Over the past year, many prominent and colorful crypto personalities have been apprehended and arrested. From the jailing of antivirus pioneer John McAfee to the laying of charges against executives from one of the world’s largest exchanges, 2020 didn’t exactly shake off crypto’s reputation as a honeypot for criminals.
Over the first ten months of 2020, blockchain forensics company CipherTrace estimates that losses from thefts, hacks, and frauds totalled a whopping $1.8 billion, a figure fueled in part by the rise of various DeFi platforms.
The report suggests that 2020 is on track to record the second-highest value in losses linked to cryptocurrency crimes, trailing 2019, when proceeds of those crimes exceeded $4.5 billion.
Let’s take a closer look at some of the highest-profile figures embroiled in legal issues this year.
Arthur Hayes goes missing following DoJ charges
On Oct. 1, the United States Department of Justice (DoJ) filed criminal charges against BitMEX founder Arthur Hayes as well as three of his associates for violating the Bank Secrecy Act. Compounding their problems, the US Commodity Futures Trading (CFTC) filed a civil enforcement action against Hayes and his company for flouting AML regulations.
The Hong Kong resident has been MIA in public since and is yet to resurface. But in a stroke of good fortune for Hayes, he might not be compelled to face the music anytime soon, as the United States and Hong Kong have suspended their extradition agreements in light of the recent political turmoil there.
The DoJ alleged that BitMEX had been engaged in a variety of shady activities and had weak Anti-Money Laundering (AML) and Know Your Customer (KYC) policies that could easily be misused by third-party actors.
BitMEX was also accused of operating a complex international corporate structure with offices in premium international destinations such as New York, Hong Kong while claiming to be registered and based out of Seychelles.
After the news broke BitMEX announced the departure of Hayes as the company CEO, along with chief technical officer Samuel Reed and the head of business development Greg Dwyer.
‘Star’ Xu’s mysterious absence explained
Prominent cryptocurrency exchange OKEx copped a lot of flak after it suspended crypto withdrawals on Oct. 16, effectively barring customers from taking out their crypto holdings.
Reports surfaced that the suspension was related to the exchange’s Chinese co-founder Mingxing “Star” Xu being arrested by local authorities — although the exchange vigorously denied that was the issue.
After being unreachable for more than thirty days, Xu finally made a media appearance on WeChat on Nov. 19. He revealed that he’d been assisting relevant authorities investigating OK Group’s “backdoor listing in 2017” in which the exchange had sought to partner with an “undisclosed third party entity” so as to make its offerings available to clients all over the world. Xu indicated that after having looked at his prior business engagements, investigators had finally clarified the matter and given him the all clear.
After a month, OKEx finally re-enabled crypto withdrawals on Nov 27.
John McAfee’s Spanish cruise comes to an abrupt end
Tech savant, crypto evangelist, and eccentric millionaire John McAfee has been leading the crypto hype train for what feels like time immemorial now. In 2017, he famously proclaimed that within 36 months, Bitcoin would hit a price of $1 million or he’d “eat my d**k on national television.” He retracted his statement earlier this year to the relief of most people.
McAfee was detained in Barcelona by local authorities in October in regard to tax evasion charges levied by the US government against him. He was also charged over fraudulently promoting a series of questionable cryptocurrency projects, from which he allegedly profited millions of dollars.
Prosecutors claim that McAfee failed to file his tax returns for four years running, even while he raked in millions of dollars from his consulting work, speaking engagements, digital currency investments, etc. According to a statement released by the US Justice Department, McAfee illegally siphoned his income from various bank accounts and cryptocurrency exchange accounts in the names of different nominees. He is also accused of not declaring a number of expensive assets including a yacht and real estate.
This is not the first time McAfee has been in trouble with the law. Back in 2012, he was questioned by police after his name was linked with the death of his neighbor, Florida businessman Gregory Faull. In 2019 he was ordered to pay $25 million in a wrongful death lawsuit filed by the estate, but refused, saying:
“I have not responded to a single one of my 37 lawsuits in the past 11 years.”
If convicted of the new charges, he could face up to 30 years in prison.
Santiago Fuentes’ billion-dollar scheme collapses
Spanish national, Santiago Fuentes, was the operator of a cryptocurrency arbitrage firm called Arbistar which had tens of thousands of users investing Bitcoin into its arbitrage trading bot. Blockchain investigations firm Tulip Research reported that since its inception, the firm had raised more than $1 billion in Bitcoin.
Suspicions arose in September when Fuentes claimed that due to a “digital error”, Arbistar’s native trading module had been somehow disabled, wiping out more than a quarter of the company’s funds overnight.
In the course of their investigations, Spanish authorities determined that Fuentes had been making use of his crypto outfit to allegedly facilitate various financial frauds and to launder money. Tulip Research traced back some of Arbistar’s withdrawal activity to a deep web marketplace called ‘Hydra’.
Fuentes was arrested in October and has been charged with financial fraud and money laundering. On Dec. 13 lawyers representing 130 former clients said they’d lost 4 million euros ($4.86M) between them, with Spanish media suggesting that in total, 32,000 people had lost 93.4 million euros ($113.5M).
Matthew Piercey’s daring sea scooter escape
The 44-year-old Shasta County, California man was arrested by the FBI on Nov 16. while trying to flee from authorities using a sea scooter.
Local media outlets reported that Piercey was able to evade agents for over an hour by first speeding off in a truck and then abandoning the vehicle on the edge of Lake Shasta where he used a sea scooter — an underwater mobile device that can typically reach a maximum speed of 5mph — to continue to evade police underwater for 25 minutes. He was arrested when he emerged.
Police allege that Piercey solicited $35 million for crypto mining and other investments through Family Wealth Legacy LLC and Zolla Financial LLC.
The two firms reportedly targeted wealthy investors, obtaining a minimum of $50,000 from each client. However Piercey reportedly admitted that he had little to no understanding of cryptocurrencies.
He reportedly spent $2.5 million obtained via his schemes, renovating two of his homes and paying off his credit card bills. He is now currently facing multiple charges of wire fraud, mail fraud, money laundering and witness-tampering. If found guilty, Matthew could face life in prison.
Harpreet Singh Sahni is brought down by Indian sleuths
Over the years, Sydney-based socialite and concert promoter Harpreet Sahni built a reputation as a man who regularly rubbed shoulders with Australia’s elites including ex-Prime Minsters such as Tony Abbott and Julia Gillard, the former Premier of New South Wales Mike Baird, and former cricketer Glenn McGrath.
But in October, Indian police authorities claimed that Sahni and his close aides had allegedly swindled around $50 million from clients. He was promoting a scheme called “Plus Gold Union Coin” (PGUC), which promised to deliver profits ranging between $5,000 to $8,000 per day to backers.
Investors who tipped around $7,000 in PGUC, were told they could potentially rake in more than $100,000 within a year. Investors had to lock into a 12-month contract during which they couldn’t cash out their crypto holdings. However, as PGUC’s popularity grew, token holders began to grow suspicious.
The PGUC website would go offline for weeks at a time and when the currency plummeted, there was no way for investors to minimize their losses or withdraw their assets. The invested money — estimated to be around $50 million — disappeared, with all correspondence stopped with clients.
Sanhi now faces roughly 24 years in prison and is awaiting his sentencing.
Conor Freeman’s million-dollar Bitcoin ploy
The US Department of Homeland Security identified Dublin-based IT professional Conor Freeman as the man behind a theft involving more than $2 million worth of crypto. He was arrested by Homeland Security officials on Nov. 16 and forced to hand over more than 142 Bitcoin.
Freeman was reportedly working with a group able to gain access to the email addresses and phone numbers of victims via various social media platforms. They also had contacts inside the telecom industry, enabling them to initiate sophisticated SIM-swap attacks.
That’s where a scam artist is able to obtain a SIM card that is directly linked to their victim’s mobile number, enabling them to gain access to an individual’s 2FA messages and One Time Passwords that are used to validate identities and approve larger financial transactions.
Freeman pleaded guilty to stealing cryptocurrencies worth $1.92 million from Emmy award-winner Seth Shapiro — producer of The Game Changers, The Chosen One — as well as illegally obtaining an additional $250,000 from two other victims, Michael Templeman and Darran Marble.
The entire Plustoken team
Earlier this year in July, Chinese police took 109 people into custody in connection with the Plustoken Ponzi scheme. Twenty seven of them — including Chen Bo, Luu Jianghua, Lu Jianghua, Lu Qinghai, Jin Xinghai, Wang Yin, and Zhang Qin — were allegedly the scheme’s masterminds, while the remaining 82 people arrested held smaller roles within the organization.
The Plustoken scam raked in an estimated $5.7 billion from more than two million investors. Based out of China, the project presented itself as being a cryptocurrency wallet that provided high returns if users purchased PLUS tokens with either BTC or ETH.
In 2019, key members moved large amounts of crypto out of the platform, with 25,000 BTC sent to various addresses including Bitcoin mixers between Feb and March and in June, 789,534 ETH was transferred from the firm’s coffers. However, by the end of the year, the entire scheme had been exposed, and by July 2020, the project had been taken down by Chinese police.
In November the Jiangsu Yancheng Intermediate People’s Court revealed that authorities had confiscated 194,775 BTC, 833,083 ETH, 487 million XRP, 79,581 BCH, 1.4 million LTC, 27.6 million EOS, 74,167 DASH, 6 billion DOGE and 213,724 USDT — estimated to be worth $4 billion. Earlier this month Chen Bo and 13 of his co-conspirators were sentenced to jail terms ranging between two and 11 years.