Scammers Love Crypto 34 El Salvador's Leader Buys $1.5 Million More Bitcoin

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Scammers Love Crypto

Robert Stone

Crypto Weekly

ANew York artist bought BitConnect in November 2017 with $100 - a substantial sum for him at the time - to earn some travel money. Almost too good to be true–the new cryptocurrency offered returns of up to 10%–it was.

In the hope of turning his $100 investment into $500 or $1,000, Zelder invested $100. According to data from YCharts, BitConnect coin's price plummeted to $11.30 on Jan. 25, 2018, after peaking at $445 on Dec. 28, 2017.

According to the Justice Department's indictment of BitConnect's founder, Satish Kumbhani, Zelder was victimized by "a fraudulent scheme that robbed investors of billions of dollars," as United States Attorney Randy Grossman put it in a press release.

New investors were urged to invest in BitConnect's lending program due to the expected high returns. However, prosecutors allege that Kumbhani and his co-conspirators were operating a Ponzi scheme around the world. BitConnect's founders and international promoters hyped up the company's lending program without disclosing their financial relationship with investors in exchange for a share of the invested funds.

Crypto scams are attracting the attention of regulators. Thousands of Americans have lost $1.18 billion to crypto fraud between 2018 and 2022, according to the Federal Trade Commission. Through a Freedom of Information Act request, Grid obtained 23,960 complaints filed with the FTC about alleged crypto scams. Investors of all sizes and types have been duped over and over again by seemingly legitimate firms using obfuscatory financial instruments to promise high returns.

Investing in crypto is generally risky, prone to massive swings, and often characterized by dramatic hype. Even those who have successfully invested in crypto in the past will have trouble sniffing out a scam. “I was just so confused back in 2017 since I didn't have the knowledge I have now,” Zelder said. "Many of these scams are becoming more elaborate now, so it's harder to detect them." Due to Wall Street's recent bear market, traders began selling their crypto investments, forcing Crypto.com, Coinbase, and Gemeni to lay off employees. The promise of life-changing returns remains the biggest lure of crypto. And it is the same with scams.

In recent years, federal regulatory agencies, such as the Securities and Exchange Commission and Departments of Labor and Treasury, have begun to assess the risks of cryptocurrency, issue guidance, and enforce applicable laws. Reports of cryptocurrency scams can be filed with agencies like the SEC and the FTC, or victims can sue the perpetrators. It can take years sometimes for lawsuits to be resolved, and they cost a lot of money.

Regulators, courts, and lawmakers are developing frameworks for holding cryptocurrency scammers accountable as cryptocurrency scams proliferate. The patchwork of existing regulations and case precedents in the crypto industry make that a difficult task.

Scammers and Crypto Go Together Like Peanut Butter and Jelly

Scams are not unique to crypto - they have long existed in traditional financial systems as well. In 2013, for example, the movie "The Wolf of Wall Street" was inspired by the true story of financial firm Stratton Oakmont, inflating penny stock prices through pumpand-dump schemes.

Crypto enthusiasts often urge newcomers to do their own research, but that doesn't mean they're ready to spot scams. He admitted that he didn't have great money management skills and didn't fully research BitConnect when he lost money in the BitConnect collapse. Money was all he needed. “There's no one getting into crypto for the technology; it's mostly about the money," Zelder said, adding that he wasn't ready to assess the company's claims.

Cryptocurrencies are attractive to scammers because they lack a middleman. As a result, two people will be able to transact directly with each other, instead of sending money between accounts via the banks. In blockchain technology, the transaction is recorded on a digital ledger rather than by a centralized entity like a bank, and it is verified by a network of computers. Blockchain transactions, however, are irreversible, but there are different variations. A transaction on the blockchain cannot be reversed once it has been completed.

Cryptocurrency enthusiasts and newcomers can be sucked into scams because they mistakenly believe they are investing in a reputable new asset class. Like Zelder in 2017, many do not investigate further to see where exactly their money goes.

Scammers can exploit any number of factors, including the pseudonymous nature of crypto - many people don't go by their real names - and the fact that wallets, which hold crypto, have no names, addresses, or social security numbers associated with them.

Michael Rosmer, CEO and founder of DeFiYield, a digital asset management company, noted that U.S. cryptocurrency scams are typically founded by pseudonymous teams, are unaudited, and promise fantastic returns. Additionally, DeFiYield monitors scams, hacks, and exploits involving cryptocurrency projects that let cryptocurrency holders lend and

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transact using code instead of traditional banking procedures.

As wealth inequality rises and real wages decline, crypto is more appealing as a means for ordinary people to accumulate life-changing wealth. This also makes it more susceptible to scams. “Probably, in some way, the numbers are too good to be true,” Rosmer said.

Politicians, Regulators, and Courts Pay Attention

A lot of lawmakers have taken notice of crypto's explosive growth. Some see it as speculative, others as dangerous.

Multiple state and federal agencies have engaged in a "turf war" over which elements of the crypto space fall under their jurisdiction, according to Columbia Business School adjunct professor Omid Malekan. This year, a bipartisan group of representatives sent a letter to the Securities and Exchange Commission questioning the agency's investigations of cryptocurrency companies.

Besides hoping to attract donations from the cryptosphere, lawmakers might also wish to appease the industry as a job-growth opportunity and a tax revenue generator. Some lawmakers, like Rep. Ritchie Torres (D-N.Y.), have found cryptocurrency arguments compelling. The cryptocurrency industry has been sharply criticized by others, including Sen. Elizabeth Warren (D-Mass.) and Rep. Brad Sherman (D-Calif.) Sherman grilled cryptocurrency executives at a House Financial Services Committee meeting in December.

"The cryptocurrency industry remains an unregulated market where scammers, cheats, and terrorists mix with ordinary consumers," according to Warren. The bill she introduced in March aimed at curbing cryptocurrency use to evade Russian sanctions. SEC, FINRA, and Secret Service agencies hire more investigators and litigators and devote more resources to investigating the crypto industry. However, a spokesperson for the FTC pointed to the agency's previous efforts to recover lost funds from victims of cryptocurrency scams in a statement to Grid. Despite lawmakers and federal agencies' efforts to crack down on crypto scammers, the industry is seeing an increase in hacks and thefts, as well as socially engineered phishing attacks on Twitter, Discord, Facebook, and other social media platforms.

Can Victims Get Any Justice?

Taking action against scammers can be time-consuming and costly, and there is no guarantee of success. Regulation and legislation can restrict scammers' ability to flourish, but fraudulence can only be curtailed to a certain extent. Attorneys and other professionals cannot usually assist scam victims with their investigations.

“In my opinion, there are more plaintiff's attorneys defending victims than smart attorneys covering up bad behavior,” said John Jasnoch, a partner at Scott & Scott, and plaintiff in the Ethereum Max case. Several celebrities and entrepreneurs have been sued in recent years for their involvement in cryptocurrency schemes, including Elon Musk, Kim Kardashian, Paul Pierce, Floyd Mayweather, Khaled "DJ Khaled" Khaled, and Clifford "T.I." Harris Jr. In order to make a difference, plaintiffs' counsel will have to step up its game. "Some of these entities have made a lot of money," Jasnoch said.

In Zelder's view, cryptocurrency trade organizations should offer more support for victims of crypto scams; having the government assist crypto scams feels out of step with crypto's anti-government roots. Zelder is somewhat optimistic about finding a resolution to the Department of Justice's case against BitConnect, ongoing since last year.

His rights regarding the BitConnect case were explained to him in a letter from the DOJ approximately a month after he spoke with Grid, noting that many criminal cases are settled through plea agreements.

Your state financial services regulator, your congressmen, and the Federal Trade Commission are all good places to report cryptocurrency scams if you don't know where to turn. To explain what happened, all the evidence should be compiled chronologically.

It can be challenging to bring charges against cryptocurrency scammers even with evidence of cryptocurrency fraud due to the anonymity of the scammers, the complexity of the scam, and the limitations of U.S. laws and regulations. Stark said that Crypto scammers may operate anonymously online, making it harder for government agencies to track them down.

He pointed out that cryptocurrency scammers must solicit their schemes to find potential takers since pitching investment opportunities in secret is hard. "Nevertheless, they are not always who they claim to be online," he added. "Government

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agencies are beginning to understand how cryptocurrency transactions are obfuscated and laundered," Eversheds Sutherland's Sarah Paul says.

To this end, the federal government has contracts worth millions of dollars with Chainalysis, a blockchain analytics company. Financial institutions are often required to open their books to see whether they are violating regulations by regulators in the traditional financial services sector, making it difficult to detect violations immediately.

"As crypto transactions are publicly listed on the blockchain, spotting violations could, in theory, be possible. However, regulating the industry requires government agencies to understand how blockchain technologies work, and some agencies are learning about it," he said.

However, Congress has passed few laws related to cryptocurrency, and there are few court precedents on the topic, so bringing cases to court can be challenging.

A new bill has been introduced by state and federal legislators to clarify the regulatory confusion. Last year, President Biden signed into law the Infrastructure Investment and Jobs Act, which stipulated that digital assets must be reported to the IRS. According to Forbes, more than 30 cryptocurrency bills were proposed in Congress last year, according to the National Conference of State Legislatures. Biden has also signed an executive order calling for regulatory agencies to assess the cryptocurrency industry. As part of the Responsible Financial Innovation Act, Sens. Kirsten Gillibrand (D-N.Y.) and Cynthia Lummis (R-Wyo.) introduced legislation to create a regulatory framework for cryptocurrencies. "To hold alleged cryptocurrency fraudsters accountable both in the U.S. and abroad, prosecutors and regulators must be resourceful and collaborate with regulatory agencies and other countries while more comprehensive legislation is being enacted," said Claire Nolasco Braaten, an associate professor in criminology and criminal justice at Texas A&M University.

"The SEC could prosecute cryptocurrency companies that operate an unlicensed money transmitting business or exchange and make false statements on their websites," she said. Without addressing cryptocurrency fraud, the criminal justice system and regulators will put people inside and outside the cryptocurrency space at risk. "I sympathize with victims regardless of their sophistication," Stark said. "Everyone can be duped. These are professional salespeople. Maybe you're struggling to feed your family, or maybe you lost your job, or maybe you're struck by the pandemic. That's the kind of person these investment companies cater to." Cryptocurrency remains a bullish investment for Zelder, despite his losses. Several cryptocurrencies have plummeted in price in recent weeks, but Zelder sees the dips as an opportunity to buy more cryptocurrency.

"Cryptocurrency scams are hard to identify," Zelder said. "Everything is fair game until someone really puts a law in place, which is so opposite of what crypto is supposed to be."

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El Salvador's Leader Buys $1.5 Million More Bitcoin

Despite a brutal selloff in the market over the past months, El Salvador's President Nayib Bukele is doubling down on cryptocurrencies. President Bukele posted the purchase on Twitter, writing: "Bitcoin is the future!" Thank you for selling cheap." Bukele said his government purchased 80 Bitcoins for $19,000 each. For its previous $105.6 million stake, the government paid less than half the average price.

Since September, El Salvador has paid almost $46,000 per coin on average, representing a loss of 56%, or $59.5 million, according to the tracking site nayibtracker.com. According to El Salvador's Finance Minister, Alejandro Zelaya, the controversial Bitcoin investment has not resulted in financial losses.

"I see some people are concerned about the Bitcoin market price." "My advice: don't focus on the graph. If you invested in Bitcoin, your investment will grow immensely after the bear market."

By making cryptocurrency legal tender in May, Bukele became the world's first leader to boast of "buying the dip" in the currency. Since then, the coin has fallen even further. El Salvador has not really lost anything due to the fact that it has not sold any of its Bitcoins, according to Finance Minister Alejandro Zelaya.

Even if the distressed asset isn't sold, most companies and governments write down what accountants call "unrealized losses." Despite El Salvador's cryptocurrency investment, Zelaya has said that it doesn't even represent 0.5% of the country's budget. This might prove difficult in a country where one-fifth of the population lives below a $5.50 a day income.

Bitcoin was rejected as legal tender by El Salvador in January following a recommendation from the International Monetary Fund. When El Salvador made cryptocurrency legal tender, the IMF recommended that it dissolve the $150 million trust fund it created and return any leftover funds to the treasury. Cryptocurrencies' volatility and their potential for use by criminals are among the concerns raised by the IMF in its report.

As a result of Bitcoin, billions of previously unbanked individuals are now able to participate in the financial system, according to Bukele. Additionally, he has discussed a parallel tourism promotion targeted at Bitcoin enthusiasts. In addition to the U.S. dollar, Buckele pushed for Bitcoin to be adopted as legal tender. El Salvador’s Legislative Assembly made the country the first to do so in June 2021.