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The man whose book actress Shilpa Shetty tweeted on July 7, 2017 went on to script one of the biggest ponzi schemes India has seen. Amit Bhardwaj’s GainBitcoin scam, exposed in 2018 and which has since grown to $2.7 billion, enticed people to invest by promising high returns in a short time frame, but did so using a then little-known form of digital money . -cryptocurrency. Bhardwaj carried out his scam almost in full view of the public – his Twitter handle and promotion of his book were a big part of his sales pitch.
For a large number of Indians, the GainBitcoin scheme was the first time they heard about Bitcoin and cryptocurrency; for thousands it was how they lost their life savings. For the fraudsters who followed Bhardwaj, it became a case study in what not to do — draw attention to themselves — and know exactly how much money to swindle. That’s not all. If there is more awareness of cryptocurrency today, the traps set are equally more sophisticated. Let’s see how some of them work.
Fake crypto exchange
On June 21, researchers from security firm CloudSEK revealed that a fake crypto exchange scam duped Indians of more than ₹1,000 crore.
The scam started with fraudsters creating several fake domains online that pretended to be a legitimate UK-based cryptocurrency trading platform called CoinEgg. The researchers found the word “CloudEgg” in all of these domains and said the sites were “designed to replicate” the dashboard and user experience of the official website.
The scammers then created a fake profile of the woman on social media “to reach out to the potential victim and establish a friendship”. It “gifted” users $100 credit and encouraged them to start trading on fake platforms. Once they do, the dashboard will show that they are making remarkable returns. This encouraged victims to deposit more money.
Soon the fraudsters would freeze these accounts and stop any withdrawals. The fake CoinEgg website insisted that users pay 22% of their earnings or deposits as “tax” before they could get their funds back. If earnings exceeded $250,000, the exchanges would ask for additional deposits. By the time the user realized that he had run into a scam, it would be too late.
It didn’t end there. The brazen attackers would then track these users’ complaints about the fake exchanges on social media and reach out to them from other fake accounts, posing as investigators. They would get personal information, ID cards and more, which could then be used to hack other accounts.
In a report covering the period from July 2020 to June 2021 published last year, blockchain analytics platform Chainalysis identified India as the second largest market for cryptocurrencies. The firm noted that the number of people visiting fraudulent websites from India has decreased. Still, over 200,000 people in India visit such places every month.
The CoinEgg scam might sound like something an educated person would never fall for, right? That’s what a 21-year-old Pune-based business owner thought before he walked into such a trap last month. After joining a group called ‘WazirX Discuss’ on Telegram on a friend’s recommendation, he started receiving private messages from unknown people claiming they could help him invest in cryptocurrencies. That’s how he met ‘Jayant’, a member of this group.
Jayant directed him to the website and helped him create an account. As the scammer asked, he deposited several hundred dollars in USDT, a cryptocurrency commonly known as Tether that is pegged to the dollar. He saw the money double within days. Enthusiastic, he invested $3,000 (approximately CZK 3,000) on the platform. But when he tried to withdraw the earnings from that deposit, the fraudsters froze his account and said he had to make another deposit of $5,000 (about ₹4 lakh). In an interview with Mint earlier this month, a Pune-based businessman said he lost ₹5 crore to the scam.
In researching this story, this reporter joined the same Telegram group and received private messages from at least 13 people hanging on similar baits. The site in question also remains active and accepting registrations, despite posts on Reddit etc. about its fraudulent nature.
Kashif Raza, the co-founder of a platform called CryptoKanoon, is perhaps the most famous victim of a crypto scam in India. Raza took a personal loan at a massive 21% interest rate to invest in GainBitcoin in 2016-17 and lost everything. To offset his losses, he also borrowed from friends and family and invested in other projects that also failed. To do this, Raza launched a legal awareness and analytics platform called Crypto Kanoon in 2018, which was acquired by crypto tax startup KoinX earlier this year.
“Even today there are ponzi schemes, but not on the scale of 2017,” he said. Those that do exist, Raza says, no longer work at the national level. Fraudsters deliberately stick to specific regions or cities to stay under the radar, although the money they make is still in the millions.
A product manager working at a multinational firm in Delhi told Mint that his family and friends in a Haryana village were caught in such a crypto scam. Some have even sold assets to invest in schemes promoted by a group of fraudsters who often lure victims at elaborate resort parties.
Raza said Ponzi scammers have moved beyond word of mouth marketing. Instead, they buy social media followers, buy Google ads, and even pay influencers to reach potential victims. It is a more developed version of Amit Bhardwaj’s book.
It works like this. “A group of people go to a village or a small town. They identify people with successful businesses and invite them to a hotel or resort. They design their plan and convince them of abnormal returns,” says Dubai-based Mohammed Danish, chief legal officer of the Bitdrive Exchange platform.
In an interview with Mint, an industry executive who was among the founding members of the country’s two oldest crypto exchanges said that scammers most often impersonate wealthy individuals. “You must act as if you belong to the wealthy class. That’s the dream you’re selling – to get rich quick and enter the upper echelons of society. You throw around big names, drive expensive cars and dress it up,” he said.
Another type of fraud is peer-to-peer (P2P) fraud, which occurs through P2P crypto trading platforms. They first appeared in India after the Reserve Bank of India banned cryptocurrencies in 2017, which drove more users to these platforms as exchanges went out of business.
Platforms like Paxful connect sellers and buyers. They are not exchanges and are quite well known in the crypto community. They allow the buyer to search for the seller (or vice versa) and hold their money in escrow until both parties confirm that the transaction has been completed in the way they want.
How do scammers use such a platform? Sometimes the buyer pays money to the seller and reports it to the police as a fraudulent transaction after the transaction is complete. As part of the subsequent investigation, the transaction is stopped and the buyer pockets the cryptocurrency he received from the seller for free.
But wouldn’t the seller dispute such a transaction? Danish, who has been representing fraud victims as an independent lawyer since 2018 and also co-founded Crypto Kanoon with Raza, explained that buyers keep transactions small, usually under ₹25,000. Most people are reluctant to travel to remote areas and spend money to recover trivial amounts. On the other hand, the fraudster would earn ₹25,000 in crypto and fiat currency.
Another trick of fraudsters: they transfer the amount using a stolen card or a hacked bank account. Since the seller only cares about receiving money, he does not verify the data. After the transaction is completed, the account holder contacts the bank and reports the transaction, which is then blocked by the creditor. (RBI rules say that customers are not liable if the fraud occurs through a third party.)
“There have been various cases where the KYC documents that the exchange (P2P platform) had were actually fabricated,” Danish said. However, P2P platforms do not engage in such scams. In fact, Paxful even warns users about warning flags in one of its blog posts: “This includes rushed trade completions, false transaction confirmations, coin-locking situations, payment reversals, and phishing attempts.”
Danish says he knows of “numerous” such cases from places like Lucknow, Bengaluru, Mumbai, Delhi, Hyderabad and others. view,” he said.
Catch me if you can
As a lawyer, the Dane has participated in more than 50 cases of cryptographic fraud. The most common reason scams go undetected is that users don’t contact the police because they fear the authorities will rebuff them. “They’re worried that the first question they’re going to get is why did you invest in crypto?” Danish said. He also said that the police are reluctant to register an FIR (First Information Report) unless more people report the scam. was the case with GainBitcoin.
It’s not like the police aren’t trying. The problem is often that cryptocurrency fraud is nearly impossible to track and trace, even with modern tools. “Cryptocurrency has become the de facto currency of money launderers, cybercriminals, international extortionists, etc., who use it as a mode of payment due to its perfect anonymity,” said Triveni Singh, Superintendent of Police, Cyber Crime, Uttar Pradesh Police. cannot track many cases due to technical and legal constraints,” he added. He denied that the police were reluctant to lodge an FIR.
Singh said crimes where money is traded through Bitcoin use exchanges as middlemen, and exchanges often do not keep users’ complete KYC. The maximum information that law enforcement gets is the addresses of the wallets that hold the crypto, and that is not enough information to trace the end recipients of the transactions. Most crypto wallets do not reveal information about users.
“Since there is no regulation as such, there is clear confusion about whether something is a legitimate cryptocoin. 99.99% don’t understand blockchain technologies, how coins are minted, circulated, algorithms, etc. That’s why we say it’s a kind of ponzi scheme. Eventually it has to fail if there is no regulation or regulator and many countries have not adopted it,” he said. Singh was among the investigating officers who busted ₹3,000 crore in Bareilly last year.
When police enlist the help of specialized agencies that monitor cryptocurrencies and use specialized tools (such as Mastercard CipherTrace), things go better, Singh says. However, the success rate is low, he admitted.
A bigger disadvantage is that most police officers are not aware of the technicalities of cryptocurrencies. When the above trader from Pune contacted the cyber cell, he said that they don’t know what USDT, CoinDCX or Cryptocurrency trading is. “If Cyber Cell doesn’t understand the problem, then how is it going to help?”
In response to an RTI filed by Mint, the Pune police said they have six FIRs related to crypto scams, which are currently under investigation. They also admitted that the Cyber Cell of the Pune Police has no staff specialized in crypto and that the police did not close any cases related to crypto fraud in 2021-2022.