On Friday, March 8, the US Attorney for the Southern District of New York (SDNY), announced charges against several people behind OneCoin for allegedly operating a multibillion-dollar pyramid scheme involving the sale of fraudulent cryptocurrency.
According to the announcement, Konstantin Ignatov, was arrested at Los Angeles International Airport on March 6 for wire fraud conspiracy. Ignatov's sister, Ruja Ignatova, a founder of OneCoin, was indicted for wire fraud and securities fraud, as well as money laundering offenses, although she currently remains at large.
The US Attorney says that OneCoin Ltd. operates as a tiered "marketing network" in which participants are paid on commission to enlist other members in the purchase of digital currency "packages." This method caused a massive growth in the OneCoin member base, which the company claims numbers more than 3 million worldwide. The OneCoin project is still operational, although its website has been removed and the token is not listed on CoinMarketCap.
In addition to promising investors "big returns and minimal risk," Ignatov and Ignatova also claimed that the OneCoin token was "mined" using rigs controlled by their company and that they utilized a private blockchain platform to record transactions. An FBI and IRS-Criminal investigation revealed these claims to be false and showed that the pair issued fake coins that didn't exist to their investors.
FBI Assistant Director-in-Charge William Sweeney, Jr. explained the details of this the OneCoin pyramid scheme:
"As we allege, OneCoin was a cryptocurrency existing only in the minds of its creators and their co-conspirators. Unlike authentic cryptocurrencies, which maintain records of their investors' transaction history, OneCoin had no real value. It offered investors no method of tracing their money, and it could not be used to purchase anything. In fact, the only ones who stood to benefit from its existence were its founders and co-conspirators."
According to the release, the investigation revealed that "between the fourth quarter of 2014 and the third quarter of 2016" OneCoin raked in €3.353 billion in sales revenue and earned 'profits' of €2.232 billion."
Perhaps the most damning evidence against the duo found by the investigation is an email sent by Ignatova to an unnamed co-founder that discussed an "exit strategy." What was the first option for the exit strategy? "Take the money and run and blame someone else for this…"
In addition to the arrest of the sibling OneCoin schemers, a United States lawyer named Mark Scott was arrested in September 2018 on allegations that he helped Ignatov and Ignatova launder their money by filtering more than $400 million through bank accounts in the Cayman Islands, Ireland, and elsewhere.
If convicted, Ignatov faces up to 20 years in prison. The charges against Ignatova, however, could earn her up to 85 years in prison if convicted. Scott faces a maximum penalty of 20 years in prison.
OneCoin has been at the center of multiple investigations. In June 2017, the Central Bank of Samoa issued a public warning to investors to stay away from OneCoin. In October 2017, police in Finland completed an investigation into an unnamed person connected with OneCoin whom they suspected of tax fraud. In May 2018, the Chinese police reported they had recovered 1.7 billion yuan ($267.5 million) from OneCoin.