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Bitcoin Ponzis on the rise

Jun 03 2018 06:07
Steve Kretzmann

The number of suspicious cryptocurrency investment schemes being reported to local law enforcement and other regulatory authorities is on the rise.

This has emerged in the wake of the Hawks’ investigation into an alleged R1 billion cryptocurrency Ponzi scheme run by BTC Global.

“There are others,” said Hawks spokesperson Brigadier Hangwani Mulaudzi. He said they were “under inquiry” and could not be named at this stage.

Over 1 000 people who had lost money in the alleged BTC Global scam had come forward with affidavits.

“People are coming in every day.”

Cryptocurrency investment schemes BitClub Network and Four Corners Alliance Group allegedly show the hallmarks of either a Ponzi scheme or a hybrid Ponzi and pyramid scheme.

There are no telephonic contact details on either of the BitClub Network and Four Corners Alliance Group websites.

City Press e-mailed questions to Four Corners Alliance Group, which has a business address in Las Vegas, the US, and in Montana Park, Pretoria. Questions were sent to BitClub Network via a website contact form. Neither site had responded by late Friday.

Among the red flags is the offer of financial reward for recruiting new members, or larger payouts for larger numbers of investors in the pool.

Mulaudzi said the BTC Global scheme had affected about 28 000 South Africans from all walks of life.

He said many had lost over R100 000 when the scheme crashed in early February, although “some got lucky” and pulled their money out in time.

Sanet Schoeman, of Kempton Park, said she lost R44 000 of her initial R62 000 investment with BTC, which promised to invest in Bitcoin and pay returns of 2% per day, or 14% per week.

Schoeman said when she started a new job last year she wanted to invest her pension payout from her previous job. A colleague suggested BTC Global. She said that at the end of October last year she invested R30 000 for herself and, in November, R17 000 for her husband. In January this year, she put R15 000 into a BTC Global electronic wallet for her son.

She said the promised returns initially showed in the wallet. Each week, an investor could choose to move their Bitcoin earnings from BTC to an electronic wallet held with legitimate London-based digital currency company Luno.

From there it could be paid into a bank account.

Schoeman said she withdrew some money before the scheme crashed in early February, but had reinvested it and thus did not recover her entire capital before the scheme collapsed.

At that point, the three accounts reflected a total of R92 000 in earnings.

A number of BTC investors City Press spoke to said a Steven Twain was the mythical BTC Global investor. However, no one had ever met or spoken to him directly.

Communication was through a group of administrators, who appeared to be genuine. At least one of them warned the investment group that Twain was running a scam. This was before the accounts were frozen.

BTC chat groups had been set up on the Telegram instant messenger service. Schoeman said there were people on the group who had lost over R1 million.

She said she referred her sister-in-law and a friend to BTC Global and that the crash had put a bit of a strain on their relationship.

She hoped they would get something back once the Hawks had completed their investigation.

Another victim of the alleged scam, Linda Horsfield of Gauteng, had submitted an affidavit to the Hawks. She did not expect to recoup the $5 000 (R63 000) she put into the scheme.

“The guys know the game is up and will just squirrel it away,” she said. She believed if any money was recovered, it would go to the Asset Forfeiture Unit.

In her affidavit, she stated she first heard of Twain from a friend’s mother who had been receiving the “guaranteed” return of 2% per day.

“Shortly thereafter I overheard a lady at the annual general meeting of Wealth Migrate, a company I am a shareholder in, talking about earning 2% per day from an investment made with Twain.”

This woman introduced Horsfield to a man who had apparently been invested in BTC for a long time and had been paid 14% interest every Monday.

She met him in November last year to find out more. He told her that a woman who knew Twain personally introduced him to the scheme.

Horsfield said she bought into the scheme with cryptocurrency she already owned. She said she knew of people who bonded their houses to buy into BTC Global.

“People have lost their houses, their cars, convinced their in-laws to invest their retirement money.”

She said she had advised everyone she had referred to BTC to withdraw their interest every week, although she did not heed her own advice.

She said people on the BTC Telegram group said they could get access to their Bitcoin earnings if they paid a $1 000 (R12 400) access fee.

She said there was no way she was paying more money, but was worried that if she said anything negative on the group about this, she’d be kicked out.

Rumours and theories ran wild on the groups, she said. These ranged from Twain’s having been robbed and his computer equipment stolen, to his having to sort out tax issues.

A couple who live on the Garden Route, who did not want to be named, said they had taken money out of the bond on their house to invest R250 000. They first put their money in the scheme in December. They lost all of it.

A woman in Gauteng, who had referred Horsfield to BTC, said she invested about R12 500 on September 1. Because she withdrew her weekly dividend, she made her money back and “a little bit” extra.

She believed the money was genuinely invested in Bitcoin, as electronic wallets were created, but that after making large gains late last year, the Bitcoin price dropped in January and Twain may have been overextended.

Luke Buckland, founder of a private cryptocurrency investment partnership called Cryptocats, said Bitcoin was great for running a Ponzi scheme. This was because it had global reach, coupled with the promise of riches through technology and was advertised via social media.

“It’s a perfect storm,” said Buckland.

Questions sent to the SA Reserve Bank and Treasury were not answered before deadline on Friday.

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