With the world of cryptocurrencies constantly expanding, more and more developers want in on the action. But for every crypto success story, there are numerous scams that leave millions of people without their hard-earned money. In this article, we’ll examine eight such cases, including the biggest crypto rug pull ever committed. We’ll also look at the five most controversial cases in which celebrities were sued for endorsing or actively promoting crypto and NFT projects.
Biggest Crypto Rug Pull: The Countdown
In this section, we’ll look at the details of the eight cryptocurrency rug pulls that have caused the most financial damage to their victims. You’ll see the estimated dollar values of stolen and missing assets at the time of the respective incidents. However, with the value of crypto changing constantly, the actual financial damages may have increased or decreased since.
But before we start, let’s answer one question — what is a rug pull?
In the crypto world, this term refers to developers creating a new token, NFT, or an exchange platform and then touting it aggressively to attract as many investors as possible. As soon as they’ve raked in enough money, the developers abandon their project and run away with their backers’ assets, often continuing to trade them and exploit them for further personal gain.
Below are eight such cases whose perpetrators have cheated people out of billions of dollars.
#1 – GainBitcoin ($12 billion)
One of the most famous crypto rug pulls took place in India. GainBitcoin was a bitcoin mining company that lured investors in by promising to reward them with 10% of their deposit’s value each month for the first 18 months. But in April 2018, local police arrested its owners, brothers Amit and Vivek Bhardwaj, for running a Ponzi scheme and stealing their investors’ bitcoins.
It wasn’t until March 2022 that the authorities officially shut down the illegal operation, raiding six locations across the country and seizing important documents and several electronic devices. Initial reports suggested the Bhardwaj family had scammed 100,000 people out of 80,000 bitcoins, but the police later found the number of stolen coins was as high as 600,000. This put the total financial losses at over $12 billion, making this one of the largest crypto rug pulls ever.
After Amit died in early 2022, aged 38, the police shifted the focus of the investigation to Ajay, the third Bhardwaj brother. In March 2022, the authorities ordered Ajay to grant them access to his crypto wallet, which they believe may hold the stolen coins, but he refused cooperation.
(Bitcoinist, The Indian Express, The Economic Times)
#2 – OneCoin ($4 billion)
In 2014, Dr. Ruja Ignatova, a Bulgarian-born German citizen with a PhD in private international law, and Swedish businessman Karl Sebastian Greenwood launched a digital currency named OneCoin. With Ignatova as the face of the project, promising investors high return rates with minimum risk, the two managed to attract nearly 3 million backers worldwide.
But when Dr. Ruja suddenly disappeared in 2017, along with $4 billion of investor money, the OneCoin story became one of the worst crypto rug pulls in history. The FBI described it as a “huge pyramid scheme” with fake coins and no blockchain component to speak of. Greenwood himself admitted so when he pleaded guilty to his involvement in the fraud in late 2022.
Meanwhile, Ignatova was added to the FBI’s Ten Most Wanted Fugitive List in June 2022 but remains missing. No one knows if she’s still alive: while a January 2023 report claimed she was, another report released a month later suggested she may have been killed way back in 2018.
#3 – Africrypt ($3.6 billion)
Several massive crypto rug pulls took place in 2021, the largest of them involving Africrypt. In April of that year, this South African investment firm specializing in cryptocurrency announced its system was hacked, and all its clients’ bitcoins — worth around $3.6 billion — were wiped out.
The company’s co-founders, brothers Ameer and Raees Cajee, fled South Africa, announcing via their lawyers they had nothing to do with the incident. The alleged cyberattack prompted South African police to launch an investigation into this, one of the biggest ever rug pulls in crypto, while the local authorities started work on a legal framework to regulate crypto trading.
As for the Cajee brothers, an April 2023 report claimed they had resurfaced in Switzerland. It alleged they had rented a locker in Zurich and deposited a hardware wallet — a storage device designed to securely hold users’ crypto keys offline. As soon as the story went public, the Swiss authorities started investigating the brothers for possible involvement in money laundering.
(BBC, CoinDesk, Crypto News)
#4 – Bitconnect ($2.4 billion)
In another of the biggest rug pulls, crypto lending platform Bitconnect promised backers a 10% return on their investment in BCC, the platform’s proprietary coin. Founded by Satish Kumbhani in 2016, the operation ran until January 2018, when its administrators shut it down. Soon after that, the price of BCC — which was once valued at almost $500 — nosedived to less than $1.
Following an investigation, the US Department of Justice found that Bitconnect was yet another Ponzi scheme masquerading as a crypto investment opportunity. The 800 victims from nearly 40 countries lost an estimated $2.4 billion, one of the most significant rug pulls in crypto history. In lieu of repayment, they’ll each get just a tiny fraction of the $17 million monetary restitution fund.
As for the people behind Bitconnect, Kumbhani has been missing since 2021. As a citizen of India, he is the subject of a local police investigation there, and was also charged by the US Department of Justice. Meanwhile, one of Bitconnect’s leading US promoters, Ben Arcaro, pleaded guilty to wire fraud in September 2021 and was sentenced to 38 months in prison.
(CoinDesk, Cointelegraph, US Department of Justice)
#5 – PlusToken ($2.25 billion)
PlusToken was a subscription-based crypto platform that promised its members high returns proportional to the size of their investment and the number of new people they brought into the fold. What sets this apart from other recent crypto rug pulls is that it took place in China, the world’s most populous country, where internet usage rates exceed 70% in urban areas.
Between May 2018 and June 2019, the platform founded by Chen Bo managed to defraud its backers out of $2.25 billion (14.8 billion yuan) worth of crypto coins. Since 2019, their value has increased significantly, so the most recent estimates put the actual losses at nearly $11 billion.
Chen Bo and his co-conspirators then fled China for Cambodia and found local people to pose as PlusToken’s founders, intent to carry on with their scam. But the Chinese authorities arrested them in June 2020, thus ending one of the worst rug pulls in the country’s history. Besides Chen Bo, 15 other people involved in the conspiracy have thus far been sentenced to between 2 and 11 years in prison and fines ranging from $100,000 to $1 million.
(South China Morning Post, Decrypt, Statista)
#6 – Wirecard ($2.1 billion)
Wirecard is a German payment processing company, previously known as the world’s leading crypto card issuer. Once the brightest rising star of the FinTech world, the company announced in May 2020 that $2.1 billion worth of money was missing from its accounts in the Philippines. A month later, in late June 2020, Wirecard filed for insolvency and went into administration.
Wirecard’s demise was one of the most scandalous rug pulls the crypto world had ever seen, quickly turning into a global news story. As the police investigation unfolded, the public learned that the company also owed its creditors at least $14.85 billion. While the owners kept pointing fingers at others, the police found that Wirecard’s shady accounting practices were to blame.
The company’s longtime CEO Markus Braun was arrested in July 2020; although he claims he’s innocent, the process against him is still ongoing. Two other Wirecard executives were arrested and sentenced in Singapore. Meanwhile, Jan Marsalek, the company’s Austrian-born COO, fled Germany. Wanted by both Interpol and Europol, his last known location was Minsk, Belarus.
(Cointelegraph, Reuters, Financial Times, Financial Times)
#7 – Thodex ($2 billion)
Another of the biggest crypto rug pulls in 2021 took place in Türkiye and involved Thodex, one of the country’s largest crypto exchange platforms. In April of that year, Thodex announced it was briefly suspending withdrawals due to a technical glitch. But the reports published at the time revealed it wasn’t a glitch — instead, the executives were in the midst of an exit scam.
According to those reports, Faruk Fatih Özer, the company’s CEO, had gone missing, along with $2 billion worth of crypto from 400,000 investors. While in exile, a remorseful Özer promised to return once he had fully repaid all Thodex users. Yet the investigation showed that, merely days before fleeing the country, he had transferred $125 million in bitcoin to crypto exchange Kraken.
In September 2022, Özer was arrested in Albania; in April 2023, he was extradited to Türkiye and sentenced to 7 months and 15 days in prison for failing to provide tax documents back in 2021. As for his role in one of the most notorious crypto rug pulls this decade, the process is still ongoing. The prosecution seeks more than 40,000 years each for Özer and his co-defendants.
(CoinGeek, Hürriyet Daily News)
#8 – WoToken ($1.1 billion)
Not long after the PlusToken scandal, China faced another similar case. WoToken was a crypto trading platform that promised investors huge returns thanks to its algorithmic trading bots that worked round the clock to maximize the backers’ profits. Referrals were also encouraged and rewarded. Unsurprisingly, as in all previous stories, it turned out to be a classic Ponzi scheme.
By May 2020, WoToken had scammed 715,429 people out of $1.1 billion (7.8 billion yuan) worth of cryptocurrencies — China’s second biggest crypto rug pull. The police report published at the time revealed that WoToken’s co-founders, Gao Yudong and Tian Yongbo, had already served prison sentences for similar financial crimes. Of course, they failed to disclose that to investors.
Chinese authorities promptly arrested and sentenced four men involved in the scam, including the two co-founders, to prison terms ranging between 2.5 and 8.8 years. But the victims didn’t get their money back, as only $63.6 million of the stolen $1.1 billion had been recovered.
Celebrity Crypto Scams: The Countdown
Many of the schemes listed above wouldn’t have been as successful without celebrity endorsement. With successful careers in their respective fields and millions of followers on social media, these people lend credibility to the projects they support. But if things go sour, fans who took their advice and invested in these projects may turn against their favorite celebs.
Below, we’ll look at five crypto controversies that involved lawsuits against celebrities.
#1 – The Kim Kardashian Crypto Scam (2021)
In June 2021, Kim Kardashian posted to her 220+ million Instagram followers about a then-new cryptocurrency EthereumMax. She wrote how the Ethereum Max admins decided to burn 40 trillion tokens, thus “giving back to the community” by artificially boosting the token’s value.
Fast-forward to January 2022, and the cryptocurrency’s initial investors had decided to file a class lawsuit against Kardashian and other celebrities — among them the famous boxer Floyd Mayweather, who had promoted EthereumMax in several public appearances. According to the investors, these celebs and their stunts brought the token’s value down by 97% over six months.
Meanwhile, Kim Kardashian’s crypto endeavor earned her an SEC fine of $1.26 million for failing to properly label her Instagram story as a paid ad. As for the class action, nothing came out of it in the end. In December 2022, a federal judge dismissed the proposed lawsuit, saying that investors must act reasonably and not jump on any trends just because celebrities endorse them. As of mid-2023, EthereumMax is still being traded, but its value remains barely above $0.
#2 – The Floyd Mayweather Crypto Scam (2017)
The EthereumMax saga wasn’t Floyd Mayweather’s first brush with crypto controversy. Back in 2017, the boxer had a deal with Centra Tech, a Miami-based company that allegedly provided financial services related to cryptocurrency. Mayweather and musician DJ Khaled served as the company’s ambassadors, promoting its initial coin offering (ICO) to their social media followers.
In 2018, however, the US authorities arrested Centra Tech’s co-founder Sohrab “Sam” Sharma for running an illegal ICO and fleecing investors out of $25 million. After a lengthy trial, Sharma was sentenced to eight years in March 2021. Meanwhile, despite their active part in this big crypto scandal, the two celebrities got out scot-free, at least as far as the law was concerned.
But DJ Khaled and Floyd Mayweather didn’t come out of this entirely unscathed. Faced with an SEC lawsuit for failing to disclose the money they received from Centra Tech’s ICOs to promote the company ($100,000 for Mayweather and $50,000 for DJ Khaled), the two eventually settled in November 2018. As part of the settlement, they agreed to pay a combined fine of $767,500.
(Bleacher Report, CoinDesk, CoinGeek, The Guardian)
#3 – The Logan Paul Crypto Scandal (2021)
Now primarily known as a professional boxer, Logan Paul has long been an internet influencer. He started on Vine and then moved to YouTube, expanding his follower base in the process. By 2021, Paul was also a successful podcaster and even a WWE wrestler with over 60 million followers across different channels. And it was in August of that year that he started promoting a game called CryptoZoo, which involved in-game NFTs and the related ZOO crypto tokens.
All seemed fine at the time, as the NFTs generated $2.5 million in early sales, pushing the ZOO token to its peak value — but the hype died down very fast. The public caught the first whiff of the CryptoZoo scandal on January 10, 2023, when an online news report revealed the whole thing was a scam and described problems that had occurred behind the scenes since its launch. Interestingly, in early 2022, Paul suddenly started claiming he was barely involved in the project.
Days after the report was published, Logan Paul promised he would use at least $1.3 million of his own money to repay CryptoZoo backers. As of July 2023, however, he still hadn’t done that. Meanwhile, in February 2023, a group of investors launched a still-ongoing class action lawsuit against Paul and the CryptoZoo founders in an attempt to recoup their money.
(TechCrunch, The Cryptonomist, Time Magazine, PC Gamer)
#4 – The Jake Paul Crypto Charge (2023)
Not to be outdone by his brother Logan, Jake Paul, influencer and professional boxer, was among the celebrities charged by SEC in March 2023 for promoting two crypto coins without disclosing they were paid to do so. Besides Paul, the list included actress Lindsay Lohan, adult actress Kendra Lust, and musicians Austin Malone, Lil Yachty, Soulja Boy, Akon, and Ne-Yo.
This particular cryptocurrency scandal involved the coins Tron (TRX) and BitTorrent (BTT), both owned by Justin Sun. Sun, a Chinese-born Grenadian crypto investor and politician, was also accused by the SEC of engaging in “wash trading” — illegally maneuvering the trading volume of his TRX coin to make it seem like it was being actively traded, thus boosting its popularity.
Of the eight celebrities, six — excluding Mahone and Soulja Boy — settled with the SEC and agreed to pay a combined fine of $400,000. As for Justin Sun, the process against him is still in its early stages. As per the latest available information, a New York district court summoned him in April 2023, giving him 21 days to appear in court or reach out to SEC’s lawyers.
(BBC, Cointelegraph)
#5 – The Tom Brady Crypto Lawsuit (2022)
In November 2022, the crypto world was shocked when FTX, then known as one of the most trusted crypto exchanges, went bankrupt, along with several of its sister companies. Within a week, its founder Sam Bankman-Fried went from crypto’s golden boy to a criminal. And though FTX’s fall wasn’t a classic rug pull, it still left people worried about getting their money back.
Soon after this crypto scandal erupted, lawyers filed a class action suit against Bankman-Fried and several celebrities who had endorsed and advertised FTX, making it seem more credible in the public eye. The list of celebs includes several high-profile athletes, among them Tom Brady, Steph Curry, Naomi Osaka, and David “Big Papi” Ortiz. Other famous people like the Seinfeld creator Larry David and the Shark Tank star Kevin O’Leary were also included in the suit.
While it’s still too early to talk about the repercussions for the stars, it’s all but certain that the SEC will become involved in this case. It is interesting to note that many of the celebrities who promoted FTX also had a financial interest in it. As such, Brady potentially lost up to $45 million when the exchange went bust, while his ex-wife, model Gisele Bündchen, lost about $25 million.
Biggest Crypto Rug Pull: In Conclusion
What you see here is just the tip of the iceberg; over the last few years, there were dozens more rug pull cases that cost backers — both big-time investors and regular people — hundreds of millions of dollars. That’s not to mention thousands of comparatively smaller exit scams that have left countless people from around the world without their entire life savings.
As the crypto world continues to grow, incidents like these will keep happening. Although small in scale, the 110 crypto rug pulls in 2023’s first half have cost victims $75.8 million. Until there’s strict regulation to protect people against rug pulls and other crypto scams, thorough research and the ability to identify any possible red flags is the only way to avoid falling victim yourself.
Crypto Rug Pulls and Scandals FAQ
What are rug pulls in crypto?
In crypto, the term rug pull refers to cryptocurrency developers suddenly abandoning their project — a token, NFT, crypto exchange, etc. — and leaving investors either with worthless assets or without access to their funds.
How do crypto rug pulls work?
Typically, a cryptocurrency or NFT developer creates and then hypes a project, often with the help of celebrities, to attract investors. Once they’ve raked in enough money, the developer disappears and takes all their investors’ assets with them.
(Bankrate)
How much money did Tom Brady lose in the crypto scandal?
Before the recent crypto scandal involving FTX’s sudden implosion, Brady reportedly owned 1.1 million common shares of FTX Trading. Considering the share value at the time, this would put his financial losses at $45 million.
Sources:
