OneCoin Scam Comes Crashing Down
On March 8th, after a year of accusations and controversial business doings, the founders of OneCoin were charged for starting an allegedly fraudulent cryptocurrency. The charges center around the pyramid scheme-like business practices and how they were able to get people to contribute billions of dollars to the scheme in the hopes of making large returns.
After being arrested in Los Angeles on March 6th, Konstantin Ignatov and his sister Ruja Ignatova (reports vary on whether she has been arrested yet) were charged with wire fraud, securities fraud, and money laundering offenses.
Rotten From the Start
Established in 2014 out of Bulgaria, the bulk of the network is based around incentivizing current members to sell new members cryptocurrency packages. With almost 3 million members worldwide, OneCoin capitalized on the cryptocurrency industry’s strong performance, as well as the greed of investors with little specific knowledge.
Geoffrey S. Berman, the Manhattan U.S. Attorney, commented that:
“As alleged, these defendants created a multibillion-dollar ‘cryptocurrency’ company based completely on lies and deceit. They promised big returns and minimal risk, but, as alleged, this business was a pyramid scheme based on smoke and mirrors more than zeroes and ones. Investors were victimized while the defendants got rich. Our Office has a history of successfully targeting, arresting, and convicting financial fraudsters, and this case is no different.
The best way to view all of this is as an updated pyramid scheme. Some investors may be seduced by new technology and ignore the fundamentals of the business plan and how it is designed to enrich the owners (and only the owners).
Authorities across the world have been cracking down on OneCoin since 2016. In India, numerous project promoters have been arrested, as well as China arresting 100 individuals deemed to be deceiving investors. Additionally, there have been significant charges levied all across the EU. The noose was tightening, and this just represents the final breath of OneCoin.
This is just one of many reasons that regulation in the crypto industry is required. Recent talks with SEC Commissioner Hester Peirce show that she is looking for a way to regulate the industry without slowing down innovation too much. In her words:
“We do need to let people know where they stand, but then within that we need to let people do what they want to do and try not to have too much government partnership with the private sector.”
Executing Innovation the Smart Way
Ideally, innovation will just happen on its own, and the industry will learn how to ask for clarity when it is needed. But at the same time, what sort of regulation would have helped prevent OneCoin from gaining such traction and defrauding investors of billions of dollars?
This all comes at the same time as Germany is releasing their position on blockchain and cryptocurrencies. It seems like ICO’s and other cryptocurrencies will not be governed in the same way that securities are and will have a state-run register that will both boost the use of blockchain and protect investors from frauds like the above.
The fine line of regulating without stifling innovation is difficult, and these countries should be credited for not taking a completely archaic stance against blockchain technology. However, a more efficient answer is that the blockchain community should begin to police itself and not lot bad actors ruin it for everyone.