Investment Scammers Use Crypto for Cover
When a ponzi scheme can no longer disburse returns to its members (investors), scammers create fake cryptocurrency tokens for distributing to investors as their purported returns on shares.
A woman buys in a store that accepts bitcoins in El Zonte, La Libertad, El Salvador on September 4, 2021. - The Congress of El Salvador approved in June a law that will make bitcoin legal tender in the country from September 7, with the aim of boosting its economy although analysts warn of a negative impact.
Cryptocurrency (crypto) trade is being used as a cover for ponzi schemes, Kompas has found.
JAKARTA, KOMPAS — One of the most common forms of crypto assets fraud in Indonesia appeares to be a ponzi scheme, a type of investment scam.
Kompas recently tracked down four illegal digital asset entities and discovered that scammers were using crypto as a way out.
When a ponzi scheme can no longer disburse returns to its members (investors), scammers create fake cryptocurrency tokens for distributing to investors as their purported returns on shares.
Also read:
>Understanding the Risks of Crypto Investment
> Investor Protection Should be a Priority
> Muhammad Lutfi: We are Improving Crypto Asset and E-commerce Regulations
Abdulrahman Yusuf, a former taxi driver, found himself in the defendant's chair at the Bekasi District Court on Monday (27/12/2021) as prosecutors demanded a 10-year prison sentence for allegedly embezzling public funds through a pyramid scheme for distributing used goods. The practice violated Article 9 of Law no. 7/2014 on trade.
Yusuf had been apprehended in his role as director of PT Cripto Prima Sejahtera (CPS), which issued Edinar Coin Cash (Edccash) in 2018.
Apart from claiming to be a digital asset, Edccash apparently did not use blockchain technology. Edccash was traded between partners (CPS members) or between partners and an internal exchange market.
To become a new partner, an individual had to make a minimum deposit of Rp 5 million, of which Rp 4 million was converted into 200 Edccash tokens, Rp 300,000 was a monthly subscription fee for the cloud service the app claimed could mine crypto tokens, and Rp 700,000 (in 35 Edccash tokens) was a commission for Upline (UPL) partners who recruited new members.
FILE - This May 12, 2021, file photo shows an advertisement for the cryptocurrency Bitcoin displayed on a tram in Hong Kong. As the biggest cryptocurrencies flirt with record highs in value, they are increasingly becoming a bigger source of revenue for charities. However, the number of charities accepting the virtual currencies, known for their volatility, remains limited.
Come October 2020, Edccash started to cause trouble for partners trying to convert their crypto tokens into cash. In a plot to keep his business running, Yusuf then created a token called EDCC that was based on the Ethereum blockchain and a physical cryptocurrency market called Bechipindo for partners to exchange Edccash for EDCC.
Partners then sold EDCC for cash. However, the value of their digital assets collapsed, given that EDCC was pegged to the market mechanism like other crypto assets.
Among the victims was Yusuf Jamaludin, an advertisement entrepreneur. In exchanging his tokens for just Rp 100 million, his total losses amounted to around Rp 400 million.
"What emerged later [was that] there were no disbursements in one year. We were deceived by Abdulrahman Yusuf. That’s all. We were all deceived," he said.
On the run
In 2016, Anwar Mochamad Hasan, a multi-level marketing (MLM) representative in South Tangerang, founded PT Dunia Coin Digital, which engaged in bitcoin trading under the name World X-Coin (WX-Coin).
Also read:
> Bitcoin Still Causing Confusion
Anwar offered various investment packages, starting from a silver package worth Rp 1.45 million that promised profit shares of Rp 1.75 million, a gold package worth Rp 7.35 million with a profit share of Rp 12.5 million, and a titanium package worth Rp 43.5 million with a profit share of Rp 90 million. The allotted return on shares was paid every 10 days.
Members also had the chance to gain an additional returns on shares if they recruited new members.
Salvadoran veterans of the army and the guerrilla, march to protest against the economic measures adopted by the government, in San Salvador, on August 27, 2021. - The march participants protested against the implementation of Bitcoin in El Salvador and demanded the repeal of the law that will give legal effect to cryptocurrency in the country from September.
Anwar created the WX-Coin digital token in 2018. From then on, members who had previously received their returns on shares in cash were paid their share in WX-Coin instead. WX-Coin was a token on the Ethereum blockchain. It emerged later that WX-Coin was almost worthless and difficult to trade.
Anwar disappeared after he was reported to the police. His whereabouts are still unknown. The listed addresses for PT Dunia Coin Digital and Anwar, whose ID card showed a domicile in Kedaung subdistrict, Pamulang, South Tangerang, turned out to be fictitious. Anwar's house in the De Rio cluster of the De Latinos housing complex in BSD City was also uninhabited.
On a video he uploaded to his YouTube account in May 2019, Iwan claimed that Inacoin was a blockchain-based digital asset that held promising growth potential.
In 2018, Iwan Kurniawan, a former MLM player from Bogor regency, created a digital asset called Inacoin. On a video he uploaded to his YouTube account in May 2019, Iwan claimed that Inacoin was a blockchain-based digital asset that held promising growth potential.
In his presentation, he showed that Inacoin was growing in value. In fact, the increase he boasted was not clearly presented because the growth was merely internal. It was not recorded on global crypto exchanges.
Another oddity was that Inacoin holders were not allowed to cash in for a specified time. It appeared that Inacoin had no value. Those who had bought up hundreds of millions of rupiah in Inacoin were being fooled.
As for the value of Inacoin, which he promised would reach US$1,000 in 2020 and generate steady returns for the holders, Iwan said this was left to the strategy of Upline leaders, who were tasked with attracting as many potential token buyers as possible. "They [leaders] are not part of cooperation. We can't control it. We can't control it," he said.
An MLM scheme was also used to attract buyers to a fake crypto asset called Wincash Coin (WCC). Buyers were given a bonus for recruiting new members. Intensive recruitment efforts were carried out at seminars held at hotels, as well as through luxury car road shows.
WCC was started by the Give4Dream community that had been circulating in Banten and Central Java since 2019. People were invited to invest in WCC starting at Rp 1.5 million, promising up to a 48 percent returns on shares within 40 days by staking crypto in a digital wallet.
As of December 2019, WCC holders could no longer cash in their tokens. The Give4Dream.com website is inactive and WCC has become worthless.
Way out
One player in the crypto money game from Bandung, Indra Kusuma, admitted that scammers often used crypto as a way out of a ponzi scheme.
In a ponzi scheme, the founder must continue to pay returns to existing members using the money they collect from new members through investments. When the recruitment of new members becomes stagnant, this is usually when the founder switches to a crypto trade scheme.
Members who were previously given their returns in cash are forced to receive their returns in tokens instead. The more token holders, the more tokens circulate in the market. At this point, the value of the token drops.
View of a store that accepts bitcoins in San Salvador on September 1, 2021. - The Congress of El Salvador approved in June a law that will make bitcoin legal tender in the country as of September 7, with the aim of boosting its economy, which has been dollarized for 20 years.
"The founder will say it’s not my fault, it's a market mechanism, you know. It's always like that. So the pattern is that crypto is used a way out," said Indra.
Tongam Lumban Tobing, head of the Investment Alert Task Force of the Financial Services Authority (OJK), admitted that a number of digital asset businesses tended to have problems because they depended on a tiered member recruitment scheme.
He said the collapse of such an entity was just a matter of time, since the recruitment of new members were not guaranteed while the entity had to pay returns to existing members. Tongam asserted, however, that whatever the activities of these entities, including fundraising, they were fraudulent because they deceived the public.
However, the purported huge returns from the money deposited by downline members made them turn a blind eye.
According to Ma’mun, who heads subdirectorate V for non-bank financial institutes (IKNB) under the special economic crimes directorate of the National Police’s criminal investigation department, people who ran ponzi schemes were generally aware from the outset that the practice was illegal. However, the purported huge returns from the money deposited by downline members made them turn a blind eye.
"That’s how it is. Some [scammers] don't want to be involved anymore once they’ve made a profit," said Ma'mun. (JOG/FRD/DIV/BIL)
(This article was translated by Musthofid).
