Bitcoin scams: Indian investors eager for quick profits are being duped by conmen

They lure people into investing in non-existent virtual currencies by promising huge returns after a lock-in period.

The rising value of bitcoin is attracting thousands of investors in India. Every day, around 2,500 people are estimated to be buying into the digital currency created by people around the world running computers using software that solves complex mathematical problems. But this surge in demand has an ugly side: scamsters who are capitalising on this bullish trend to dupe people.

At the beginning of 2017, a bitcoin was valued at around $1,000 but by early December it was trading at $16,000. Investment pundits have attributed this surge to a range of factors – from the Brexit referendum in Britain to Donald Trump taking over as president of the United States to bitcoin being legalised in Japan in April 2017. On January 12 this year, after a few weeks of fluctuations, the price settled at around $14,000. That same day, news came that Reliance Jio Infocomm was planning to launch a new cryptocurrency called JioCoin.

Most countries do not recognise bitcoin as currency. The Indian government is waiting for the report of an expert committee set up to examine the subject before taking a decisive position on cryptocurrencies – digital assets such as bitcoin that use encryption techniques to secure transactions, control the creation of additional units, and to verify the transfer of assets.

But this has not stopped people in India from being duped by conmen running ponzi schemes who lead victims to believe that they are investing in virtual currencies. A ponzi scheme is a fraudulent investment operation in which returns for older investors are paid from money received from new investors, instead of profits from a legitimate business activity. In April 2017, the Mumbai police unearthed a Rs 75-crore ponzi scheme involving an alleged cryptocurrency called OneCoin. A similar operation involving something called ATC coin was busted in October.

At least eight such scams have been reported to the Delhi police since October. In December, the police busted a multi-crore ponzi scheme whose operators duped people by offering investment in a cryptocurrency called Kashh coin.

How it works

Describing how one of these eight cases worked, Alok Kumar, joint commissioner in the Delhi police’s Crime Branch, said that the coins were initially launched at a rate of Rs 3.50 per coin and the victim was promised that he would earn huge profits after a lock-in period.

“The accused organised lavish seminars in different places, including Mumbai, Chandigarh, Raipur and Nagpur, for business promotion,” Kumar said. “At these seminars, they would lure people into investing in this coin claiming that its rate will cross the cost of bitcoin one day. They used to invite eminent personalities to these seminars to attract more and more people.”

In videos of one such seminar organised by Kashh Coin in 2017, the Bhojpuri actor Ravi Kishan, who joined the Bharatiya Janata Party early last year, can be seen entertaining the audience. But when he was asked about this, the actor said he had only performed at the event and had not endorsed Kashh Coin.

“When the Kashh coin scam was being investigated, many others schemes came on our radar,” said Bhisham Singh, deputy commissioner in the Crime Branch. “Some of them are Laxmi coin, LCC coin, abbreviation for LiteCoin Classic, and Bullcoin. They are no cryptocurrencies at all. They are suspected to be multi-level marketing schemes organised to dupe people like Kashh coin.”

A multi-level marketing scheme makes money by engaging a non-salaried workforce – as distributors, participants, consultants – to sell products and services in exchange for a commission from the sales made directly by them or a fraction of the commission earned by workers below them in the chain. Most ponzi scams in India, including the Saradha scam that was exposed in 2013, followed the multi-level marketing strategy.

Complex operation

According to Kislay Chaudhary, a cyber security consultant to several government agencies, ponzi schemes involving cryptocurrencies started in India after Initial Coin Offerings became a trend in mid-2016. Initial Coin Offerings allow newly-launched businesses to raise money online without having to follow the regulations that accompany Initial Public Offerings. “A bitcoin is nothing but an open source programme which can be edited and replicated into newer forms and used for the purpose of scams that can be initiated on the pretext of ICOs,” Chaudhury said.

Put simply, instead of shares in a company, the investors in these schemes are offered units of a cryptocurrency.

Pramod Emjay, a portfolio manager in crypto-commodities, explained that a bitcoin is essentially a reward for engaging a computer system to solve complex algorithms at periodic intervals, which signs the operator into an open ledger called the blockchain. “As far as Initial Coin Offerings are concerned, it can be presumed that the idea can be used as a pretext to dupe people,” Emjay said. “But there is no necessity on the part of the persons running such scams to use the ICO strategy because their primary targets are people who have knowledge about the surge in bitcoin price through news articles, who want to go for lucrative investments but do not have much idea about how cryptocurrencies function.”

There are several videos online explaining new cryptocurrencies, including some on that are now on the radar of the police. Their operators talk about the great ratings of their coins, suggesting that investing in them would be lucrative.

Trends related to the prices of cryptocurrencies are visible in websites known as cryptocurrency exchanges. Chaudhary said it can be tough to establish the reliability of a cryptocurrency exchange. Indeed, several cryptocurrency exchanges have been busted for scams in the past few years.

“It needs technical expertise,” said Emjay. “Even if a crypto exchange does not show anything related to the concerned virtual currency, it won’t be too much of rocket science for scamsters to refer to random graphs and charts and deceive their target audience. People should be extremely careful getting into such deals.”

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