Category Archives: fraud

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Blockchain Voting May Be Only Route to Accuracy at the Polls

Paper-based voting is beginning to have its detractors, despite an African politician’s recent animosity towards electronic-based counting techniques planned for the polls in the lead up to Congo’s General Election in December.

Blockchain is being tested in all areas and voting is a field where it could have a significant impact, improving on some existing electronic methods which have been introduced in some regions to provide speed and clarity to the process of electing a government, council or simply making some changes to civic laws.

As the US administration still hedges its bets that things will blow over regarding accusations of Russian interference in the process which led to president Trump’s election, nations around the globe are looking for ways to add far more transparency to the end product of electioneering.

The US has already trialed blockchain voting technology. West Virginia trialed it in this year’s mid-term Senate elections, while the labs in Switzerland’s Crypto Valley experimented with eID, a system designed to allow residents to vote electronically on civic matters. In Indonesia, a country with a 20-year history of vote rigging, an Australian blockchain company is currently working on a digital ballot box based on blockchain to solve this problem, after initial trials in Sumatra.

Estonia in Eastern Europe has been far ahead of the rest, using electronic voting in its elections since 2005 with 30.5% of all votes in their 2015 parliamentary elections cast through the country’s i-voting system. Japan has taken things further by trialing electronic voting with the secure backing of a DLT-based system using ID swipe cards, which are then encrypted.

While electronic voting is a step forward, it isn’t infallible unless backed by DLT. One non-DLT electronic voting system used only in Virginia recently subtracted one vote for every 100 cast. Another used in 23 US states had an unpatched vulnerability for over 11 years.

Congo’s upcoming election to replace President Joseph Kabila after 17 years as the country’s leader is already running into problems due to electronic voting before a vote has even been cast. The introduction of this form of voting and the government’s exclusion of a number of candidates from the ballot has enraged opposition parties. The introduction of tablet devices for the purpose of casting votes has provoked accusations that the machines are even more vulnerable to vote-rigging than paper and that Congo’s poor power supply could cause systems to fail during the election.

“They are not voting machines they are cheating machines,” argues opposition leader Jean-Pierre Bemba. “They are not reliable, too slow and there are 10 million fake voters who have already been registered. We, the opposition, have united to say no to the machines.”

According to followmyvote.com, who are attempting to build an online voting platform using blockchain tech, DLT is the only accurate and truly transparent way of reflecting the will of the people precisely and without error, suggesting on their website: “This way, everyone can agree on the final count because they can count the votes themselves, and because of the blockchain audit trail, they can verify that no votes were changed or removed, and no illegitimate votes were added.”

In the words of Joseph Stalin, perhaps one of recent history’s most infamous manipulators:

“It is enough that the people know there was an election. The people who cast the votes decide nothing. The people who count the votes decide everything.”

 

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SEC Slaps ICO Scammer with $30,000 Fine

David T Laurance has been issued a USD 30,000 penalty from the US Securities and Exchange Commission (SEC) due to his connection with a fraudulent initial coin offering (ICO). He has also been barred from holding officer and director positions, or from trading in and owning penny stocks.

Laurance was the president and CEO of oil drilling company Tomahawk Exploration LLC, with whom he has been employed for eight years. Last year, he launched the ICO for the company’s new token, Tomahawkcoins, saying the funds raised would be used for oil exploration and drilling in California.

The SEC claims that the ICO provided false information during its promotion, including advertising inflated oil production projections and falsely claiming Tomahawk already held drilling permits for the sites in California. Additionally, Laurance was portrayed as an individual with a flawless background, when according to the SEC, he has been found guilty of involvement in deceitful security offerings prior to this conviction.

The ICO failed to raise the USD 5 million as planned but a bounty program was set up by the company to trade Tomahawkcoins for online promotional services. Laurance and Tomahawk have been issued cease and desist orders, while they chose to neither accept or deny the legitimacy of the claims.

The SEC used the opportunity to reissue a warning of scammers working with similar operations, with a press release for the case telling people to be wary of offers with unusually high returns on investment. A useful search tool provided by the SEC is Investor.gov that lists details of a variety of investment professionals.

Despite Laurance’s charges, a recent study indicates that ICOs account for under 2% of securities class action lawsuits. While any number is too high, it is at least beneficial for the industry that this number can be identified and made to face justice.

 

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ICOs Only Account for Less Than 2% of Securities Lawsuits

A report released by litigation consultancy firm Cornerstone Research indicates that initial coin offerings (ICOs) account for under 2% of securities class action lawsuits – just 12 of 750 cases.

ICOs are not the main offenders… are they even securities?

With the total number of securities lawsuits at levels unmatched since 1995, the report found cases involving ICOs hit just five in the latter part of 2017, and have reached seven in 2018 so far. There have been 111 suits filed in total since the start of the year. While cases filed against American companies are reported to be on the decline, there is a growing number opened against European and Asian companies, nearly double that seen in the last decade.

Whether ICOs even classify as securities is currently up for debate. Securities can be defined as financial assets that represent a proof of ownership in the stake of a company that has intrinsic monetary value, but some argue tokens and cryptocurrencies purchased during ICOs do not qualify under this definition. This disagreement has led many to question whether the US Securities and Exchange Commission (SEC) is even the correct entity to be investigating cases involving ICOs.

Despite much bad press regarding ICOs, several of these few cases opened against crypto-related companies found fault in their reluctance to file their tokens as securities, which is a legal requirement in the US.

In one instance, Ripple (XRP) is facing three separate lawsuits from investors who lost money when they sold the tokens on. The plaintiff in one of these cases argues the XRP classifies as a security because i) they must be purchased with money, ii) investors reasonably expect to profit from them due to Ripple’s own promotional efforts, and iii) the profits collected are determined by the company’s management decisions.

The Massachusetts branch of the SEC suspended five cryptocurrency companies offering ICOs in March this year because they had all failed to register their tokens as securities.

In February, SEC Chairman Jay Clayton declared that ICOs must meet securities regulations, ”end of story”, although in June the SEC voted that Ethereum did not meet the definition of a security. Ethereum and Ripple have fundamentally different structures and use-cases for them, but it indicates a more reasoned, practical approach may be taken by the SEC in the future.

 

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US Department of Justice Opens Criminal Case into Bitcoin Price Manipulations

The US Department of Justice (DOJ) has opened a criminal investigation into whether traders are manipulating the price of Bitcoin and other cryptocurrencies, according to a report published Thursday by Bloomberg.

The most notable concern coming from the DOJ relates to a suspected potential that the volatility of the market creates an opportunity for investors to push price valuations in a way to favor themselves.

Additionally, authorities feel cryptocurrencies are particularly susceptible to fraud due to a concern over the lack of regulations, as well as skepticism that every exchange actively pursues those deceiving the rules of the platform.

Spoofing and wash trading

People familiar with the situation told Bloomberg that the DOJ is specifically looking into spoofing and wash trading from colluding traders. These two illicit tactics are forms of market cheating that have been combated by regulators in the futures and equity markets for years.

Spoofing involves a trader submitting a number of orders, then cancelling them once they are satisfied they have affected the prices enough in the desired direction.

Wash trading involves a cheater creating trades with themselves to create a false impression of market movements, which influences others to move in a specific way.

It was reported that both Bitcoin and Ether are being investigated for this, but the DOJ declined to comment on the case at Bloomberg’s request.

Protecting investors

After a Bitcoin price surge last year spanning between USD 1,000 and USD 20,000, the cryptocurrency industry has found a host of new supporters and investors. The number of ICOs has also skyrocketed, with a growing number of people aware and involved with altcoins.

Regulators across the globe are now seeing the industry as a growing concern, as investors enter the market without a clear understanding of what cryptocurrencies are, and the risks involved.

Cryptocurrency exchange platforms operate internationally, with many remaining unregistered with any government agencies, leading to a heightened fear of fraudulent activities in general.

Of course, the vast majority of platforms maintain there own strict security measures to protect users and are willing to pursue fraudsters, if not only to protect their own reputation.

 

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First Large-Scale Crypto Jacking Strike in India Targets Conglomerate

The third largest conglomerate in India, Aditya Birla Group, was targeted in what is believed to be the first large-scale crypto jacking attack of its kind in India.

 Over 2,000 computers affected

Hackers were able to gain access to over 2,000 computer systems belonging to various companies governed by the Aditya Birla Group, taking over the computers’ terminals and processing power to illegally mine cryptocurrency.

While the attack was first detected last month, reporting from the Economic Times notes that it took just a few days for the malware to infect areas of the manufacturing and additional services belonging to the Aditya Birla Group.

A person familiar with the attack spoke to the Economic Times, describing the attack as one in which ”the primary intention of the hackers is not to steal information and cause business disruption. Rather, they hijack the target’s computers and tap the power supply to the organization to mine crypto coins”.

Addressing reporters, a Birla Group spokesperson said: ”Recently, the advanced threat detection systems of our Group alerted us of suspicious activity on some desktop systems. Based on this, our internal team immediately carried out an investigation and deployed countermeasures to isolate and eliminate the cause of this activity.”

Bigger enterprises mean bigger gains for hackers

The Birla Group spokesperson was able to assure the public that with the comprehensive investigation nearly being complete, the hack was not subject to any data loss. Hackers were instead able to mine what has been described as a substantial amount of Monero.
It is common for hackers to target larger establishments, as they are able to provide the potentially largest gains. Universities are known to be another target rich environment hit by hackers.
It is important to note, however, less than 1% of Bitcoin transactions involve illicit activities. While in this case, Monero was the cryptocurrency mined in the illegal process, there is no specific data indicating how frequently it is involved with fraudulent activities.

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12 Japanese Arrested in Fake Cash for Bitcoin Fraud

An alleged scam in Japan has resulted in the arrests of 12 individuals accused of defrauding a Tokyo-based businessman of 190 million Japanese yen (JPY) in Bitcoin (approximately USD 1.8 million).

An investigation between Tokyo and Hyogo police revealed that in July 2017, a Tokyo-based marketing executive was approached by a group of “traders” who offered him JPY 200 million for the equivalent of JPY 190 million yen in Bitcoin. After the deal was carried out between the conmen and the businessman’s agent in a Tokyo hotel, the victim suggested that he wanted to trade covertly to avoid paying commission fees while swapping crypto-to-fiat at an exchange.

The seller then transferred his cryptocurrency to an exchange wallet account in Yokohama, although the fraudsters argued that they didn’t receive the Bitcoin. It turned out that the suitcase exchanged mainly contained false banknotes. Two days later they attempted to convert the stolen Bitcoin into JPY 174.2 million yen through the Yokohama exchange.

Seven men, all in their 20s, were arrested by police last week including the alleged mastermind, 24-year-old Kenta Higashi.

Japan has warmed to Bitcoin in a big way in recent years and legislation now acknowledges it as a legal payment method, despite the Bank of Japan’s ‘Let’s think about cryptocurrencies‘ statement where the bank warned about the likelihood of Bitcoin theft. Despite some notable thefts in recent years, this hasn’t deterred traders. Individual cryptocurrency traders in Japan now exceed three million according to the country’s Financial Services Agency (FSA) figures just released.

Despite frequent incidents of investor fraud and the USD 500 million hacking of a Japanese crypto exchange earlier this year, the country still emerges as a Bitcoin haven due to recent supportive regulatory legislation introduced by the government.

Japan has previously suspended operations of several crypto exchanges on security concerns, although individual groups such as the “Tokyo 12” preying on the vulnerability of a single victim are harder to control.

 

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Briton Extradited from Morocco over Alleged $36 Million Bitcoin Fraud

British national Renwick Haddow, 49, has been charged with two counts of wire fraud and extradited from Morocco to the US.

The US Department of Justice charges are connected to two fraudulent startups allegedly defrauding investors of more than USD 36 million.

Haddow was originally charged in the US in June 2017 and arrested in Morroco the following month. Geoffrey Berman, the US Attorney for the Southern District of New York, and William Sweeney Jr, assistant director-in-charge of the FBI’s New York office, reported that Haddow had been extradited from Morocco and is scheduled to appear in a New York court on Friday.

According to Attorney Berman, “Haddow made material misrepresentations… about the management, operations and historical performances of the companies.”

One of the startups under investigation, the ‘Bitcoin Store’, was supposedly led by CEO ‘Gordon Phillips’, who was said to have received a master of science degree in finance from Yale and to have previously been head of global currency and options at HSBC. The FBI investigation showed that neither Yale nor HSBC had any records for Phillips.

According to Haddow, the Bitcoin Store had generated sales of USD 7.6 million whereas the firm’s bank account showed a balance of only USD 500, according to the investigation.

The US Securities and Exchange Commission (SEC) originally filed charges against Haddow last year for misleading investors. It reported that the Briton had claimed to have had an “experienced team of leading investment professionals” behind the company. The Department of Justice confirmed that “he alone was the brains behind the bitcoins store” and that the “experienced team” was Haddow’s own fabrication.

The Moroccan ministry of justice originally held Haddow to investigate the Bitcoin Shop, Bar Works, and a third startup, In Crowd Equity. He faces jail of up to 20 years for each of the charges.

Morocco’s foreign exchange authority has stated that the use of cryptocurrencies within the country can lead to penalties under existing rules, although the Moroccan exchange regulator, along with the Central Bank of Morocco, state that they will continue to regularly monitor the development of cryptocurrencies around the world.

 

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