A mutual aid fund in bitcoin
Sergei Mavrodi built pyramids long before bitcoin. The first MMM collapsed in the summer of 1994; in 2007 he got four and a half years for fraud, and in January 2011 he launched MMM-2011, hardly hiding that it was a pyramid. Participants bought virtual scraps of paper called mavro, whose rate rose each month by an announced percentage, and paid each other directly. In 2012 the payouts stopped, as expected (chapter “I’m Not a Freeloader, I’m a Partner”).
Mavrodi was one of the first to see that people who pay each other directly need money a bank cannot freeze. In 2014 he launched MMM Global Republic of Bitcoin, promising up to a hundred percent a month. The fund reached Nigeria at the end of 2015, promised thirty percent a month and asked for payment in bitcoin, because Nigerian banks had begun blocking transfers linked to the pyramid. On 13 December 2016 MMM froze the accounts of about three million people, whose losses were put at eighteen billion naira (same chapter). Journalists at Quartz later showed that the boom in bitcoin trading in Africa in those years was largely the pyramid’s doing.
A cryptocurrency with no blockchain
OneCoin sold itself through network marketing. A buyer took a package of “educational materials” costing anywhere from a hundred-odd euros to hundreds of thousands, tokens came with the package, and the coin’s price in the personal account rose whenever and by however much the company decided. OneCoin had no blockchain. The coins existed as numbers in an ordinary database on the company’s servers, and employees could type in any number they liked (chapter “The Missing Cryptoqueen”).
By American prosecutors’ estimate, the company raised about four billion dollars. Its founder, Ruja Ignatova, boarded a flight from Sofia to Athens in October 2017 and has not been seen in public since. A sealed indictment against her was filed in the United States that same month, and in 2022 the FBI put her on its Ten Most Wanted Fugitives list. Her brother Konstantin pleaded guilty to fraud and money laundering, and co-founder Sebastian Greenwood was sentenced to twenty years in 2023.
The trading bot that did not exist
BitConnect issued its own coin, BCC, and took it into a “lending program” where the money was supposedly managed by a trading bot. American prosecutors calculated that the promised returns reached forty percent a month. Judging by the case files, the bot did not exist: old participants were paid with new participants’ money, and every acquaintance brought in earned a referral commission. BCC rose from seventeen cents to 463 dollars by December 2017, and after the program closed in January 2018 it went to zero (chapter “Hey Hey Hey”).
The US Department of Justice called BitConnect a textbook pyramid that had raised about 2.4 billion dollars, and in February 2022 it indicted the founder, Satish Kumbhani. Where he is remains unknown. BitConnect’s top American promoter, Glenn Arcaro, pleaded guilty and got thirty-eight months, and the money seized from him returned to victims less than one percent of what had been raised (same chapter).
A scheme a century older than crypto
In 1920 Charles Ponzi promised the people of Boston fifty percent profit in forty-five days and explained it with international postal coupons. When it was over, auditors found sixty-one dollars’ worth of coupons. Almost a hundred years later BitConnect promised roughly the same and explained the returns with a trading bot (chapter “The Whalers”).
The same things repeat in all three stories. The fund announces its own returns, the coin’s price cannot be checked on an open market, every new recruit earns someone a commission, and payouts last until the flow of new money dries up. You can watch a fund live month by month and see the moment it falls in the experiment “The mutual aid fund”.
