Introduction
Like how many Ponzi schemes start as legitimate businesses and end up failing to return investments to its customers, Gainbitcoin Ponzi Scheme is just like any ponzi scheme, the difference being that it is ponzi scheme based on cryptocurrency. Firstly, would like to answer the question: what is a Ponzi scheme?
Ponzi scheme can be described as an investment fraud in which the operator or the operating company pays returns to investors from the new capital coming in from new investors instead off the profits of the business. The investors get attracted to these schemes because of the unusually high rate of return offered within shorter time spans compared to other conventional investment options.[1] Such projects may fall apart due to reasons such as mass fund withdrawals are driven by market factors putting the promoter in a difficult situation and in addition to not paying investors, the promoter disappears with the entire investment capital and there will be a shortage of liquidity when fresh investments stop coming in as more people demand refunds, this sets to a panic.
Cryptocurrency and Bitcoin
Proceeding onward, the focus shifts to elucidating the nature of a Ponzi scheme with a foundation in cryptocurrency. Cryptocurrency, as per FATF2, refers to a math-based, decentralized convertible virtual currency that is protected by cryptography i.e., it incorporates principles of cryptography to implement a distributed, decentralized, secure information economy. Cryptocurrency relies on public and private keys to transfer value from one person (individual or entity) to another and must be cryptographically signed each time it is transferred. The safety, integrity and balance of cryptocurrency ledgers is ensured by a network of mutually distrustful parties (in Bitcoin, referred to as miners) who protect the network in exchange for the opportunity to obtain a randomly distributed fee (in Bitcoin, a small number of newly created bitcoins, called the “block reward” and in some cases, also transaction fees paid by users as an incentive for miners to include their transactions in the next block).[2]
One of the first examples of a conventional cryptocurrency (CC) is Bitcoin, which is acknowledged throughout the world as a lucrative investment. The cryptocurrency known as Bitcoin was created in 2008 by an unidentified individual or group of individuals who went by the name Satoshi Nakamoto. The notion was put into practice in 2009 when the open-source software known as Bitcoin was released. Bitcoin is a peer-to-peer digital money that operates without the need for middlemen and is decentralized, lacking a central bank. Bitcoin is a collection of concepts and technologies that form the basis of a digital money ecosystem. Units of currency called Bitcoins are used to store and transmit value among participant in the Bitcoin network. Bitcoin users communicate with each other using the Bitcoin protocol primarily via the Internet, although other transport networks can also be used. The Bitcoin protocol stack, available as open-source software, can be run on a wide range of computing devices, including laptops and smartphones, making the technology easily accessible.[3]
Gainbitcoin Ponzi Scheme
For instilling a sense of trust and confidence in investors which is very imperative for a ponzi scheme to be successful, Amit Bhardwaj build an extensively successful and firmly established professional journey and history. His professional journey commenced with Infosys, one of the prominent IT companies in India and in addition, he wrote other books on cryptocurrency, introducing them at lavish launches that were often graced by celebrities and heavily advertised on social media. He delivered guest lectures at conferences run by ASSOCHAM. His robust technical expertise was a major factor in luring gullible and unsuspecting investors into the scam. His Bitcoin venture took flight in 2014 with the unveiling of “HighKart,” India’s inaugural e-commerce platform driven by Bitcoin.
Like any ponzi scheme, the investment fraud by Amit Bhardwaj based on cryptocurrency has both characteristics of employed promises of guaranteeing that through involvement in this scheme, their capital investment will be doubled within two years and a multi-tiered pyramid where Amit Bhardwaj stands at the top and his ‘seven stars’ are below him to publicize and care on operations of the scheme. Because of the heavily publicized and employed promises of doubling of capital and the reputed professional career of Amit Bhardwaj, people started trusting the scheme and began investing. Agents who participated in the fraud were guaranteed a sizable commission in Bitcoin for each investment they made.
In 2015, Bhardwaj originally established the Bitcoin mining business “GBMiners” and introduced the “GainBitcoin” investment option. For eighteen months, 10% monthly returns were promised by the GainBitcoin investment scheme. The plan mandated that participants invest in Bitcoin, and the same investment of new investors was also used to pay out returns. Because fewer new investors were joining the plan in 2017, Bhardwaj began to experience difficulties returning the promised amount (Bitcoins) to investors. After that, in order to fulfil their promise of a high rate of return, Bhardwaj and his colleagues switched payouts from Bitcoins to an internal cryptocurrency token known as MCAP, which stands for Mining Capital, to get around the shortage of Bitcoins. Consequently, the majority of GainBitcoin’s investors departed the programme. It was promised that MCAP will increase in value more quickly and offer a higher dividend than Bitcoin. Following GainBitcoin’s closure in 2017, the firm claims that all investors received MCAP tokens as payment for their final investments. Soon after, GB21 was repackaged with a new programme. In contrast to other schemes, the entrance investment requirements for GB21 were expressed in terms of MCAPs. Increasing demand for MCAPs was the scheme’s main goal. In a manner akin to coercing them into the new plan, many of the previous investors were given MCAP credits in the recently introduced GB21 platform. In comparison to the return on the GainBitcoin platform, a larger return was promised on the GB21 platform, particularly for periods longer than four months. Then he shifted to Dubai and began to handle operations from there of his Indian companies through his ‘seven stars’.
Aftermath of Scam
Alongside Amit Bhardwaj, his top-level MLM promoters of GainBitcoins Akash Sancheti, Kajal Shingavi and Vyas Narhari Sapa were also charged in Pune with a number of cases for duping innocent people through cryptocurrency-based Ponzi scheme.
Gainbitcoin Ponzi Scheme is considered as the biggest cryptocurrency-based Ponzi scheme with Rs 1 lakh victims and over Rs 1 lakh crore (Trillion) in the GainBitcoin scam. Overall 40 FIRs have been registered by victims with over 13 FIRs in Maharashtra, and Punjab, a huge number of people from other states may also have been duped of their hard-earned money in the fraud, IANS reported.[4]
Amit Bhardwaj, who orchestrated the GainBitcoin scam, had died of a heart attack and is reported to have collected anywhere between 395,000 to 600,000, amounting to over Rs 1 lakh crore. Presently, Ajay Bhardwaj, brother of Amit Bhardwaj, is in the dock and is also the prime accused in the GainBitcoin fraud. In March, the Enforcement Directorate (ED) had requested the Supreme Court (SC) to issue direction to one of the accused in the case to give access, username and password, to his crypto wallet, contesting that the issue of “legality of cryptocurrency” doesn’t arise in the case, as it is a Ponzi scheme.[5] In recent proceedings, the Supreme Court gave the Central Bureau of Investigation (CBI) jurisdiction over the cases pertaining to the “GainBitcoin Ponzi Scheme,” and moved the case trial to the CBI Court on Rouse Avenue in New Delhi.
Conclusion
Over the debate regarding the current proceedings, many expressed disappointed as the allegations are under Prevention of Money Laundering Act, 2002 (PMLA) and the Foreign Exchange Management Act (FEMA). One of the victims expressed that Enforcement Directorate (ED) holds more expertise that CBI, given their jurisdiction and experience in similar cases and CBI will again have to start from scratch and the case will be dragged for another six-seven years and more while they have not received a penny. That efforts should have been made to fasten the investigation and not the otherwise. A victim Parvendra Singh Shahoo told, “The Indian apex agencies should take a clue from their global counterparts on how crypto cases are being investigated and solved. In most cases, the investigators first seize all the crypto and charge a hefty amount to grant bail to the accused”.[6] Considering the relative importance of dealing with scams as such when there is drastic shift from traditional currencies for transaction, it is imperative to release more stringent policies for regulating the cryptocurrency.
References
What is ponzi scheme? definition of ponzi scheme, ponzi scheme meaning (no date) The Economic Times. Available at: https://economictimes.indiatimes.com/definition/ponzi-scheme (Accessed: 17 December 2023).
Gainbitcoin Scam: How India’s biggest crypto ponzi scheme may run in trillions (2022) https://www.outlookindia.com/. Available at: https://www.outlookindia.com/business/gainbitcoin-scam-how-india-s-biggest-crypto-ponzi-scheme-may-run-in-trillions-news-203208 (Accessed: 17 December 2023).
Anupam, S. (2023) Gainbitcoin Scam: Supreme Court Orders CBI to conduct a probe, Inc42 Media. Available at: https://inc42.com/buzz/gainbitcoin-scam-supreme-court-orders-cbi-to-conduct-a-probe/ (Accessed: 17 December 2023).
Bawa, A.K. (2023) Gain bitcoin cryptocurrency scam : Supreme Court transfers cases to CBI; trials shifted to Delhi CBI Court, Live Law. Available at: https://www.livelaw.in/top-stories/gain-bitcoin-crtyptocurrency-scam-supreme-court-transfers-cases-to-cbi-trials-shifted-to-delhi-cbi-court-244459 (Accessed: 17 December 2023).
(No date) Make more money from virtual money! the unchartered world of … – IICA. Available at: https://iica.nic.in/images/GainBitcoin_Cryptocurrency-Scam.pdf (Accessed: 17 December 2023).
[1] What is ponzi scheme? definition of ponzi scheme, ponzi scheme meaning (no date) The Economic Times. Available at: https://economictimes.indiatimes.com/definition/ponzi-scheme (Accessed: 17 December 2023).
[2] (No date) Make more money from virtual money! the unchartered world of … – IICA. Available at: https://iica.nic.in/images/GainBitcoin_Cryptocurrency-Scam.pdf (Accessed: 17 December 2023).
[3] (No date) Make more money from virtual money! the unchartered world of … – IICA. Available at: https://iica.nic.in/images/GainBitcoin_Cryptocurrency-Scam.pdf (Accessed: 17 December 2023).
[4] Gainbitcoin Scam: How India’s biggest crypto ponzi scheme may run in trillions (2022) https://www.outlookindia.com/. Available at: https://www.outlookindia.com/business/gainbitcoin-scam-how-india-s-biggest-crypto-ponzi-scheme-may-run-in-trillions-news-203208 (Accessed: 17 December 2023).
[5] Gainbitcoin Scam: How India’s biggest crypto ponzi scheme may run in trillions (2022) https://www.outlookindia.com/. Available at: https://www.outlookindia.com/business/gainbitcoin-scam-how-india-s-biggest-crypto-ponzi-scheme-may-run-in-trillions-news-203208 (Accessed: 17 December 2023).
[6] Anupam, S. (2023) Gainbitcoin Scam: Supreme Court Orders CBI to conduct a probe, Inc42 Media. Available at: https://inc42.com/buzz/gainbitcoin-scam-supreme-court-orders-cbi-to-conduct-a-probe/ (Accessed: 17 December 2023).
