She was the Cryptoqueen. In a resplendent red ballgown and long diamond earrings she promised the adoring crowd a financial revolution. But after convincing investors to plough $4 billion into OneCoin, described by a New York prosecutor as a pyramid scheme based on smoke and mirrors, Dr. Ruja Ignatova boarded a flight from Sofia to Athens and vanished. Today the FBI added her to its list of ten most wanted fugitives.

1. Introduction

On November 24, 2019, the BBC produced a podcast titled Cryptoqueen: How this woman scammed the world, then vanished describing an event at London’s Wembley Arena in 2016 where Dr. Ruja Ignatova walked on stage in a ballgown wearing diamond earrings and her trademark red lipstick. She announced to the cheering throng that OneCoin was the “Bitcoin Killer”. But there was a hitch that investors didn’t know about. Four months after Dr. Ignatova’s London extravaganza, blockchain expert Bjorn Bjercke was called by a head hunter with a job offer. A cryptocurrency start-up in Bulgaria was searching for a chief technical officer and was offering an attractive salary and fancy perks. During the job pitch, the recruiter said the company was looking for someone to build a blockchain. “They don’t have a blockchain today,” he said. The recruiter insisted it was a cryptocurrency company but it just didn’t have a blockchain. He had to take the job offer somewhere else. (here)

On March 8, 2019, approximately a month after the Bjercke interview, the U.S. Attorney’s Office for the Southern District of New York announced that a grand jury had returned an indictment charging Dr. Ignatova with conspiracy to commit wire fraud, wire fraud, conspiracy to commit money laundering and conspiracy to commit securities fraud. (here) Two other indictments were also announced charging Konstantin Ignatov and Mark S. Scott as alleged leaders of the scheme. In a Department of Justice press release the same day, FBI Assistant Director-in-Charge William Sweeney Jr. described OneCoin as a cryptocurrency that existed only in the minds of its creators and their co-conspirators. (here) “Unlike authentic cryptocurrencies, which maintain records of their investors’ transaction history, OneCoin had no real value,” he said. “It offered investors no method of tracing their money, and it could not be used to purchase anything. In fact, the only ones who stood to benefit from its existence were its founders and co-conspirators.”

2. The Defendants

The elusive Dr. Ignatova was born in Ruse, Bulgaria, and is a German citizen. Her curriculum vitae showcases a law degree from the University of Oxford, a PhD in private international law from the University of Konstanz and a consulting job with the global management firm McKinsey & Company. She was a resident of Sofia, Bulgaria, before disappearing. (here) Her brother, Konstantin Ignatov, was arrested in 2019 at Los Angeles International Airport and charged with conspiracy to commit wire fraud for his role as a leader of the scheme. (here) He later pleaded guilty and testified against Mark S. Scott, a former equity partner at the Dallas-based law firm Locke Lord LLP. Mr. Scott was convicted of laundering approximately $400 million in proceeds from the OneCoin scheme. (here and here) He has appealed the conviction asserting that Mr. Ignatov lied under oath at his trial. On June 30, 2022, the FBI added Dr. Ignatova to its list of ten most wanted fugitives. (here)

3. The Alleged Pyramid Scheme

The Complaint filed in the case against Mr. Ignatov contains a compendious statement of the allegations arising from the OneCoin investigation by FBI Special Agent Ronald Shimko. I will rely on the Complaint to give you the following summary.

OneCoin Ltd. was founded in 2014 and marketed a purported digital cryptocurrency called “OneCoin” through a multi-level marketing network. OneCoin members received commissions for recruiting others to purchase cryptocurrency packages. The multi-level marketing structure generated rapid growth of the member network. Dr. Ignatova was OneCoin Ltd.’s founder and top leader until her disappearance from public view in 2017. Mr. Ignatov, who previously served as Dr. Ignatova’s personal assistant, assumed high-level positions at OneCoin Ltd. rising to the leadership role in mid-2018. Functioning as a high-level executive and spokesperson for the organization, Mr. Ignatov appeared at promotion events worldwide including France, Brazil and Singapore. The Complaint alleged that he made fraudulent misrepresentations to investors about OneCoin’s structure, value and usability. Based on publicly available promotional materials, witness interviews, search warrants and information obtained by requests under Mutual Legal Assistance Treaties (MLAT), investigators stitched together a chronology of significant e-mail evidence.

OneCoin Ltd. promoted “trader packages” at varying prices described as “starter”, “tycoon trader”, “premium trader”, “infinity trader” and “super combo” packages. The purchase of a trader package provided the purchaser with access to “educational materials” and “tokens”. According to the promotional materials, “tokens” were used to secure positions in “mining pools” that were depicted as computer hardware used to “mine” OneCoins. The promotional materials also claimed that OneCoin Ltd. “ensures” these mining resources and that two mining servers were located in Bulgaria and another in Hong Kong. Consistent with other cryptocurrencies such as Bitcoin, OneCoin Ltd. claimed that the mining difficulty increased over time as additional computer resources, and thus more tokens, were needed to mine a single OneCoin. Once a OneCoin member “mine[d]” OneCoins using the tokens, the resulting OneCoins were deposited into the member’s account and could be accessed by logging in through a website operated by OneCoin Ltd.

OneCoin Ltd. claimed that the value of OneCoin was based on market supply and demand. In a promotional video posted on YouTube in 2016, Dr. Ignatova stated: “Cryptocurrency is not backed up. It is […] an asset where demand and supply drive the price.” In a subsequent press release on October 1, 2016, OneCoin Ltd. asserted that “[c]ryptocurrency value is driven by supply and demand – and demand is driven by brand and usability.” In another press release on December 2, 2016, OneCoin Ltd. stated: “The value of each crytocurrency depends on its usability, supply and demand. With over 2.7 million users OneCoin has one of the biggest user bases.”

OneCoin Ltd. claimed to have a “private” blockchain or digital ledger identifying OneCoins and recording historical transactions. OneCoin Ltd.’s “private” blockchain was distinct from Bitcoin’s which is decentralized and public. If you are not familiar with how cryptocurrency works, a public blockchain serves to confirm to the rest of the cryptocurrency’s network that transactions have taken place. On May 15, 2015, at a promotional event in Dubai, United Arab Emirates, Dr. Ignatova represented that the OneCoin blockchain was audited, stating: “[W]hat we did in the last months is we hired an auditor to audit our blockchain. And, ah, I am very proud to say that the result of the first audit is here.” She then introduced the purported auditor who provided an opinion that “all transactions are included in the blockchain (no coins are mined outside the blockchain).”

In an online video, Dr. Ignatova attributed the multi-level marketing structure plan to an individual identified in the Complaint as “Founder-2”. Founder-2 promoted OneCoin at official events and self-identified as OneCoin’s “Master Distributor 001”. The execution of search warrants netted investigators e-mails between Dr. Ignatova and Founder-2 allegedly demonstrating that: (a) Dr. Ignatova and Founder-2 conceived of and built the OneCoin business intending to use it to defraud investors; (b) contrary to OneCoin Ltd.’s public representations, the value of OneCoin was determined internally and not based on market supply and demand; and, (c) contrary to OneCoin Ltd.’s public representations, OneCoins were not mined. The number of e-mails contained in the Complaint is significant. I picked the following three to give you the flavour of the correspondence.

1. On June 11, 2014, Dr. Ignatova wrote to Founder-2 concerning the OneCoin business plan: “It might not be (something) really clean or that I normally work on or even can be proud of (except with you in private when we make the money) – but…I am especially good in this very borderline cases [sic], where the things become gray – and you as the magic sales machine – and me as someone who really can work with numbers, legal and back you up in good and professional way – we could really make it big – like MLM meets bitch of wall street”. (para. 9)

2. On June 9, 2014, Dr. Ignatova wrote to a representative of a blockchain development company, copying Founder-2, stating: “[W]e are building our own cryptocurrency  – and would like to set up an internal exchange service for them. We would like to be able to set the price manually and automatically and also control the traded volume.” (para. 10)

3. On August 11, 2014, Founder-2 wrote to Dr. Ignatova proposing: “Get members to think that they are mining their OneCoin via crunching (exchanging) tokens for OneCoin. This storey [sic] is good as ppl will then not go super crazy and just try and sell tokens all the time.” The next day, Founder-2 emailed Dr. Ignatova, writing: “The concept of converting tokens into OneCoin is an important phase for validity and truth behind OneCoin. The so-called ‘mining’ of coins is a concept that is very familiar in the industry and a story we can sell to the members.” Dr. Ignatova then wrote to Founder-2: “We are not mining actually – but telling people shit,” to which Founder-2 replied, “[H]ow can this be investigated and found out?” and “Can any member (trying to be clever) find out that we actually are not investing in machines to mine but it is merely a piece of software doing this for us?” (para. 11)

On March 8, 2019, in the press release issued concurrently with the indictments, U.S. Attorney Geoffrey S. Berman said the defendants created a multi-billion dollar ‘cryptocurrency’ company based on lies and deceit. “They promised big returns and minimal risk,” he continued, “but, as alleged, this business was a pyramid scheme based on smoke and mirrors more than zeroes and ones.”

4. Conclusion

Most of the OneCoin fortune apparently came from Chinese investors. At the height of its promotion Dr. Ignatova claimed to have raised $4 billion from investors in 175 countries. Authorities in 194 countries have now placed her on ‘Do Not Fly’ lists. (here) Mr. Scott’s business associate, David Pike, recently avoided imprisonment for assisting him to launder OneCoin proceeds when U.S. District Judge Edgardo Ramos ordered Mr. Pike to serve two years of probation. And another alleged member of Dr. Ignatova’s inner circle, Frank Schneider, has been arrested by French police. The Luxembourg former spy is currently waiting extradition to the United States. (here)