illicit fund flows. The “travel rule”, as it is called, will require exchanges to disclose the sender’s and receiver’s personal information for any transfer over $1,000.
In any event, Dovey Wan has informed all that will listen that the crooks still control enormous sums of Bitcoin and other altcoins and are actively trying to launder them through Huobi, Bittrex, and Binance exchanges. These exchanges have not gone on alert, since Chinese authorities never shared information about the crime, due in part by “red tape”, per one report. Victims are spread all over Asia, including China, South Korea, and Japan.