Cryptocurrency Scams Took in More Than $4 Billion in 2019

Seo Jin-ho, a travel-agency operator in South Korea, wasn’t interested in exotic investments when a colleague first introduced him to PlusToken, a platform that traded bitcoin and other cryptocurrencies. But the colleague was persistent.

“You won’t regret this,” she said, according to Mr. Seo. She visited him several times early in 2019, telling him he could earn 10% a month. Finally, his skepticism gave way, and he bought $860 of cryptocurrency on the PlusToken platform.

His investment grew at a dazzling rate. He invested more—a lot more. In less than five months, he bought $86,000 of cryptocurrencies, cashing out only $500.

“I was thinking, what’s the point of keeping money in the bank?” said Mr. Seo, who is in his late 40s. He went to PlusToken conferences. He told his friends about it. He became a convert.

In June 2019, all that changed. Chinese authorities concluded PlusToken was a scam and arrested six Chinese citizens allegedly running the platform out of the Pacific island nation of Vanuatu. The site stopped working. People couldn’t get their money out. Mr. Seo, and myriad others like him, lost access to everything.

Authorities in China declined to comment. Authorities in Vanuatu couldn’t be reached. In October, a man called Leo, who said he was the PlusToken chief executive, said “everything is OK” in a YouTube video. Attempts to contact representatives of PlusToken weren’t successful.

PlusToken was a Ponzi scheme. That was the conclusion by Chainalysis, a New York-based firm that designs software that can analyze cryptocurrency data and help track illicit transactions. Its clients include the Federal Bureau of Investigation, the Drug Enforcement Administration and the Internal Revenue Service. PlusToken drew investors mainly in South Korea and China in 2018 and the first half of 2019. It netted at least $2 billion, Chainalysis said.

Cryptocrime is expanding. Ponzi schemes and other frauds involving bitcoin and cryptocurrencies lured at least $4.3 billion from investors in 2019, according to Chainalysis. That was a bigger haul than the combined $3 billion in 2017 and 2018.

After a boom in dubious initial coin offerings in 2017 and a number of hacks in 2018, Ponzi schemes have become among the most popular vehicles for fraud. The biggest ones have been prolific: Just six well-orchestrated scams were responsible for about 90% of the funds stolen last year, Chainalysis said.

“There’s been huge growth in ones that mimic investing opportunities,” said Kim Grauer, head of research at Chainalysis. They are becoming more sophisticated, larger in size and they reach into the mainstream, victimizing naive investors, she said.

By Paul Vigna and Eun-Young Jeong, The Wall Street Journal, 8 February 2020

Source: https://www.riskscreen.com/kyc360/news/cryptocurrency-scams-took-in-more-than-4-billion-in-2019/