The Intersection of Cryptocurrency and Ponzi Schemes

The New York Attorney General recently filed a lawsuit against Nova Tech, Ltd. and AWS Mining PTY Ltd., two cryptocurrency companies. The lawsuit also extends to their founders and promoters.

The lawsuit claims that the companies operated illegal pyramid and Ponzi schemes. This scheme was with the intent to defraud. 

According to the lawsuit, Nova Tech Ltd and AWS Mining PTY Ltd defrauded investors of over a billion dollars in cryptocurrency. This act violates two laws: the Martin Act and the New York Executive Law. 

Hi, in today’s blog, I will discuss the thin line, the difference between cryptocurrency trading and Ponzi schemes. Continue reading! 

What the Complaint Is About

In the complaint, the AGS claimed that the two companies were involved in a pyramid and Ponzi scheme. 

Immigrants were the target of these schemes. The companies penetrated immigrant communities by making false promises.

Their promise was a high return on investment to all investors. However, this was a pyramid scheme, a ploy to play on unsuspecting people. 

The companies’ strategy was simple: They paid older investors funds from newer investors and falsely claimed to make profits via cryptocurrency trading.

Furthermore, in the AG’s complaint, the two companies offered and sold securities without due registration. 

In the US, and by extension, the state of New York, it is illegal to offer and trade securities without registering with the appropriate agencies under state laws.

What the Lawsuit Seeks to Achieve

The lawsuit seeks four forms of relief: injunctive relief, restitution, disgorgement, and civil damages.

Injunctive Relief

Injunctive relief is a court action that restrains a party from carrying out specific actions. It may also be used to prevent the party from acting in a certain way. 

Restitution

Restitution occurs when a judge directs a victim to compensate them as compensation for their loss. It also includes the process of restoring a victim’s property. 

“When damages are insufficient to compensate the victim for their loss, the court will usually order restitution,” 

says attorney Scott Silver of Securities Fraud Attorneys.

Disgorgement

Disgorgement occurs when a guilty party relinquishes something in their possession. 

Typically, a court order is required to compel the party to do so. Disgorgement is usually applied to profits obtained via illegal means. 

Before disgorgement, the entire value of the illegally obtained profit/property is calculated, and a court injunction for freezing the guilty party’s assets is ordered. 

Then, the assets are awarded a monetary value and adequately transferred to the original owner.

Civil Damages

A court may rule for monetary damages in Ponzi scheme cases. Civil damages are the act of awarding monetary compensation to a victim. 

The guilty party is compelled to pay compensation for damages caused to the victim’s health, income, and assets.

For the court to award civil damages, the plaintiff must prove that the defendant’s actions and negligence caused the plaintiff’s injury and loss. 

How Ponzi Schemes Hide Behind Crypto

The inception of Ponzi schemes predated cryptocurrency by many years. Digital currencies give fraudsters new ways to carry out their illegal operations.

Due to the complex and difficult nature of crypto transaction traceability, scammers exploit the general confusion about cryptocurrency to deceive investors.

A crypto Ponzi scheme typically indicates itself through these warning signals:

Guaranteed high returns

Established investments will never provide assured significant earnings without exposing the investor to any danger.

Referral-based rewards

A business operation becomes a legal scam when it provides greater financial benefits for enrollment activities than for profits from honest investments.

Lack of transparency

Disbelief should arise when a company fails to reveal its profit-making methods.

Pressure to reinvest

Scam operators typically discourage their investors from cashing out their generated profits through constant promotional tactics.

Other Lawsuits the AG Has Filed

The recent lawsuit against Nova Tech and AWS is one of the numerous lawsuits the AG has filed in recent years. 

It is part of the AG’s effort to stamp out fraudulent activities and protect investors.

It is also a move to regulate the cryptocurrency sector. Some of the other AG’s lawsuits include:

1. A lawsuit against Genesis Global, LLC. This lawsuit resulted in a $2 billion settlement 
2. A lawsuit against KuCoin, which resulted in a $22 million settlement
3. A lawsuit against Coin café Inc., which resulted in a $4.3 million settlement

How to Avoid Falling for Crypto Scams

An experience with a Ponzi scheme can create devastating effects, yet implementable precautions exist to prevent such occurrences. 

The following advice helps you prevent becoming a scam victim:

1. Research Before Investing

Firstly, research a company before making financial investments by examining its background. 

Verify if the company maintains registration approval from regulatory organizations which include the SEC and FINRA.

2. Be Skeptical of Unrealistic Prom

Secondly, it becomes necessary to exercise caution when investment promises deliver short-term profit magnifications of 100% and 300% or more. The same level of profit carries considerable inherent danger.

3. Stay Clear of Investing Systems That Need New Members as a Source of Profit

Thirdly, reliable financial investments will never ask their investors to bring new members as a prerequisite for earning returns. 

A warning sign emerges when companies offer greater earnings to new investor acquisition rather than focusing on actual profits.

4. Seek Professional Advice

Lastly, everyone planning to invest should first check with financial advisors and legal experts to understand the investment’s genuine value.

Staying Alert and Avoiding Danger: Protect Yourself from Crypto Scams!

In conclusion, regulating the cryptocurrency industry is becoming more important by the day. The cryptocurrency market is large and has numerous investors. 

Thus, protecting their investments is paramount. Failure to regulate gives Ponzi schemes opportunities to easily defraud investors. 

Engaging an attorney if Ponzi scheme companies masquerading as cryptocurrency companies have defrauded you is also advisable.

Many of them hide under the guise of legitimate business to defraud unsuspecting investors of their hard-earned money. 

That is why you must also allow a financial advisor to enlighten you before committing yourself to any scheme.

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