QuadrigaCX was an “Old-fashioned Fraud Wrapped in Modern Technology” – OSC Report

“What happened at Quadriga was an old-fashioned fraud wrapped in modern technology,” said the Ontario Securities Commission in an investigation.

The 10-month long investigation into the exchange by the country’s biggest securities regulator revealed that the collapse of the Canadian cryptocurrency trading platform QuadrigaCX was because of a Ponzi scheme operated by its founder Gerald Cotten, who died in December 2018.

Back in 2019, the collapse of the exchange caused $125 million in losses for 76,000 investors. The exchange was shut down in January 2019, weeks after Cotten died at age 30 suddenly while on his honeymoon in India. Jeff Kehoe, director of the enforcement branch at the OSC, said in a statement,

“While public release of an investigative report is rare, we believe the tens of thousands of Ontarians who entrusted Quadriga with their money and crypto assets deserve to know what happened.”

Outlining the events from Quadriga’s inception to its eventual collapse, the report stated the exchange faced losses when the price of digital currencies changed which Cotten covered with other clients’ deposits.

Running a Ponzi Scheme

The investigation of data related to 368,000 client accounts and more than 6 million individual transactions revealed that Cotten operated a Ponzi scheme.

He opened accounts under aliases and credited himself with fake crypto assets and currency balances which he traded with Quadriga clients. And when he sustained real losses with the change in the price of cryptocurrencies, it created a shortfall in assets for client withdrawals. This shortfall was covered with other clients’ deposits.

Out of the total C$169 million in client losses, about $115 million of this was due to Cotten’s fraudulent trading. When he died, the platform owed C$215 million to its client, the regulator said.

Cotten also siphoned off assets about C$24 million for personal use and lavish lifestyle between May 2016 and January 2018, according to the OSC.

About C$46 million was recovered and paid to clients while assets worth about C$22 million were returned by Cotten and his widow Jennifer Robertson, the report said.

“The information presented in this report highlights the unique risks that can arise when using crypto asset trading platforms,” which are magnified when they are traded on platforms not registered with regulators, Kehoe said in a statement.

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Author: AnTy

Ripple Inc. Moves To Court To Dismiss Fraud Claims Against Its CEO, Brad Garlinghouse

  • Ripple Inc. moves to court asking for a dismissal on the three accounts of fraud in an ongoing case against Brad Garlinghouse, the company’s CEO.
  • The lawsuit against Mr. Garlinghouse claims the executive sold millions of dollars’ worth of XRP when the market was booming in 2017 by misleading customers he was “very long” on the digital asset.

A “court motion to dismiss,” filed by Ripple Inc. to the United States District Court in Northern California on June 8, aims to dismiss the charges faced by the CEO, Brad Garlinghouse.

The motion aims at removing three accounts of fraud by the plaintiff, Bradley Sostack, which did not show how Garlinghouse was purportedly fraudulent in selling his XRP.

The lawsuit is built around the interview that Garlinghouse made on XRP back in December 2017, claiming he was “very very long [on] XRP” regarding questions on his view on the investment asset. Furthermore, an amended complaint alleges that Garlinghouse sold a vast portion of his XRP coins shortly after receiving them from Ripple despite being “long.”

Finally, the lawsuit also claims that XRP is a security and raised questions on Ripple’s selling point of XRP as a utility token.

Ripple Dismisses the Lawsuit: “Must be Disregarded”

While the plaintiffs are claiming the Ripple CEO sold close to $58 million in Ripple shortly after saying he was long, the defendant’s lawyers claim the misrepresentation does not amount to fraud. The plaintiff is yet to prove this according to the Federal Rule of Civil Procedure 9 (b) which states that they must “state with particularity the circumstances constituting fraud.”

According to the defendant’s lawyers, plaintiffs are yet to establish the fraud in Garlinghouse selling off part of his investments. The motion filed with the district court further elaborates that the mere act of selling a portion of his XRP assets, Garlinghouse did not stop being long on the asset.

It reads:

“Selling a portion of one’s XRP holdings does not mean that the seller cannot also be ‘very, very long’ in the same asset as a percentage of his or her own personal balance sheet.”

The defendants are asking the court to disregard the three fraud claims brought against the Ripple CEO. This will see the pursuit of fraud claims against Garlinghouse’s $58 million XRP sale in 2017 be dropped completely.

“Defendants thus respectfully request that the Court dismiss Plaintiff’s fraud claims with prejudice.”

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Author: Lujan Odera

Bitcoin Can Only Act As A Hedge Against A Loss Of Confidence In Fiat And Payment System: JPMorgan

  • From calling Bitcoin a “fraud” to the crypto asset having a place in investors’ portfolio
  • “2019 will be remembered for the rise of digital money” – JPMorgan Chase Report
  • Blockchain has its “clearest” use case in “payments, trade finance, and custodial services” but not in supply chain

According to JP Morgan Chase and Co.’s 74-page report later this week states, the digital money will change the financial world.

“2019 will be remembered for the rise of digital money,” the bank said in its report. “The groundwork is now in place for more mainstream adoption of blockchain technology at the same time that the foundation is being established for the development of digital currency and fast payments.”

Back in 2017 JPMorgan CEO Jamie Dimon called Bitcoin a “fraud” and now in 2020, the bank says crypto assets have a place in investors’ portfolio. JPMorgan report said,

“Developments over the past year have not altered our reservations about the limited role that cryptocurrencies play in global portfolio diversification or as a hedge instrument. Crypto assets have a place in investors’ portfolios only as a hedge against a loss of confidence in both the domestic currency and the payments system.”

Rapid adoption faces practical challenges

The New York-based bank said in its report that the emergence of blockchain that underpins Bitcoin and Ether has made the modernization of payments global. While JPMorgan debuted its very own digital coin last year to facilitate cross border payments with a digital asset among the banks, the blockchain system created by Paxos has broken through to the real world and China is developing digital yuan, noted the bank.

It further said blockchain is promising for corporations and banks, yet most corporate efforts are in the early development stage or being tested.

When it comes to using blockchain, JPMorgan sees its “clearest” use cases in “payments, trade finance, and custodial services.” But founds using a distributed ledger to manage the supply chain — “viewed as ripe for disruption is often a limiting factor” — to be a fading application.

However, challenges still remain in the form of technology such as scaling and slow network and regulatory unclarity.

Tech giants are also jumping in on the trend with Facebook launching its so-called cryptocurrency Libra pegged by a basket of fiat currencies. However, it received a lot of backlash from European officials and members of Congress.

“The failed release of Facebook’s Libra serves as a reminder that rapid adoption faces practical challenges to attain scale,” the bank said in the report. In order to succeed, the bank said Libra needs several market mechanisms in place such as less distributed, semi-private networks and short-term liquidity facilities.

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Author: AnTy

SEC Files Lawsuits Against Conspirators In Blockchain Terminal’s $30 Million Fraudulent ICO

CG Blockchain Inc., BCT In. (SEZC), has been charged with fraud by the US Securities and Exchange Commission (SEC), for funds raised on an ICO at over 30 million dollars by the companies operators, Edith Pardo and Boaz Manor.

In a SEC press release from Friday, it’s being said that Manor allegedly hid a criminal conviction from the past. It seems he was working under a fake a name and passed as Pardo’s employee in order to begin the raising of funds for the project. In an effort to do this, he even disguised himself because his actual identity may have been toxic for the company.

Investors Should Check the Identity of Those Who Are Raising Funds

Joseph Sansone, SEC Market Abuse Unit’s co-chief, said in a statement that investors should check the identities of people who are raising funds. These are his Sansone’s exact words:

“As alleged in our complaint, Manor’s brazen scheme to conceal his identity and criminal history deprived investors of essential information and allowed defendants to take over $30 million from investors’ pockets.”

The US Attorney’s Office for the District of New Jersey also filed criminal charges against Manor and Pardo also says the SEC. Back in 2017 and 2018, Manor raised funds for the Blockchain Terminal cryptocurrency version.

SEC Looking for Disgorgement of Profits Obtained Illegally

The SEC is seeking disgorgement of profits obtained illegally plus penalties, injunctive relief and interest. It also wants to bar Manor and Pardo from ever being able to occupy the positions of director and officer within public companies, also from taking part in any securities offering in the future.

Manor was sentenced to 4 years in prison in Canada back in 2012 because he siphoned $106 million from a hedge fund he co-founded in Toronto. It was reported the Canadian fund was managing $800 million in assets from 26,000 investors. SEC sent on January 14 a warning through its Investor Education and Advocacy subsidiary, saying people should keep their eyes open when being presented initial coin offerings.

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Author: Oana Ularu

Phoenix Fund Investments Linked to The OneCoin Money Laundering Scheme, Stole $110 Million

OneCoin was recently charged with fraud and money laundering. The founder’s brother, Dr. Rija Ignatova, admitted guilt to the charges and also accused Phoenix Thoroughbreds of being funded using the money laundered through OneCoin. Ignatova claims that the racehorse investment company Phoenix received $110 million from the OneCoin scam.

Phoenix Thoroughbred’s founder Amer Abudlaziz, however, denied the allegations against his company, saying it was not funded using money stolen through the OneCoin scheme. Contrary to Abdulaziz’s claims, the federal government has reported that Phoenix Thoroughbred received $110 million through an unnamed account with an Irish bank from OneCoin back in 2017.

It was also confirmed that the said account was used by Mark Scott, a former advocate, to launder money for OneCoin. The lawyer was found guilty and convicted for fraud and money laundering last week and stands to serve 50 years in federal prison.

According to a statement report released recently, Phoenix Fund Investments has denied the allegations brought against it and the founder Mr. Abdulaziz during the criminal proceedings against OneCoin. The company is determined to defend itself in a court of law and prove it was not linked to the fraud scam in any manner. The fund claims that Abdulaziz and his company have always acted in accordance with the stipulates of the law and is ready to contest the allegations.

There have also been allegations that the company misrepresented itself by saying it is a regulated thoroughbred fund while it is actually not regulated according to Racing Post. It is also held that the firm has not been operating as an investment fund despite it claiming to be one.

Recently, Phoenix Fund Investments entered into voluntary liquidation. It is not clear yet whether the liquidation decision is due to the recent allegations of money laundering in connection to the OneCoin scheme or otherwise.

The British Horseracing Authority has issued a statement to the Irish authorities confirming that it is aware of the case and already working on it with the aid of relevant authorities.

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Author: Denis Miriti

After A $4.4B Ponzi Scheme, OneCoin Co-Founder Faces 90 Years In Jail; CryptoQueen Yet To Be Found

Konstantin Ignatov now faces a ninety-year jail term for his role in the multi-billion-dollar fraud. A report released by the BBC in the past week noted that Ignatov entered into a plea agreement on October 4th. The BBC notes that details of the plea agreement were made public on November 12th.

Ignatov was arrested earlier this year at the Los Angeles International Airport. Upon his arrest, he went on to plead guilty to numerous charges including those of fraud and money laundering. Even though he is looking at a sentence of close to 90 years, reports indicate that he is yet to be formally sentenced.

In addition, there is a high possibility that he will not face any new additional charges for the role he played in the OneCoin crypto scam. But this does not exempt him from being slapped with would-be tax violations.

The OneCoin Ponzi Scheme

As previous reports have noted, the OneCoin crypto exit is very similar to another scam known as the BitConnect crypto scam. OneCoin, which is based in Bulgaria was launched in 2014 and has remained operational despite its being accused of being a Ponzi scheme by various investigators. During its peak period, the scheme is rumored to have raised as much as 4 billion euros, or 4.4 billion dollars.

Apart from pleading guilty on the various charges facing him, the BBC report indicates that he has also provided additional details against the “crypto queen”. Ruja Ignatova as she is known is his sister and is also one of the Co-founders at OneCoin. During his testimony against Mark Scott, he went on record to state that his sibling had obtained tickets and a passport to Greece and Austria from her Bulgarian home.

Mark Scott is said to have laundered close to four hundred million dollars using the OneCoin platform.

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Author: Daniel W

Token Foundry Head, Former Employee of ConsenSys’ Joseph Lubin Could Sue for $13 Million

  • A former employee of ConsenSys is alleging that Lubin committed fraud and several other crimes.
  • At this time, the legal process started, but the deadline has passed.

Joseph Lubin is well known as the co-founder of Ethereum, but his name is in the headlines for a different reason lately, linked with Harrison Hines. Hine used to be the head of Token Foundry with ConsenSys, which is Lubin’s venture studio. However, new court documents filed in New York show that Hines has started a legal complaint against Lubin, seeking out $13 million dollars.

The document show that Hines is seeking this retribution as a result of alleged fraud, breach of contract, unjust enrichment, and unpaid profits. The lawyer of Hines said in the summons,

“The relief sough is monetary damages in the amount of $12,827,000 on the contract, quasi-contract, and fraud claims plus $404,783 in unpaid profits.”

The legal representation for Lubin responded, aiming to clarify the defendants’ counsel in the case. So far, the case is still pretty vague, and there aren’t any upcoming dates or additional details available. Hines hasn’t followed up with an actual lawsuit, and the deadline has already gone by. At this current time, it is possible that the legal representation for both sides will reach a prospective agreement without involvement from the courts.

Token Foundry was originally launched in April 2018, and it was the division within ConsenSys that was meant to deal with pitching their token design services to clients and promoting token sales. Typically, according to a source, the fees for these services would include some of the newly minted tokens, along with a percentage of the proceeds from the sales, since Token Foundry helped with the launch. This source from an article with CoinDesk requested anonymity.

Formerly, this division stated that they would have over $50 million in revenue during 2018, and it appears as though they fell drastically short of the intended goal. Some of their top clients included Dether ($13.4 million token sale), Virtue Poker ($18.5 million token sale), and FOAM ($16.5 million token sale). The latter occurred in August, just a few weeks before Hines was ultimately let go from the company. This aforementioned source stated that Hines was once a part of Lubin’s “inner circle.”

Many ConsenSys staff members have a sore spot about conversations regarding equity. Some of those staff members include Token Foundry employees that Lubin let go in 2018. At the beginning of 2019, the division was restructured and ultimately renamed ConsenSys Digital Securities, which was considered “a premier advisory firm for Security Token Offerings (STOs) and digital asset structuring.”

At this time, CoinDesk has reached out to both Hines and ConsenSys. However, neither one has responded to requests for comment.

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Author: Krystle M