The head of a multibillion-dollar cryptocurrency company claiming millions of members around the world has been charged with perpetuating what was in fact a global Ponzi scheme, according to the U.S. Attorney’s Office for the Southern District of New York.
Konstantin Ignatov was arrested March 6 at the Los Angeles International Airport on wire fraud charges and presented in California federal court where he is being detained on the charges in Manhattan.
According to federal authorities, Ignatov; his sister, Ruja Ignatova, who founded the company, OneCoin; and others induced investors to invest in so-called OneCoin packages for a share in the digital mining of the crytocurrency. Records obtained as part of the investigation showed that, from 2014 to 2016 alone, OneCoin took in approximately $3.75 billion in sales revenue, and claimed profits of approximately $2.5 million.
Meanwhile, the value of the digital currency grew, eventually rising to be worth about $33.65 a coin in January. Prosecutors now say those prices had nothing to do with the market for the cryptocurrency and, in fact, the siblings intended to defraud investors from the inception of OneCoin.
“They promised big returns and minimal risk, but, as alleged, this business was a pyramid scheme based on smoke and mirrors more than zeroes and ones,” U.S. Attorney Geoffrey Berman said in a statement. “Investors were victimized while the defendants got rich.”
Throughout the alleged scheme, investigators claim the siblings made their ultimate intentions known. According to prosecutors, Ignatova described her thoughts on the pair’s exit strategy from OneCoin.
“Take the money and run and blame someone else for this,” she allegedly wrote Ignatov, according to federal authorities.
OneCoin came to the United States in 2015, after Ignatova, who was then still its founder and leader, announced the opening of a stateside market for the Bulgaria-based cryptocurrency. At some point, Ignatov took over as the face for the company when his sister disappeared from public view. By 2018 buzz around OneCoin’s initial coin offering, or ICO, was growing.
In reality, prosecutors claim, Ignatov was behind the scenes manually manipulating the value of the currency, while funds from investors were being routed through what were called investment funds, but what federal authorities say were meant to launder money.
Another defendant, Mark Scott, is alleged to have been party to the money laundering operation. Scott, whose LinkedIn account says he was a former Locke Lord partner, helped the company launder more than $400 million through accounts based in the Cayman Islands and Ireland, prosecutors said.
Scott was arrested in September 2018, and is currently facing related money laundering charges before U.S. District Judge Edgardo Ramos of the Southern District of New York.
Scott is represented in his current criminal case by solo practitioner David Garvin, who did not immediately return a request for comment.
Ignatov is being represented by a team led by Schertler & Onorato senior counsel Robert Bennett. He, too, did not respond immediately to a request for comment.