Scam cryptocurrency shut down by Swiss regulator

by
Matthew Allen
My articles My siteAbout meMy booksMy videos
Follow on:

The Swiss financial regulator is investigating multiple cases of suspected cryptocurrency fraud

The Swiss financial regulator has closed down three companies linked to a fake cryptocurrency E-Coin amid fears that investors may have been conned out of millions of francs. The Swiss Financial Market Supervisory Authority (Finma) said the probe is one of 12 it is conducting into cryptocurrencies.

Finma has seized or blocked CHF2 million ($2.07 million) linked to Quid Pro Quo Association, which issued the E-Coins, along with Digital Trading and Marcelco Group. It has also launched bankruptcy proceedings against the trio of firms.

“These three legal entities accepted funds amounting to at least four million Swiss francs from several hundred users,” the regulator said in a statement.

The consortium handled investors’ money without having the necessary banking licence, which is in  violation of Swiss financial regulations.

In addition, Finma found the scheme had failed to back the E-Coins with tangible assets, which it has promised to do. Furthermore, “unlike real cryptocurrencies, which are stored on distributed networks and use blockchain technology, E-Coins were completely under the providers’ control and stored locally on its servers,” Finma stated.

The final tally of assets recovered from the scam will only be known once bankruptcy proceedings have been completed. According to Finma’s own estimates, there are CHF2 million of investor assets outstanding.

Suspicions grow

Finma also warned that “unauthorised parties” are attempting to persuade E-Coin holders to transfer to two other scam cryptocurrencies, but would not reveal which currencies these were. The regulator declined to comment on the possibility of criminal offences having been committed. The Swiss attorney general was not immediately available for comment.

Industry insiders have been warning of scam cryptocurrency schemes for months following an explosion of such “tokens” being launched onto the market this year. There are currently hundreds of such digital currencies in existence, and there are fears that some of them could be pyramid schemes looking to fleece a growing number of investors who are drawn to the market in expectation of quick and spectacular profits.

“I am very glad these ponzi schemes and outright scams have shown up on Finma’s radar. There is a lot happening in Switzerland’s crypto asset space, and just as the Street Parade attracts pickpockets every year, scammers use the excitement to trick unsuspecting newcomers,” Roger Darin, Community Manager at Bitcoin Association Switzerland, told swissinfo.ch.

“Hopefully Finma shutting down one such scam will serve as a deterrent to others and to encourage those new to crypto to reach out to the community and ask for second opinions.”

The best-known cryptocurrency, bitcoin, which has not been linked to such pyramid scams, has seen  its value multiply several times over in the recent cryptocurrency boom. The value of a single bitcoin has risen from around $200 to $3,000 in the space of 12 months. The total value of all bitcoins in circulation has reached nearly $70 billion.

Introduced in 2009, bitcoin was the world’s first encrypted digital currency that operates on the blockchain platform. It was created as an alternative to established currencies that are issued by central banks, allowing people to trade directly with each other without the need for banks or clearing houses.

But Finma warned of the dangers of investing in some imitators. The regulator said it has opened investigations into 11 other suspect cryptocurrency schemes and placed three other companies on a warning list.

Finma has also issued guidelines to protect consumers who invest in the cryptocurrency sector.