Crypto fraud poses a challenge to probe agencies

KP Singh

Former DGP, Haryana

FRAUDSTERS have duped innocent small investors, including policemen, in large number, in a multi-crore cryptocurrency scam in Himachal Pradesh. A special investigation team (SIT) has arrested some persons responsible for managing the back-end office activities, including maintaining a database, coordinating communications and overseeing technical aspects of the fraudulent scheme. The alleged kingpin is at large and is reportedly hiding in Dubai. Suspects under the scanner include government employees and some former and serving policemen. At least one lakh people have been duped, according to the SIT.

The racket, which had spread its tentacles in almost every district of Himachal Pradesh since 2018, was the brainchild of four persons who approached people with an investment plan involving a Ponzi-style enrolment process, requiring the buyers to pay an initial activation fee using locally made cryptocurrencies known as ‘Korvio coin’ or KRO coin and ‘DGT coin’. The investment plan is akin to a multi-level marketing (MLM) scheme promising handsome returns in a short span of time. Once a user pays the activation fee to the platform, the fraudsters encourage the investors to enrol others. Meanwhile, fake websites were created in which the cryptocurrencies’ prices were manipulated and inflated to deceive the investors.

It is reported that over a thousand police personnel have fallen prey to the scammers. Some of them who initially profited from the scheme even became unwitting promoters, adding a veneer of trust and credibility that lured more and more investors. In fact, the modus operandi of the offenders includes showcasing the presence of policemen at the platform and inviting celebrities and political leaders to honour those who have earned a huge profit to infuse a false sense of security among the investors that their money is safe. Parties and functions were organised to attract new victims.

The epidemic of deceit spread by Ponzi schemes is not new. Such frauds are being reported regularly from across the world as the promise of quick returns in a volatile market can cloud judgments and make even the most cautious investors fall prey to such scammers. The term ‘Ponzi’ is derived from the name of Italian businessman Charles Ponzi, who first launched such schemes in the US by promising 50 per cent profit in 45 days. Pyramid schemes, MLM, direct selling schemes and referral marketing are the other popular terms for such fraud.

Ponzi schemes are based on an unrealistic business model in which the operators of the platform pay a huge profit to the early investors from the activation fee paid by the newly enrolled members rather than from any business profit. Ponzi schemes are like ‘Robbing Peter to pay Paul’, but when there are many Peters, they are eventually left in the lurch without any remedy after they are deceived and deprived of their money. The emphasis of the scheme’s promoters is on enrolling more and more members and forming an exponential chain of investors.

In the Himachal case, the cheats manipulated the prices of cryptocurrencies on misleading websites, promised high returns, and a burgeoning digital currency market created a perfect storm for the unsuspecting investors. The unique feature of this scam has been the acceptance of subscription/investment in locally made cryptocurrencies and, inter alia, exploiting the trust of the cyber-savvy investors. This has helped the offenders in masking the transactions behind the inbuilt veil of cryptocurrencies, leaving behind not enough money trail or evidence for the enforcement agencies to nail the scammers.

Cryptocurrency trading has been trending in cyberspace since the inception of Bitcoin in 2009. Thousands of tokenised assets are now available on the online market. The pseudonymity features of cryptocurrencies have been attracting the attention of fraudsters too, who exploit them to carry out potentially untraceable scams. The investigations into such scams have been hampered by the non-availability of adequate public data sources or the availability of misleading or incomplete data. Further, there is no standards taxonomy of these scams, which leads to ambiguous and incoherent interpretations.

Traditional investigating officers and even cybercrime cells of the police with limited professional competence and resources at their command are not in a position to understand the nature of these offences, what to talk of undertaking conclusive investigations and initiating effective prosecution against the offenders. In this scenario, there is hardly any possibility that the duped investors would get their money back. It would also be an uphill task even to track down the main scammers.

In India, several MLM and chit fund frauds, including the ones reported from Navi Mumbai and Bengaluru recently, are being investigated by the state police and the Central Bureau of Investigation; approximately six crore people have lost their deposits. The Himachal scam is another wake-up call for the law enforcement agencies to hone their skills to deal with the hybrid crimes involving the anonymity of cryptocurrency and intricacies of Ponzi schemes.

Meanwhile, people need to be sensitised to the lurking danger in cyberspace and the cryptocurrency world; they should be told that when something seems too good to be true, it probably is. The current scam is a reminder that cybercriminals have penetrated even remote corners of the country. Cryptocurrency scams are not just about losing money; they are also about erosion of trust in the digital economy that holds immense potential for India’s economic growth. Investigation protocols and regulations are urgently required to deal with such crimes.

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