The Washington State Department of Financial Institutions (DFI), Securities Division has continued to receive complaints involving self-proclaimed “Investment Education Foundations” that are allegedly operating fraudulent cryptocurrency platforms. These schemes are largely run out of WhatsApp and Telegram under the guise of teaching members how to invest. These fraudulent cryptocurrency platforms often demand a fee, such as a tax payment, before an investor can withdraw money – a common form of Advance Fee Fraud. However, these cryptocurrency platforms appear to be introducing new ways to take even more funds from victims.
Free Tokens
One aspect of the scheme involves inviting investors to “test” new proprietary trading technology powered by artificial intelligence (“AI”), such as “QuantumAI” or a “FINQbot.” Investors are provided what they believe to be “free” tokens to test the technology, including through raffles and “fortune wheels” found on the platform’s website. The tokens are often advertised as the platform’s “native token” and are generally distributed through purported ICOs, IDOs, or STOs. The foundations may even publish a detailed White Paper on their websites that gives further detail about the token or platform. When trades are successful and a significant profit is made, investors are asked to put in their own money to continue trading or pay back the “free” tokens they received before they can withdraw. The “free” tokens only appear to generate monetary profit on the fraudulent platform and do not seem to have any real monetary value.
Loans and “Partnership Agreements”
The alleged fraudulent platforms set arbitrary thresholds for the amount required to invest into the platform. The platforms offer purported cryptocurrency loans to investors who do not have enough funds to reach certain “VIP” trading tiers, which allow investors to earn greater returns. Several investors have signed contracts with the platforms for the loans, which have exceeded $500,000. There is often an urgency conveyed to investors, with several reporting that they were made to feel that they would miss out on an opportunity of a lifetime by not accepting the loan.
The WhatsApp Group may direct investors to Telegram to communicate with a third party “merchant” to execute the loan. Investors are told initially that they can repay the loan with profits generated on the platform but are later told the loans must be repaid with outside sources before they can withdraw any purported profits from the platform. Investors who are unable to repay the loans may be threatened with legal action or told the account will be sent to collections. Though the fraudulent platform shows the loan funds (in cryptocurrency) have been added to the investor’s account, the transaction does not appear to be recorded on any blockchain.
Other investors have signed what is often referred to as a partnership agreement between the investor, the foundation or platform, and potentially a “C2C” merchant. The agreements may specify a commission or fee that must be paid at the end of the contract term. The agreements may even “guarantee” earnings of exorbitant percentages and unlimited access to revolutionary software. The investors are told they must invest and maintain a certain balance in their account. When their accounts lose money, the investors are pressured to put more money into their account, with the platform claiming that the investor “contractually agreed to maintain a certain balance.” Others that do make purported profits are told they have to pay the commission or fee using outside funds
Advance Fee is Paid but Investors Can’t Withdraw
Although these allegations have not been confirmed, DFI has been unable to identify any investors that successfully withdrew any invested funds or purported profits from the platform, even after depositing more money into their accounts or repaying the purported loans. Investors who pay the advance fees are met with more demands or ignored entirely before the platform eventually disappears.