OneCoin co-founder Karl Sebastian Greenwood – who along with still-elusive ‘Cryptoqueen’ Ruja Ignatova defrauded investors of $6 billion ($US4 billion) in one of the biggest scams ever – has been fined $443 million ($US300 million) and sentenced to 20 years in prison.

“We hope this lengthy sentence resonates in the financial sector and deters anyone who may be tempted to lie to investors and exploit the cryptocurrency system through fraud,” US attorney Damian Williams said as Greenwood’s sentence was announced.

Over the course of a frenzied three years beginning in 2014, Greenwood and Ignatova cashed in on the hysteria around cryptocurrencies like Bitcoin, marketing OneCoin as a ‘Bitcoin killer’ in a multi-level marketing (MLM) campaign that ultimately netted billions of dollars from more than 3.5 million victims around the world.

As the top salesman in the MLM structure, Greenwood ultimately netted more than $443 million ($US300m) – all of which has now been forfeited – using a high-profile pitch that convinced participants they were buying into a blockchain based cryptocurrency that was growing like Bitcoin.

“Greenwood’s mastery as a salesman and the use of the MLM structure helped contribute to OneCoin’s rapid growth and incredible success,” the FBI said.

“The misrepresentations made by Greenwood and others to OneCoin investors were legion and the cryptocurrency was worthless.”

Regardless of its lack of real worth, the price of a OneCoin steadily increased $0.82 (€0.50) to $49 (€29.95), boosting revenues for Greenwood and Ignatova and feeding the lie that OneCoin was benefiting from the halo effect around Bitcoin.

In truth, the FBI reported in quoting emails exchanged between the two, OneCoin was ‘not mining actually – but telling people shit’.”

“Among other things, OneCoin lied to its members about how its cryptocurrency was valued,” the FBI notes, “claiming that the price was based on market supply and demand, when in fact OneCoin itself arbitrarily set the value of the coin without regard to market forces.”

Despite representations that OneCoin was being minted in their home city of Sofia, Bulgaria, for example, most of the tokens that Greenwood and Ignatova sold were never added to any public, verifiable blockchain and were referred to internally as ‘fake coins’.

OneCoin’s accounting construct – which included tabulations of ‘mined coins’, ‘mined coins (real)’ and ‘fake coins’ – had become well entrenched by June 2015, just two months before Ignatova emailed Greenwood to say that “unexpected” big sales of 1.3 billion fake coins were threatening to expose them.

“We are f*cked,” the FBI reports that she emailed him. “This came unexpected and now needs serious, serious thinking.”

The seedy side of cryptocurrency

Subsequent months saw Greenwood splurge investors’ funds on a “lavish lifestyle” including five-star hotels and beach villas around the world, around $3 million ($US2 million) worth of luxury designer goods, a downpayment of nearly $1m (£475,000) on a Sunseeker yacht, and real estate in multiple countries.

Ignatova fled Sofia in October 2017 for Athens in Greece and is still wanted by the FBI – despite rumours that she had briefly emerged earlier this year – but Greenwood was arrested and extradited in July 2018 to face fraud and money laundering charges after a joint FBI operation with Thai authorities.

The conviction of Greenwood – who pled guilty late last year – marks a major turning point in the OneCoin saga, but it’s far from the only multi-billion-dollar disaster to eventuate as scammers capitalise upon Bitcoin’s market-disrupting growth over the past decade.

Last November, crypto exchange giant FTX imploded in a $47 billion debacle while in 2021, a Turkish crypto exchange founder disappeared with $2.6 billion worth of investors’ assets.

And last year, a married couple were arrested for trying to launder $7.4 billion worth of Bitcoin stolen in 2016’s Bitfinex exchange breach.

In Australia – where ASIC guidance warns investors not to deal with OneCoin – operators like Swyftx and Binance Australia have had trouble maintaining momentum in the face of ever-tougher controls.

The ongoing instability of cryptocurrencies has led Australian banks to crack down on exchange-related transfers, while in March the Australian Computer Society (ACS) proposed the creation of a risk register that would document exchanges’ risk and legal compliance measures.

OneCoin co-founder Karl Sebastian Greenwood – who along with still-elusive ‘Cryptoqueen’ Ruja Ignatova defrauded investors of $6 billion ($US4 billion) in one of the biggest scams ever – has been fined $443 million ($US300 million) and sentenced to 20 years in prison.

“We hope this lengthy sentence resonates in the financial sector and deters anyone who may be tempted to lie to investors and exploit the cryptocurrency system through fraud,” US attorney Damian Williams said as Greenwood’s sentence was announced.

Over the course of a frenzied three years beginning in 2014, Greenwood and Ignatova cashed in on the hysteria around cryptocurrencies like Bitcoin, marketing OneCoin as a ‘Bitcoin killer’ in a multi-level marketing (MLM) campaign that ultimately netted billions of dollars from more than 3.5 million victims around the world.

As the top salesman in the MLM structure, Greenwood ultimately netted more than $443 million ($US300m) – all of which has now been forfeited – using a high-profile pitch that convinced participants they were buying into a blockchain based cryptocurrency that was growing like Bitcoin.

“Greenwood’s mastery as a salesman and the use of the MLM structure helped contribute to OneCoin’s rapid growth and incredible success,” the FBI said.

“The misrepresentations made by Greenwood and others to OneCoin investors were legion and the cryptocurrency was worthless.”

Regardless of its lack of real worth, the price of a OneCoin steadily increased $0.82 (€0.50) to $49 (€29.95), boosting revenues for Greenwood and Ignatova and feeding the lie that OneCoin was benefiting from the halo effect around Bitcoin.

In truth, the FBI reported in quoting emails exchanged between the two, OneCoin was ‘not mining actually – but telling people shit’.”

“Among other things, OneCoin lied to its members about how its cryptocurrency was valued,” the FBI notes, “claiming that the price was based on market supply and demand, when in fact OneCoin itself arbitrarily set the value of the coin without regard to market forces.”

Despite representations that OneCoin was being minted in their home city of Sofia, Bulgaria, for example, most of the tokens that Greenwood and Ignatova sold were never added to any public, verifiable blockchain and were referred to internally as ‘fake coins’.

OneCoin’s accounting construct – which included tabulations of ‘mined coins’, ‘mined coins (real)’ and ‘fake coins’ – had become well entrenched by June 2015, just two months before Ignatova emailed Greenwood to say that “unexpected” big sales of 1.3 billion fake coins were threatening to expose them.

“We are f*cked,” the FBI reports that she emailed him. “This came unexpected and now needs serious, serious thinking.”

The seedy side of cryptocurrency

Subsequent months saw Greenwood splurge investors’ funds on a “lavish lifestyle” including five-star hotels and beach villas around the world, around $3 million ($US2 million) worth of luxury designer goods, a downpayment of nearly $1m (£475,000) on a Sunseeker yacht, and real estate in multiple countries.

Ignatova fled Sofia in October 2017 for Athens in Greece and is still wanted by the FBI – despite rumours that she had briefly emerged earlier this year – but Greenwood was arrested and extradited in July 2018 to face fraud and money laundering charges after a joint FBI operation with Thai authorities.

The conviction of Greenwood – who pled guilty late last year – marks a major turning point in the OneCoin saga, but it’s far from the only multi-billion-dollar disaster to eventuate as scammers capitalise upon Bitcoin’s market-disrupting growth over the past decade.

Last November, crypto exchange giant FTX imploded in a $47 billion debacle while in 2021, a Turkish crypto exchange founder disappeared with $2.6 billion worth of investors’ assets.

And last year, a married couple were arrested for trying to launder $7.4 billion worth of Bitcoin stolen in 2016’s Bitfinex exchange breach.

In Australia – where ASIC guidance warns investors not to deal with OneCoin – operators like Swyftx and Binance Australia have had trouble maintaining momentum in the face of ever-tougher controls.

The ongoing instability of cryptocurrencies has led Australian banks to crack down on exchange-related transfers, while in March the Australian Computer Society (ACS) proposed the creation of a risk register that would document exchanges’ risk and legal compliance measures.