Crypto Scams: Beyond FTX and Sam Bankman-Fried’s Ponzi Nightmare

The SEC Needs To Take a More Proactive Stance - Now

FTX, the world's second largest crypto exchange, has announced that the company is broke, that they aren't able to handle withdrawal requests from their crypto exchange platform. FTX has slapped their logo on the uniforms of umpires in the World Series. They bought the naming rights to the stadium where the Miami Heat plays. You saw them on the Super Bowl. Hollywood celebrities or sports professionals touting crypto, we need to recognize they're being paid to be a spokesperson.

Well, you heard the news about Kim Kardashian for sure. She has paid a $1.26 million fine to the SEC for touting a crypto token without disclosing that she was being paid to do so. She also agreed not to promote any digital assets for three years. EMAX Tokens paid Kim Kardashian $250,000 to post on Instagram an endorsement of the token. Now, she did say 'hashtag ad', but she didn't say how much money she was being paid, and the SEC felt that she didn't do enough to disclose. So you need to recognize this issue. You need to recognize that when you have celebrities promoting anything, whether it's a healthcare solution or clothing or an investment opportunity, you always need to ask, are they being paid to do it? And is it possible they're being paid without properly disclosing? Kim Kardashian in the crosshairs of the SEC.

A Latinx Ponzi Scheme?

The SEC has also shut down a new Ponzi scheme. It's called CryptoFX. It's out of Texas and run by Mauricio Chavez and Giorgio Benvenuto - they've got no experience or training in investments in crypto, according to the SEC. That didn't stop them from holding seminars since 2020, supposedly teaching people how to build wealth by trading in crypto. They predominantly targeted the Latino community and 5,000 people gave them a total of $12 million and all that money was lost.

And then there's Joshua Nicholas of Florida. He has pled guilty to running a Ponzi scheme that defrauded investors of $100 million. He was promising daily returns of 1%. That's 365% per year. And he was telling them he would pull it all off with crypto. So you need to recognize that scam artists go after people any which way they can. There's so much interest, there's so much attention, there's so much curiosity about crypto. It's making it easy for crooks to use crypto as the basis of their activities. This isn't about crypto. This is strictly about con men. You need to be on your guard. If somebody is promising you something that seems too good to be true and you need to make sure you begin with education so that you understand how this stuff works. It'll help you defend yourself against the con artists.

Beware of Get Rich Quick Schemes

I've got to tell you this story, and this one happened a little too close to home. A financial advisor told me that he got a phone call from his client. His client wanted to invest in crypto, and his financial advisor says, I can't help you because my firm doesn't allow me to engage in this.

And the client therefore went on his own. He went and did a Google search and he went on the Internet to look for an advisor who would help him buy crypto. And he found that advisor based in the United Kingdom. And this outfit promised him that they would turn a $100,000 investment into $1,000,000 in just 90 days. So he withdrew $100,000 from his account with his advisor. He sent the $100,000 to the new advisor in the United Kingdom. And sure enough, 90 days later they called him on the phone and they said, We're happy to tell you we did a good job for you. Your account is now worth $1,000,000. We're worried, though. They said that the price of Bitcoin might fall. We want to close out your account, capture your profits. We want to mail you a check for the million dollars. But in order to get your money, they said, we're in Europe, we're in the United Kingdom. And so we have a vast tax, a value added tax. And in order for us to send you the million dollars, you need to pay the vast tax in advance. So you need to send us 300,000. It's a 30% tax so that we can send you the million-dollar profit.

Well, you know how this story is going to end. The guy called his advisor here in the US and he said, I want to liquidate $300,000 out of my account. He explained to him why and his advisor gave him the bad news. You're being conned. They stole your $100,000 and now they're trying to steal another $300,000.

I blame the SEC for all of this. Why? Because the SEC is not yet making available a Bitcoin ETF in the marketplace. And as a result of the lack of clarity among regulations, firms are not allowing their advisors to engage on behalf of their clients. And this is forcing clients to go elsewhere, to people they don't know, all around the world. And they're getting into very serious trouble as a result of this.

A lot of the frauds and scams could be avoided if the SEC would simply allow advisors here in the US to do their jobs by allowing them to provide their clients with investments related to crypto. We allow clients to invest in lots of risky assets. What's wrong with adding just one more? It's a real sad situation to see.

And the SEC, though, rather than preventing the frauds, they just nail people after the frauds occur. They've now hit a crypto advisor with fraud charges. They say he got investors to give him $4.3 million and instead of investing the money, he stole it. And here's the thing that is scaring me the most. When I said earlier there was something a little too close to home, this one is really too close to home.

The advisor who is defrauding those investors, his name is Gabriel Edelman. I know he has no relation to me. It is not me. I've never heard of the guy. But he's got the same last name. He's been operating two businesses, according to the SEC, Creative Advancement LLC and Edelman Blockchain Advisors LLC. And I have nothing to do with any of that. Never heard of the guy, don't know anything about it. And I'm just telling you this in case you come across anybody, anywhere saying, "Did you hear about this SEC nailing an adviser named Edelman?". It ain't me friends. It's somebody totally unrelated. Yeah. Con jobs, counterfeiters, Ponzi schemes, bank fraud scams are everywhere. Not just crypto.

You've got to look, for example, of what's going on in the wine industry. Screaming Eagles Sauvignon Blanc - these bottles sell for $5,500 apiece. But wine fraud is huge, partly because of that. Wine fraud is $9 billion a year. You know, you could buy a 1982 bottle of Chateau Lafitte Rothschild for $5,900. You could drink the wine and then sell the empty bottle for $1,500 because someone will take the empty bottle and fill it with fake wine and resell it for $5,900 bucks. This is a big problem for the wine industry. So what are they doing to beat the counterfeiters? They're turning to blockchain. They're now printing laser etch on the bottles. They're using scannable chips that you can verify the data on the blockchain.

Which cryptographically authenticates that the bottle is real. You can see the complete history from the winery, from the vineyard, all the way to the store or to the auction house. This is an illustration how blockchain technology crypto is not the cause of scams. It's actually going to be the competing solution to defeat all of these scams.

The “Bitcoin Is Bad For The Planet” Misnomer

And what about the stories that Bitcoin is bad for the planet? Talk about another scam. Cambridge University has created the Bitcoin Electricity Consumption Index. They've been tracking Bitcoin's energy usage since 2019. Everybody agrees that Cambridge produces the most reliable, objective data about the environmental impact of Bitcoin. They just released their 2022 study and they say that both sides of the argument, the bitcoin haters and the bitcoiners, both of them are making claims that are, in their words, rather farfetched based on oversimplification and scant information. So here is what Cambridge says is the truth about what's really going on with bitcoin mining and its impact on the environment. Since inception, bitcoin has pumped 200 million tons of carbon dioxide into the air - 92% of that since 2018. But this year, in 2022, the situation has become different. Bitcoin is producing 14% less emissions than a year ago, just 0.1% of global greenhouse emissions.

It's about the same as Nepal. About half of the emissions that are produced by gold mining. The reason for the decline, the report says, is not the decline in bitcoin's price because miners are as busy as ever, regardless of the price. The reason for the decline in the emissions is that bitcoin miners are now using more energy efficient hardware.

And more importantly, 38% of Bitcoin mining is sustainable energy: hydropower, wind, solar, nuclear, geothermal. Coal is only 37%. A big part of the reason why miners have increased their sustainable energy usage and reducing coal is because China banned Bitcoin mining back in 2021. Miners there were using coal, but they left and came to the US, mostly New York and Texas. They're now using green energy instead of coal. Bitcoin miners spend more money on energy than anything else, so they've got a big incentive to lower their energy bills and that means moving away from fossil fuels. So when you hear people saying bitcoin is bad for the planet, that's a bit of a scam. The story is not nearly as bad as people suggest.