The office of the US Attorney has lodged various charges against leaders of OneCoin, describing it as a multibillion dollar pyramid scheme involving the sale of a fraudulent cryptocurrency.
Bulgarian Konstantin Ignatov was arrested on March 6 at Los Angeles Airport and has been charged with conspiracy to commit wire fraud, which carries a maximum sentence of 20 years in prison.
The statement said that an indictment had been unsealed charging his sister, Ruja Ignatova – described as a founder and original leader of OneCoin.
Ignatova is charged with one count each of wire fraud, conspiracy to commit wire fraud, securities fraud, and conspiracy to commit money laundering, each of which carries a maximum sentence of 20 years sentence, and one count of conspiracy to commit securities fraud, which carries a maximum sentence of five years in prison.
“As a result of misrepresentations that Ignatov, Ignatova, and others made about OneCoin, victims invested billions of dollars worldwide in the fraudulent cryptocurrency,” the statement said.
Manhattan US Attorney Geoffrey S. Berman said: “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,” Berman said.
New York County District Attorney Cyrus R. Vance, Jr., said: “As alleged in the indictment, these defendants executed an old-school pyramid scheme on a new-school platform, compromising the integrity of New York’s financial system and defrauding investors out of billions.
“Our Office urges all crypto investors to scrutinize investment opportunities, recognize the prevalence of fraud in this underregulated space, and proceed with caution.”
The statement said that Ignatov currently serves as the top leader of OneCoin Ltd., a company marketing a purported cryptocurrency named “OneCoin,” which the investigation has revealed is in fact a fraudulent pyramid scheme.
OneCoin Ltd. was co-founded in 2014 by Ignatova, and is based in Sofia, Bulgaria. Ignatova served as OneCoin’s top leader until her disappearance from public view, in October 2017. Starting in late 2017, Ignatov, who is Ignatova’s younger brother, assumed high-level positions at OneCoin, rising to the top leadership position by mid-2018, the statement said.
It said that as “a result of misrepresentations made by Ignatov, Ignatova, and other OneCoin representatives, victims throughout the world wired investment funds to OneCoin-controlled bank accounts in order to purchase OneCoin packages”.
Records obtained in the course of the investigation show that, between the fourth quarter of 2014 and the third quarter of 2016 alone, OneCoin Ltd. generated 3.353 billion euro in sales revenue and earned “profits” of 2.232 billion euro, the statement said.
Among a number of other representations, OneCoin Ltd. has claimed that the OneCoin cryptocurrency is “mined” using mining servers maintained and operated by the company, and that the value of OneCoin is based on market supply and demand.
The purported value of a OneCoin has steadily grown from 0.50 euro to approximately 29.95 euro per coin, as of January 2019.
“In fact, the value of OneCoin is determined internally and not based on market supply and demand; and OneCoins are not mined using computer resources.
“Moreover, the investigation has revealed that Ignatova and her co-founder conceived of and built the OneCoin business fully intending to use it to defraud investors. For example, in one email between Ignatova and her co-founder, Ignatova described her thoughts on the ‘exit strategy’ for OneCoin. The first option that Ignatova listed was, ‘Take the money and run and blame someone else for this . . . ‘”
Additionally, OneCoin Ltd. has claimed to have a private “blockchain,” or a digital ledger identifying OneCoins and recording historical transactions. The investigation has revealed that OneCoin lacks a true blockchain, that is, a public and verifiable blockchain, the statement said.
Moreover, by approximately March 2015, Ignatova and her co-founder had started allocating to OneCoin members coins that did not even exist in OneCoin’s purported private blockchain, referring to those coins as “fake coins.”
“As the founder and leader of OneCoin Ltd., Ignatova participated in efforts to market OneCoin to US victim-investors. For example, on July 4 2015, Ignatova participated in an online webinar, later posted to YouTube.com, in which Ignatova announced the official opening of the United States market for OneCoin.
“Since taking over leadership of OneCoin following Ignatova’s disappearance from publicly running the company, Ignatov has himself made false representations to OneCoin members to solicit trader package purchases and investments into the company…moreover, Ignatov has been personally involved in manually setting and increasing the purported euro value of OneCoin, contradicting claims that the value is set by supply and demand.
“Finally, the investigation has revealed that Ignatov is aware that OneCoin-derived funds have been routed through a series of purported “investment fund” accounts used to hide the origin of the money, ie, to launder OneCoin fraud proceeds.”
The statement alleged that Ignatova and a third defendant, Mark Scott “agreed to launder the proceeds of the OneCoin fraud scheme”. Scott is under arrest and a trial is pending. News agency Reuters reported counsel for Scott as saying that Scott was completely innocent of all charges.
As of March 10, no statement in response to the allegations has been posted on the OneCoin website. The company, in relation to previous allegations, repeatedly has denied wrongdoing.