Ruja Ignatova is the latest entrant to the FBI’s Ten Most Wanted Fugitive List. She is alleged to have devised a crypto-based fraud that siphoned $4 billion out of victims based in Europe, North America, Asia, Africa and Asia before absconding.
Ruja Ignatova is the latest entrant to the FBI’s Ten Most Wanted Fugitive List. She is alleged to have devised a crypto-based fraud that siphoned $4 billion out of victims based in Europe, North America, Asia, Africa and Asia before absconding.
The story so far: On June 30, the Federal Bureau of Investigation (FBI) added Bulgarian-born Ruja Ignatova to its ‘Ten Most Wanted Fugitive List’ – currently the only woman on the list. Founder of the Bulgaria-based OneCoin Ltd that marketed a purported cryptocurrency, she is accused of devising a large-scale financial fraud that siphoned more than $4 billion out of victims based in Europe, Africa, Asia and North America. The company has been found guilty of manipulating the demand and supply of the purported cryptocurrency—OneCoin—and making false public representations to lure victims into purchasing ‘OneCoin packages’ to mine the cryptocurrency. The accused capitalised on the crypto buzz prevailing during the time to draw new investors. New York Country District Attorney Cyrus Vance Jr remarked in 2019 that the accused executed “an old-school pyramid scheme on a new-school platform.”
Ms Ignatova spearheaded the company until October 2017, when she allegedly absconded. As per the FBI, she travelled from Sofia (Bulgaria) to Athens (Greece) before disappearing from public life. It was around this time that U.S. District Court for Southern District of New York had issued a federal warrant for her arrest. In February 2018, a superseding indictment charged Ms Ignatova for wire fraud, money laundering and securities fraud.
The FBI has announced a bounty of up to $100,000 for any information that will help with her arrest.
Who is Ruja Ignatova?
Dressed in a red gown and expensive diamond jewellery, the ‘Cryptoqueen’ as she was popularly known, told a packed house in London’s Wembley in June 2016, “We will be the biggest out there, we will write history and the cryptocurrency community would have to rewrite philosophy.” This was preceded by an assertion that in another two years, nobody would speak of Bitcoin anymore – challenging directly the might of the world’s oldest cryptocurrency.
The Oxford-educated founder, also a Ph.D. in Law, had previously been an associate partner at McKinsey & Company. Her resume, lavish lifestyle and flamboyant marketing strategies particularly drew investors and potential customers to OneCoin. As per The Wall Street Journal, the company made so much money that they hardly knew where to put it. They stacked it in cash in offices and apartments in Bulgaria, Hong Kong, Dubai and South Korea; bought thoroughbred racehorses and lent about $30 million to buy an oil field in Madagascar. The company generated €3.35 billion in sales between fourth quarter of 2014 and third quarter of 2016, with traders from China accounting for about 60 per cent of the overall revenue, Europe 18 per cent, Australia 15 per cent and North America and Caribbean a combined 3%.
She professed her ambition to create the world’s number one cryptocurrency that would be easy to use, available to everyone, could facilitate payments everywhere and acquire the highest market capitalisation. According to her, Bitcoin was not a “mass market cryptocurrency”. Ms Ignatova claimed to focus on educating consumers about cryptocurrencies .
Ms Ignatova founded OneCoin Ltd in 2014 and was at its helm until October 2017 before allegedly absconding. She is believed to have received a tip-off about her possible prosecution and arrest from sources in law enforcement – prompting her to decamp. Her brother, Konstantin Ignatov, who spearheaded the company after she left, was arrested in March 2019 at the Los Angeles airport. He pleaded guilty to charges of fraud and money laundering, and now awaits his sentencing. As per his testimony, the founder had suspected that her boyfriend was cooperating with law enforcement. Once the suspicion was confirmed, she flew to Athens with only her purse and a security guard, The Wall Street Journal reported. The FBI suggested that Ms Ignatova may have had plastic surgery or otherwise altered her appearance.
OneCoin’s co-founder Sebastian Greenwood is in jail and awaits trial on charges of fraud. Their lawyer, Mark Scott, convicted of money laundering, also awaits his sentencing.
How was the fraud executed?
Before understanding the modus operandi of the fraud, it is imperative to understand that cryptocurrencies continue to be highly speculative assets. Barring Bitcoin and Ethereum (and a few others), there are alsomeme coins which, as the name suggests, are meme-based coins that gained popularity in a very short period of time because certain influencers and retail investors promoted them online (for example, Dogecoin, popularised by Tesla CEO Elon Musk). Irrespective of the type of cryptocurrency, they are all traded in open crypto exchanges and revolve around popularity, demand and supply.
The product and marketing: The business dealt with the sale of ‘trading packages’ that would accord ‘tokens’ to mine the coins from a ‘mining pool’. As previously explained, certain cryptos are speculative assets, therefore, her marketing efforts revolved around popularising the utility and stature of the crypto asset in comparison to peers – the reason OneCoin was often referred to as “Bitcoin killer”.
The company would sell varied packages to traders (namely, ‘starter’, ‘tycoon’, ‘premium’, ‘infinity’ and ‘super combo’), bundling educational materials and tokens, as per the pack’s value.
It based itself on a multi-level marketing scheme, which involved existing members being encouraged to recruit new members for rewards. The recruiting members received a 10-25 per cent commission based on the value of the package opted for by the new member. Payments for the packages were to be made in fiat currency by either wiring the money directly to the company’s bank account or paying the pre-existing member. Investigative teams discovered accounts in Bulgaria, U.A.E, Georgia, Germany, U.K., U.S., Tanzania, Hong Kong and Singapore.
Restricting outflow of fiat currency: OneCoin made efforts to restrict the conversion of OneCoins into legal currency. It stipulated that only 60 per cent of the commission could be withdrawn in euros, the remainder was deposited in trading accounts which could be used to purchase either OneCoins or more tokens. Moreover, it limited the daily outflow of legal currency to 1.5 per cent of the member’s total OneCoins. Also, not all sale orders were executed.
In continuance of the same and to encourage OneCoin’s adoption by the mainstream, it introduced the ‘Dealshaker’ platform that let consumers purchase goods and services with a combination of fiat currency and the purported crypto asset – the latter could only constitute 10 per cent of the order value.
The mining fraud: The central idea here was to create a rage around OneCoin, and then convince traders that they could indeed mine the popular crypto asset with the help of those tokens.
The process of introducing new cryptocurrency coins into circulation is called mining. The process involves heavy machine processing facilitated by Graphics Processing Units (GPUs) and Application-Specific Integrated Chips (ASICs).
OneCoin were not investing in machines, rather a piece of software that impersonated the entire mechanism. In addition, much against their assertions in public, the platform did not have the essential blockchain or any other ledger that maintained a secure record of transactions.
Demand and supply mechanism: OneCoin had maintained that the value of its coins depend entirely on demand and supply, in other words, the coin’s brand and usability. However, Federal Prosecutors found that the price was set and manipulated internally with no free play of forces of demand and supply, based on internal communications among the leadership. They resorted to simulating certain volatility and manipulatingintra-day pricing.
Additionally, as put forth by federal prosecutors, Mr Ignatov had repeatedly mentioned about prospects for “going public” beginning in January 2018. He had encouraged the company’s “inner circle”, responsible for managing and marketing to segments of OneCoin investors, to put forth the idea of investing at a discount before it went public. He allegedly told the members, “The best will happen to the coin once it’s public.”
