Global authorities tighten screws on digital asset scams

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Authorities on both sides of the Atlantic intensified the ongoing global crackdown on digital asset scams, frauds, and ponzis this week, as the U.S. Securities and Exchange Commission (SEC) took its first actions against romance scammers, while German authorities closed almost fifty digital asset exchanges, accusing them of fostering an “underground economy” for cybercriminals.

Last week, the SEC announced it had charged five entities and three individuals in connection with two “relationship investment scams” involving ‘fake’ digital asset trading platforms NanoBit and CoinW6.

Relationship investment scams, also popularly known as “pig butchering” scams, are a type of fraud where scammers build trust with victims over time, convincing them to invest more money then stealing all their funds.

In this case, the perpetrators allegedly stole nearly $3.2 million after gaining investors’ trust and pursuing relationships with them via social media, according to the SEC’s September 17 statement.

“Relationship investment scams, including those involving crypto asset investments, pose a risk of catastrophic harm to retail investors, and the threat is increasing rapidly as these scams become more popular with fraudsters,” said Gurbir Grewal, Director of the SEC’s Division of Enforcement. 

“In these two cases, we allege that fraudsters created fake crypto ecosystems that displayed false information to investors. Our allegations serve as a reminder to the public to be on heightened alert about potential scams involving investment opportunities promoted by strangers on social media.”

The regulator’s complaint against NanoBit Limited, filed in U.S. District Court for the Eastern District of New York, charged the fake trading platform, along with six other defendants—Radiant Horizons Limited, Sweet Karma Fashion Inc., Zhao Tropical Deli Inc., Jiajie Liu, Fei Liao, and Hua Zhao—with violating the antifraud provisions of the federal securities laws. 

The SEC claimed that the defendants defrauded at least 18 people out of around nearly $968,000 by “posing as financial industry professionals in WhatsApp groups.”

Meanwhile, in a separate complaint filed with the U.S. District Court for the Central District of California, the SEC sued fake trading platform CoinW6 for unregistered securities offerings and, as with the other suit, for violating the antifraud provisions of the federal securities laws. 

The regulator alleged the platform perpetrated a scheme with “a web of individuals” passing as “young, attractive professionals” who defrauded at least eleven investors out of over $2.2 million.

On the two relationship scam lawsuits, the SEC said they were its “first enforcement actions alleging these types of scams.”

The SEC seeks permanent injunctions, penalties, and disgorgement with prejudgment of interest against the entities in both suits.

Germany seizes digital asset exchanges

Not to be outdone, a couple of days after the SEC filed its two new lawsuits, the German government shuttered 47 digital asset exchanges in what it described as a “successful strike against the infrastructure of digital money launderers in the underground economy.”

On September 19, the Central Office for Combating Cybercrime (Zentralstelle zur Bekämpfung der Internetkriminalität, or ZIT) and the Federal Criminal Police Office (Bundeskriminalamt, or BKA) shut down the exchanges due to them being used for “criminal purposes.”

“The operators of the now-deactivated exchange services are accused of knowingly concealing the origin of criminally obtained funds on a large scale through inadequate implementation of legal requirements for combating money laundering ( so-called know-your-customer principle), and thus of having committed money laundering and operating criminal trading platforms on the Internet,” said a translated portion of BKA’s press release.

“The offer was aimed at exchanging cryptocurrencies for other crypto or digital currencies quickly, easily and anonymously in order to conceal their origin,” added the BKA.

The authorities allege that the exchange services enabled transactions without going through a registration process and without following standard anti-money laundering compliance procedures or requirements, such as those mandated by the German Money Laundering Act (Geldwäschegesetz) or the EU’s 5th Anti-Money Laundering Directive (5AMLD)—both of which include customer due diligence, reporting, and monitoring of transaction requirements.

According to the German authorities, users of the exchanges included ransomware, botnet operators, and black-market traders who used the services to convert money obtained through criminal means into the “regular currency cycle.”

The BKA and ZIT provided a list of the exchanges that had been shut down, accompanied by some dramatic words of caution:

“This is for you, ransomware affiliates, botnet operators and darknet vendors: For years, the operators of these criminal exchange services have led you to believe that their hosting cannot be found, that they do not store any customer data and that all data is deleted immediately after the transaction. An apparently unregulated hub allowing you to launder the proceeds of your criminal activities without fear of prosecution. From our point of view: nothing but empty promises!”

They warned any illicit users of the sites that: “we have found their servers and seized them – development servers, production servers, backup servers. We have their data – and therefore we have your data. Transactions, registration data, IP addresses.” 

The German authorities rounded off their message to the criminal underworld with the ominous line: “Our search for traces begins. See you soon.”

Despite slamming its cards down on the table with such a theatrical flourish, the German authorities were keen to dampen expectations over large-scale prosecutions, pointing out that many perpetrators reside in other countries. However, they noted that their efforts were aimed at “weakening and smashing the infrastructure of cybercriminals. “

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