Much of the crypto fraud is classic old-school scam based on selling to investors’ “fear of missing out.” Like the Ormeus Coin company whose sibling executives were just slapped with criminal and civil charges by the Justice Department. The SEC said the Ormeus Coin execs raised $124 million from over 20,000 investors, lying about the source of Ormeus Coin’s value and spending the money on travel, real estate and personal expenses. The company CEO has been arrested and faces 65 years in prison. Like Stephan Curry, you don’t need to be an expert to invest. But it might help to avoid being scammed.
And some of these scams are creative. For example, a DeFi cryptocurrency project called Beanstalk held hundreds of millions of dollars’ worth of stablecoins that were advertised as being worth $1 apiece. They aren’t worth anything now. Who would have expected an investment disaster from an enterprise whose business model is described in the press as an “honest Ponzi,” which relies on the promise of future investment to assure the claimed value of today’s coins? Disaster may have been predictable, but not the quite-possibly-legal scam that led to the losses.
DeFi and crypto enable a financial tool called flash loans, borrowing large sums to complete a purchase, then selling at a profit and paying the loan back very quickly. Flash loans can allow immediate access to large sums to take advantage of a short-lived investment opportunity. In this case, the loan was used to buy up at least a supermajority of the voting rights in the “decentralized autonomous organization” that controls Beanstalk. Once in control, the new controller of Beanstalk submitted a proposal for a vote, voted the controlling shares in favor of the proposal, and then when the proposal’s work was quickly completed, according to the Guardian “it sold the rights, retuned the loan, and began the process of laundering the proceeds.” And what did newly voted proposal do? On its face it seemed like the proposed program would simply donate $250,000 to Ukrainian relief, but once passed, the program quickly moved nearly all the Beanstalk investor funds, $180 million, into the personal account for the person who just bought the shares.
The shareholder took control of the company for a moment, successfully proposed and passed an action to pay himself all the money held to repay crypto investors, and then sold the shares and paid back the money borrowed to buy control of the enterprise. Nifty trick. This is effectively the same as buying a community back for $5 million, removing $30 million in accountholder deposits to pay yourself, and then selling your shares in the bank once all its accounts were reduced to zero balance by you. This would be against banking rules because banks are highly regulated. But crypto is not, so maybe running this scam here won’t violate laws. That doesn’t make it OK.
Games without rules can work for you or against you.
This news is republished from another source. You can check the original article here