Securities Industry Commentator by Bill Singer Esq

March 11, 2019

https://www.justice.gov/usao-sdny/pr/manhattan-us-attorney-announces-charges-against-leaders-onecoin-multibillion-dollar
Indictments filed in the United States District Court for the Southern District of New York ("SDNY"), charged 
  • Ruja Ignatova (who remains at large) with one count each of wire fraud, conspiracy to commit wire fraud, securities fraud, conspiracy to commit money laundering, and conspiracy to commit securities fraud; and
  • Mark S. Scott with one count of conspiracy to commit money laundering.
In a criminal Complaint filed in SDNY:
  • Konstantin Ignatov (the brother of Ruja Ignatova) is charged with one count of conspiracy to commit wire fraud, which carries a maximum sentence of 20 years in prison. 
Scott Indictment https://www.justice.gov/usao-sdny/press-release/file/1141976/download
Ignatova Indictment https://www.justice.gov/usao-sdny/press-release/file/1141981/download
Ignatov Complaint https://www.justice.gov/usao-sdny/press-release/file/1141986/download

As set forth in part in the DOJ Release:

IGNATOV currently serves as the top leader of OneCoin Ltd., a company marketing a purported cryptocurrency named "OneCoin," which the investigation has revealed is in fact a fraudulent pyramid scheme.  OneCoin Ltd. was co-founded in 2014 by IGNATOVA, and is based in Sofia, Bulgaria.  IGNATOVA served as OneCoin's top leader until her disappearance from public view, in October 2017.  Starting in late 2017, IGNATOV, who is IGNATOVA's younger brother, assumed high-level positions at OneCoin, rising to the top leadership position by mid-2018.

OneCoin Ltd. operates as a multi-level marketing network through which members receive commissions for recruiting others to purchase cryptocurrency packages.  This multi-level marketing structure appears to have influenced rapid growth of the OneCoin member network.  Indeed, OneCoin Ltd. has claimed to have more than 3 million members worldwide, including victims living and/or working within the Southern District of New York.  OneCoin continues to operate to this day.

As a result of misrepresentations made by IGNATOV, IGNATOVA, and other OneCoin representatives, victims throughout the world wired investment funds to OneCoin-controlled bank accounts in order to purchase OneCoin packages.  Records obtained in the course of the investigation show that, between the fourth quarter of 2014 and the third quarter of 2016 alone, OneCoin Ltd. generated 3.353 billion in sales revenue and earned "profits" of 2.232 billion.

Among a number of other representations, OneCoin Ltd. has claimed that the OneCoin cryptocurrency is "mined" using mining servers maintained and operated by the company, and that the value of OneCoin is based on market supply and demand.  The purported value of a OneCoin has steadily grown from 0.50 to approximately 29.95 per coin, as of January 2019.  In fact, the value of OneCoin is determined internally and not based on market supply and demand; and OneCoins are not mined using computer resources.  Moreover, the investigation has revealed that IGNATOVA and her co-founder conceived of and built the OneCoin business fully intending to use it to defraud investors.  For example, in one email between IGNATOVA and her co-founder, IGNATOVA described her thoughts on the "exit strategy" for OneCoin.  The first option that IGNATOVA listed was, "Take the money and run and blame someone else for this . . . ."

Additionally, OneCoin Ltd. has claimed to have a private "blockchain," or a digital ledger identifying OneCoins and recording historical transactions.  The investigation has revealed that OneCoin lacks a true blockchain, that is, a public and verifiable blockchain.[2] Moreover, by approximately March 2015, IGNATOVA and her co-founder had started allocating to OneCoin members coins that did not even exist in OneCoin's purported private blockchain, referring to those coins as "fake coins."

As the founder and leader of OneCoin Ltd., IGNATOVA participated in efforts to market OneCoin to U.S. victim-investors.  For example, on July 4, 2015, IGNATOVA participated in an online webinar, later posted to YouTube.com, in which IGNATOVA announced the official opening of the United States market for OneCoin.

Since taking over leadership of OneCoin following IGNATOVA's disappearance from publicly running the company, IGNATOV has himself made false representations to OneCoin members to solicit trader package purchases and investments into the company.  For example, IGNATOV has repeatedly represented that an "initial public offering" of OneCoin would occur on various dates in 2018 and 2019, in an effort to generate excitement and solicit additional investments from member victims.  However, the purported offering was repeatedly postponed, and no such offering has taken place.  Moreover, IGNATOV has been personally involved in manually setting and increasing the purported Euro value of OneCoin, contradicting claims that the value is set by supply and demand.  Finally, the investigation has revealed that IGNATOV is aware that OneCoin-derived funds have been routed through a series of purported "investment fund" accounts used to hide the origin of the money, i.e., to launder OneCoin fraud proceeds.

Between February 27, 2019, and March 6, 2019, IGNATOV travelled to the United States to conduct OneCoin-related business, including in Las Vegas, Nevada, where he stayed at a casino resort.  While in Las Vegas, IGNATOV met with a number of OneCoin affiliates.  During the meeting, one of the first questions posed to IGNATOV was when OneCoin members would be able to monetize, or "cash out," their OneCoins.  IGNATOV reportedly responded, "if you are here to cash out, leave this room now, because you don't understand what this project is about." 

IGNATOVA, a third defendant, MARK S. SCOTT, and others agreed to launder the proceeds of the OneCoin fraud scheme.  Specifically, IGNATOVA, SCOTT, and others agreed with others to conduct transactions involving OneCoin fraud proceeds in order to conceal and disguise the nature, location, source, ownership, and control of the proceeds.  SCOTT, a former partner of a major United States law firm, assisted IGNATOVA and others in laundering more than $400 million through a series of purported investment funds holding bank accounts at financial institutions in the Cayman Islands and the Republic of Ireland, among other locations.  The indictment charging SCOTT was previously unsealed, and SCOTT was arrested in Barnstable, Massachusetts, on September 5, 2018.  SCOTT's case is currently pending before U.S. District Judge Edgardo Ramos. . .

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FOOTNOTE 2:  OneCoin Ltd.'s private blockchain may be contrasted with Bitcoin's blockchain, which is decentralized and public.

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Class A Share Front-End Charge Regulatory Damage  In the Matter of ProEquities, Inc., Respondent (FINRA AWC 2016052179401, March 7, 2019) http://www.finra.org/sites/default/files/fda_documents/2016052179401
%20ProEquities%2C%20Inc.%20BD%2015708%20AWC%20jm.pdf
Without admitting or denying the findings in a FINRA Acceptance, Waiver and Consent settlement, FINRA member firm ProEquities, Inc. submitted a settlement, which FINRA accepted. In accordance with the terms of the AWC, FINRA imposed upon ProEquities a Censure, a $165,000 fine, and the firm agreed to make $109,709 restitution to customers. As set forth in the "Overview" section of the AWC:

Between January 1,2011, and March 2016, (the "Relevant Period"), ProEquities disadvantaged certain retirement plan and charitable organization customers that were eligible to purchase Class A shares it certain mutual funds without a front-end sales charge ("Eligible Customers"). These Eligible Customers were instead sold Class A shares with a front-end sales charge or Class B or C shares with back-end sales charges and higher ongoing fees and expenses. During this period, ProEquities failed to establish and maintain a supervisory system and procedures reasonably designed to ensure that Eligible Customers who purchased mutual fund shares received the benefit of applicable sales charge waivers. As a result, ProEquities violated NASD Conduct Rule 3010 (for misconduct before December 1, 2014), FINRA Rule 3110 (for misconduct on or after December 1,2014), and FINRA Rule 2010.