OneCoin: A deep dive into crypto’s most notorious Ponzi scheme

Following the latest ruling on the OneCoin class-action lawsuit, we look into the biggest Ponzi scheme in crypto.

The latest ruling in the class-action lawsuit against OneCoin has dismissed Konstantin Ignatov, co-founder of OneCoin, as a defendant after he agreed to testify against his sister. Ignatov is the brother of Ruja Ignatova, the infamous leader and face of OneCoin also known as “Cryptoqueen.” Ignatova disappeared in 2017 and has since managed to evade authorities and the general public.

While Ignatov was dismissed from the lawsuit initiated by defrauded OneCoin investors, court documents indicate that this same case will continue to target Ignatova. Both siblings are still the defendants in another legal action brought by the United States Department of Justice, which could see them face up to 90 years in prison.

Ignatov, who was arrested on March 6, 2019 in Los Angeles, has openly spoken against his sister, claiming to have had no contact with her since her disappearance and to have hired a private investigator to find her, although without much success. On Yavin, founder and CEO of Cointelligence — a blockchain data and education resource — told Cointelegraph:

“OneCoin’s investors had hoped that by going after Ignatov, who was actually in custody, that they would have some chance of getting at least some of their money back. But their choice to drop the case now, after being warned by the court for not providing enough details, suggests that they may have been hasty. I don’t think this decision in any way suggests that Ignatov is innocent. And I don’t think the investors are ready to give up.”

With Ignatov being dismissed as a defendant from one of the lawsuits against OneCoin and Ignatova still on the run, many now wonder how OneCoin managed to scam so many people and what its victims can do. Indeed, the sad story of OneCoin has become so popular that it even inspired an upcoming TV show.

OneCoin: The history

The history behind OneCoin is one filled with red flags. Founded in 2014, the Bulgaria-based company followed the typical structure of a multilevel marketing scheme — but with a twist. There were no products or memberships to be peddled; instead, there was a cryptocurrency that the promoters of OneCoin claimed to be the next Bitcoin (BTC).

Many in and outside of the cryptocurrency community saw through this scam. Those familiar with the MLM model were quick to see the similarities in its operation and marketing, and those familiar with crypto could clearly see that there was no blockchain or network. The OneCoin cryptocurrency was all but imaginary. Exposés of the multibillion-dollar pyramid scheme were also published in several outlets, including Cointelegraph, which reported on it back in 2015. Several institutions and government agencies were also quick to issue warnings about OneCoin.

Nevertheless, the company became extremely popular throughout the years, selling membership packages that supposedly contained OneCoin tokens and the ability to mine more. These could be exchanged for fiat currency on the private exchange Xcoinx, but members could only sell a limited amount determined by the membership package bought. This move allowed the Ponzi scheme to circulate funds for longer periods of time while appeasing investors to a degree. Yavin commented:

“They convinced their investors that all of the warnings came from ’haters,’ and created an Us vs. Them mentality. Another reason OneCoin continues to operate is the regulators are not doing enough, for example the FCA in the UK is not doing enough to stop people from selling OneCoin and last time I checked a few months ago it was still happening!”

OneCoin was known for its ruthless and over-the-top marketing tactics such as putting on extravagant productions where the charismatic face of OneCoin, Ignatova, and other promoters talked up the cryptocurrency to unwary victims. Just take as an example the dramatic, fire-filled “Coin Rush” spectacle at the SSE Arena in London where, in typical OneCoin fashion, Ignatova dubbed OneCoin the “Bitcoin killer” and anyone who spoke against it a “hater.”

The pyramid starts to crumble

In the aforementioned event, Ignatova stated OneCoin would get a new and improved blockchain and that the OneCoin supply would be doubled, thus doubling the holdings of those present. However, two weeks later, a well-known figure in the Bitcoin development space, Bjorn Bjercke, was reportedly approached with an offer to become OneCoin’s chief technical officer and develop an actual blockchain, which he refused. Contradictions and empty promises kept piling up on OneCoin’s lap, and at this point, its so-called exchange had already been closed for a few months, since March 2016.

Following the many warnings and stories regarding the cult-like Ponzi scheme, many investors began to get nervous, especially as promises of a new public exchange were never delivered upon. Nevertheless, the show went on, right up until October 2017 when Ignatova disappeared and the OneCoin pyramid scheme began to crumble.

Cointelegraph spoke with Jen McAdam, a victim of OneCoin’s Ponzi scheme who founded a support group for those affected. She explained how OneCoin gradually revealed itself as a scam both through the actions of the company and the technological aspects of the OneCoin “blockchain.” McAdam and her friends and family invested and lost over 250,000 euros ($298,800), but according to her, only in January 2017 did she realize that its SQL server was not a blockchain and could not create crypto:

“A few months after investing OneCoin Bank accounts began to close and they would open new accounts. This began to happen frequently and this was just the beginning of my concerns. By January 2017 I had realised OneCoin was indeed nothing more than a heinous and cruel fraudulent worldwide fake cryptocurrency scam. [...] Eventually one of the OneCoin leaders left me a voicemail and stated OneCoin’s Blockchain was a sequel server. This was when all the red flags I had then turned into a devastating reality.“

Ignatova’s brother, Ignatov, took the mantle and continued the OneCoin scam for almost two years until he was arrested on March 6, 2019 in Los Angeles. Despite being dismissed from one civil class-action lawsuit, Ignatov pleaded guilty to charges of money laundering and fraud on Oct. 4, 2019 and is facing up to 90 years in prison in a criminal case filed by a New York district attorney following his arrest. However, the U.S. court has postponed the sentencing more than once following government requests, but it is now set to take place on Nov. 11.

Just how big was OneCoin?

While the investigation leading up to the aforementioned class-action lawsuit uncovered a sales revenue of around $4.4 billion, some sources who worked closely with OneCoin claim that the scheme could have stolen up to $19.4 billion. According to Digitpol, a private investigation agency, law enforcement officials in China have been able to recover around $267 million and have prosecuted 98 people in the process.

There was not a lack of warning from central banks and other government agencies; however, people all over the world still fell for it. McAdam told Cointelegraph that OneCoin claimed to have over 3.5 million members, although the number does seem to be exaggerated. She also told Cointelegraph about the many thousands that have reached out to her support group for help:

“We now have over 10,000 OneCoin Victims globally covering every continent. I would also like to add at this point, OneCoin is also a cult and many members who invested are still very much brainwashed and in denial OneCoin is a scam. Everyday OneCoin members are waking up to the reality of this scam and the request of devastated and even suicidal OneCoin investors/victims increase in alarming numbers to join the OneCoin Victim support Groups.”

Those behind OneCoin

Several people have been connected to OneCoin in one way or another, with some having been arrested for promoting or participating in the project while others are on the run. Many of the people behind the scheme have remained anonymous, and it’s also unclear if there is any form of organized criminal involvement. In the lawsuit filed by investors, several names were mentioned, including the company OneCoin Ltd, Ignatova, Ignatov, Sebastian Greenwood and Mark Scott.

Greenwood was previously involved in the defunct pyramid scheme Unaico and worked for OneCoin in various capacities. Many OneCoin figures had a questionable past, such as the ex-president of OneCoin, Nigel Allan, who prior to a falling out with Ignatova was implicated in similar pyramid schemes such as Crypto 888 and Brilliant Carbon.

On the other hand, Irina Andreeva Dilinska, David Pike and Nicole Huesmann have also been named as defendants in the class-action lawsuit, with some remaining unserved. Le Quoc-Hung, a key figure in the recruitment for OneCoin, has recently resurfaced and is using his OneCoin channels to promote yet another scam, although his whereabouts are unknown.

Several people and entities have also been accused of laundering money for OneCoin and its members, including Pike, who allegedly laundered roughly $400 million through "Fonero Funds," a private equity fund. Pike, the chief operating officer of Fonero Funds, has claimed that he did not know the funds came from the scam. Scott is also believed to have laundered OneCoin’s funds.

Many other key figures that were believed to have been involved, especially as promoters and recruiters, have been arrested outside of the U.S., and recently, two OneCoin promoters were convicted in Singapore. The roots of the OneCoin Ponzi scheme stretch deep, so much so that even churches were found to have been involved. Grant Blaisdell, co-founder and chief marketing officer of Coinfirm — a blockchain analytics and Anti-Money Laundering firm — told Cointelegraph:

“In October 2019, Coinfirm teamed up with global investigations firm Kroll to launch ReclaimCrypto. Since launching the joint initiative, hundreds of claims related to OneCoin have been submitted, showing the true scale of the scam. As of now, we’ve identified multiple addresses still holding misappropriated funds.”

What can victims do?

While recovering funds lost to OneCoin, or any scam for that matter, is not easy, there are still a few things that can be done. According to McAdam, her OneCoin victim support groups have made progress in exposing the scam and raising awareness:

“For 3 years now myself and a network of people globally have been exposing the OneCoin Scam and working with authorities globally. My personal focus has also been to focus on justice for the victims. This includes helping and supporting victims globally, raising awareness focusing on and speaking to media globally, participating and working with the BBC regarding the BBC successful podcast The Missing Cryptoqueen.”

McAdam also told Cointelegraph that it’s possible that once the lawsuits are concluded and the people behind OneCoin are behind bars, “USA courts will focus on a global onecoin victim asset recovery fund and lawyers will then be interested to help the victims recover their money.” Blaisdell also stated that victims can turn to Coinfirm to receive help:

“Coinfirm, along with its trusted Partners, is further working to prepare the comprehensive assets recovery strategy for the victims that reached to us for help. We strongly advise all OneCoin victims to raise claims through our Reclaim Crypto system so we can help them with the potential recovery process.”

In the meantime, it’s possible that some may have resorted to more drastic measures, as two OneCoin promoters were recently found dead in Mexico, although it’s also possible that local cartels might have been involved in the crime.

Scams are still a major concern

With the inspiration behind OneCoin, Ignatova, still missing and her brother arrested, the scam seems to be dead and buried. However, while OneCoin’s website has been taken down, the movement doesn’t seem to be completely dead. In fact, following the arrest of Ignatov and other members of the community, OneCoin officials have denied reports that it is a Ponzi scheme and have even signed a petition to free Ignatov.

Now, with yield farming becoming popular through decentralized finance, this new sector is also attracting new scams. Another large scam that has been exposed, PlusToken, promised users a return on their deposits, similar to DeFi lending and interest protocols. In fact, scams are still on the rise and can impact the crypto industry as a whole. While it’s unlikely that scams of this sort will ever truly disappear, potential investors should always take the time to educate themselves on how to detect and avoid them, as McAdam told Cointelegraph:

“People can help by raising awareness especially within the media platforms. [...] The OneCoin Scam is still continuing and innocent people around the world are still losing their life savings or entering a lifetime of debt. In raising awareness we can help protect innocent people globally from facing such high financial loss, help towards the victims receive the justice they deserve and help educate people worldwide about fake cryptocurrency scams.”