Tales from the crypt

Sometime in 2009, Internet users took note of the emergence of Bitcoin, a new and exclusively online digital asset, especially in how it sidestepped all banking regulations. Nearly six years later, several dubious cryptocurrency firms began emerging nationwide. Aided by attractive marketing campaigns, seminars, word-of-mouth promotions, promises of 10-40% monthly returns, and Bitcoin’s surging market value, these firms baited thousands of people, including those who did not fully understand the technology, into parting with their investments.
“Initially, when it started in 2015, my brother and I made a small investment. We were confident that our returns would increase manifold,” said Sukhwant Singh, a resident of Uttarakhand’s Rudrapur district, about a cryptocurrency platform named BTC Fund. The firm promised its investors 30% monthly returns in the first couple of months.
“We kept putting in money. By 2017, we had invested around ₹50 lakh,” Sukhwant added. Gradually, the returns were delayed, and one day, they stopped altogether. When the firm’s owner stopped picking up his calls, he knew he had been scammed. Sukhwant, the primary breadwinner of his family, has since taken up odd jobs to recover from the financial crisis.
Since it took over the investigation in the BTC Fund case, the Enforcement Directorate (ED), the country’s premier financial law enforcement agency, has attached assets worth a total of ₹4.56 crore.
A provision under Section 8(8) of the Prevention of Money Laundering Act, introduced in 2015, allows for the restitution of attached properties with court’s approval, giving hope to the victims of getting their money back in time.
Over the past 10 years, investors such as Sukhwant are estimated to have been swindled of tens of thousands of crores of rupees.
As per a senior ED official, the actual numbers are likely to be much higher as many victims tend not to share their plight out of fear of getting into legal trouble. The agency received its first case of cryptocurrency fraud in 2017-18. Since then, it has taken up a total of 122 such cases.
The ₹6,600-crore scam
The year 2015 also saw the emergence of another similar platform, Gain Bitcoin. An engineer from Maharashtra, Amit Bharadwaj, had founded it. In two years, the firm allegedly defrauded investors of 80,000 Bitcoins (or nearly ₹6,600 crore as per the cryptocurrency’s 2017 value. Bitcoin is currently priced at nearly ₹80 lakh per unit).
“Back then, cryptocurrency was still a mystery for most Indians,” said Harish*, a Pune-based chartered accountant and among the investors who lost their money to Gain Bitcoin.
He was informed about the platform by a childhood friend who himself joined it after taking it to be a legitimate venture.
“It was disguised as a bona fide enterprise promising a 10% monthly return for 18 months on Bitcoin investments. Its founders sold people the dream of getting rich quickly. I kept a watch on the price of Bitcoin and noticed it going from ₹35,000 to about ₹70,000 in months. It was then that I took the plunge,” he said.
The investors, mainly from the middle-class income group, including pensioners, bought anywhere from one to 100 Bitcoins, which they invested in the scheme.
The accused cast their net wide through promotion on social media and seminars in Pune, Kolhapur, Nanded, Mumbai, and Delhi. Promotional events were also held in Dubai and Macau between 2017 and 2018.
After delays in the promised returns, the investors were told there were some problems with the server. Gain Bitcoin went on to launch its own digital token, projecting it as a powerful digital asset.
“There was no option to withdraw our Bitcoins from their application. We could only view them. Soon, it turned out that the entire thing was a multi-level marketing scam. We approached the police. Till now, 43 FIRs have been registered by investors, including 30 in Maharashtra. We are still fighting to get our investments back,” he said.
Based on the police cases, the ED launched a money laundering investigation against Bhardwaj, his family members, and others. The agency has arrested several persons and attached properties worth over ₹180 crore, including commercial establishments in Dubai. Bharadwaj died on January 15, 2022.
‘Probe at crucial stage’
“We have been told that the probe is at a crucial stage. We are hoping for an early resolution,” said another Gain Bitcoin investor, Ramesh Patil*.
The ED has taken up probes in similar cryptocurrency fraud cases from several parts of the country, including Gujarat and Haryana.
Founders of the Surat-based BitConnect Coin platform, whose website was launched sometime in 2016-17, offered to double investments every four months.
“Many investors got phenomenal profits at the start. So, we were also drawn into putting in large amounts. But the platform stopped functioning on January 16, 2018. Soon, we realised that we were duped,” said 40-year-old Maheshbhai, a BitConnect Coin investor.
The ED has so far attached assets and proceeds of crime worth a total of ₹2,135 crore. It has also seized ₹17.20 crore worth of cryptocurrency from multiple e-wallets in connection with an investigation into another fake platform operated by a Haryana-based person named Mahesh Kumar.
Bitcoin mining or farming is the process by which specialised computers are used to execute complex mathematical problems to validate, secure, create, and launch new coins into circulation. Ponzi schemes operate by creating fake Bitcoin exchange platforms with falsified data, luring potential victims with high returns initially, and disappearing after collecting enough investment in the form of Bitcoins or through bank transfers.
The probe agencies have often found the fraudsters to be using a complex web of transactions through the Dark Web and cryptocurrency wallets to hide the money trail.
According to a report by the Internet Crime Complaints Center, a division of the United States’s Federal Bureau of Investigation, released last year, India ranked fifth globally in terms of the number of cryptocurrency-related complaints with a total of 840 cases and sixth in terms of the overall estimated losses, which amounted to over $44 million.
Threefold rise in Haryana
Haryana’s Inspector General of Police (Cyber) Sibash Kabiraj said 70-80% of the lost investments could be recovered if the police are informed within five to six hours of the crash of a suspicious trading platform, but recovering the funds thereafter becomes difficult. “The money is usually transferred to mule accounts and withdrawn in foreign countries within a few days of the fraud, which makes it difficult to trace,” said the officer, whose State has witnessed a threefold increase in cryptocurrency-related frauds over the past year.
Legal status in limbo
There is no specific legal framework for crypto exchanges. However, many of these are registered with the Union Finance Ministry’s Financial Intelligence Unit under provisions of the Prevention of Money Laundering Act, 2002, which mandates reporting of suspicious transactions and Know Your Customer compliance.
Supreme Court lawyer Virag Gupta said that the Reserve Bank of India had in April 2018 issued a circular imposing a prohibition on dealing in virtual currencies. However, the Supreme Court lifted the ban in 2020.
“Cryptocurrency’s legal status is in limbo. However, by making the income from trading cryptocurrencies taxable, the Centre has indirectly given it a legal endorsement. Crypto exchanges have been found to be violating provisions of the Foreign Exchange Management Act. But there is no formal prohibition on such platforms in India,” said Gupta.
He added that due to such lacunae, cryptocurrency is often used to serve illegal purposes, including hawala transfers, tax evasion, drug trafficking, and terrorism.
Harish said that “there was neither a government policy nor any formal awareness campaign to guide people about how cryptocurrencies were operated or regulated” around seven years ago, when he and thousands of other investors had started to invest in the digital currency.
However, the Centre has, over the past few years, run several awareness campaigns. Some exchanges have also begun to caution users against fraudulent schemes.
“More such initiatives should be taken so that those driven by the lure of easy money don’t fall prey to such criminal syndicates,” said another cryptocurrency fraud victim, Vinay*.
(*-names changed to protect identity)
(with inputs from Ashok Kumar)
@