From Tom Leonard £1billion BITCOIN IN HEIST MADE IN ENGLAND
With a Manchester address, a cynical conman snared thousands of victims in a vast Ponzi scheme. Now the Mail unmasks one figure linked to the scam – and exposes the perils of the cryptocurrency Wild West
SERVING court papers on anyone who wants to avoid them can often be a challenge. But in the case of Manchester entrepreneur Benjamin reynolds, it has proved particularly difficult. When, nearly two years ago, a U.S. commodities watchdog recruited a firm of British solicitors to locate him, a ‘process server’ went to an address in central Manchester that Mr reynolds had provided. The address, the server discovered, was an office building that had long been abandoned and boarded up.
When the hapless official visited another Manchester address reynolds had listed at Companies House and on his website as his office, the owners had never heard of reynolds or his business, Control-Finance. Two years later, reynolds has yet to be found.
For the U.S. Commodity Futures Trading Commission (CFTC) and thousands of investors in the heavily hyped cryptocurrency Bitcoin, his elusiveness is inconvenient.
That’s because reynolds is the mystery figure at the centre of a $1.3 billion internet Ponzi scheme and — according to a new York court — he’s personally liable for $ 572 million (£410 million) of it. The CFTC four weeks ago accused reynolds of stealing Bitcoin worth around $1.3 billion through Control-Finance, a bogus investment company he set up.
in a judgment handed down in his absence, an American court has ruled that reynolds — purportedly the sole owner and director of Control- Finance — owes $ 143 million in restitution in addition to a $429 million fine. victims, some furiously posting theories about reynolds and what happened, have been warned not to expect to get anything back.
For the problem is even more complicated than it appears. reynolds may not just have vanished: he very probably never existed.
The Mail was yesterday able to confirm a man identified as reynolds in Control-Finance corporate videos as a young estonian stand-up comic and poker player. Karl- Joonatan Mets insisted he was duped into making the he videos after answering an advert on a local online forum.
‘it was a casting call on an acting forum m where they were looking for a person for a commercial to introduce the company. ny. i did two commercials and then found nd the video of me being called the CeO of the company and then refused to make ke any more commercials,’ he said.
Bitcoin’s creator, a possibly mythic hic presence using the pseudonym Satoshi shi nakamoto, has never been identified ied either, but in the shadowy world of cryptocurrency toing none of this is a surprise.
The financial world is hyperventilating with excitement over Bitcoin and other her cryptocurrencies. An alternative to pounds, dollars and even gold, the currencies renged exist only online, and are exchanged via a register of ownership called a blockchain. ockare Their chief virtue as far as fans are concerned is that they’re free from the interference of governments and banks. ks.
Less attractively, their opaqueness s — the identity of Bitcoin buyers and sellers is hidden by pseudonyms — makes them enormously attractive to criminals keen to hide their tracks and launder money. Despite fears that the craze is a huge bubble waiting to burst, the price of Bitcoin hit a record $64,500 last week (four years ago it was just $1,000). Meanwhile, Coinbase — the biggest cryptocurrency exchange in the U.S. — has just made Wall Street history after it was valued at nearly $100 billion when it began trading on the nasdaq.
With this level of hysteria, it’s no wonder so many wannabe millionaires are piling in. Some have made a killing, but the case of ‘Benjamin reynolds’ and Control-Finance has revealed the other side of the coin, as it were, to the cryptocurrency phenomenon. Thousands of investors are being seriously ripped off.
investigators warn cryptocurrency scams are on the rise, netting at least $4 billion in 2019, with Ponzi schemes — an investment swindle in which earlier investors are paid with money taken from later ones — is now the most popular form of such fraud.
Bernie Madoff, history’s most notorious Ponzi schemer, died last week, but he would have been impressed by the ControlFinance racket, which resembled his in many respects.
it started in May 2017, when adverts appeared on Facebook, YouTube and the professional networking site Linkedin offering Bitcoin investors a lucrative opportunity. if they transferred their coins to Control-Finance, the latter would trade the coins in the virtual currency markets and exploit their soaring values.
The company offered eyewatering — and entirely unrealistic — returns for investors of up to 1.5 per cent a day, or 45 per cent a month. A LTHOUGH reynolds said he was a British citizen based in Manchester, the ControlFinance website, through which nearly every deposit transaction occurred, was registered to a web service provider in the U.S.
The fraudsters forged UK Companies House documents to convince victims they were running a regulated business. reynolds claimed on the site and in videos he posted on social media that he employed ‘expert virtual currency traders who managed the deposits and generated guaranteed daily and monthly trading profits for customers’, says the CFTC.
Bitcoin is notoriously prone to being stolen, but reynolds insisted his company took measures to protect them as well as ‘risk diversification and trade allocation strategies’ to ensure their value didn’t plunge in the volatile crypto market.
However, as with the expert traders he supposedly employed, it was all a lie. reynolds even fabricated weekly ‘trade reports’ on the impressively presented Control-Finance website, complete with trendy logo, which showed currency trading transactions and profits that didn’t exist.
Ponzi schemes rely on a steady flow of new investors to keep the money coming in, allowing the fraudsters to honour the occasional withdrawal request so customers don’t become suspicious. Ponzis tend to collapse — as they did with Madoff — when customers suddenly demand to take their deposits out en masse and the fraudster cannot provide them.
reynolds attempted to avert this by offering lucrative incentives for his clients to keep reinvesting with him, and dangling rewards to customers who brought in new investors such as friends and family.
in reality, reynolds — whoever he is — pocketed the Bitcoin for himself, say U.S. officials. He suddenly ended his operations after five months in October 2017, closing down the Control-Finance website and deleting its adverts on social media platforms.
He attempted to avert suspicion that he was doing a so-called ‘exit scam’ — disappearing with investors’ money — by emailing his customers to say the venture would resume operations and return them their Bitcoin within weeks. ‘You do not have to worry,’ he told them, saying his company could no longer provide ‘technical support’ to investors.
But they did have to worry. reynolds ‘had no intention of resuming operations and deliberately lulled customers into complacency while [he] set to work laundering nearly $150 million in misappropriated Bitcoin through thousands of circuitous blockchain transactions,’ said the CFTC.
This laundering operation involved transferring some of the stolen assets to bank accounts in offshore tax havens such as the Seychelles, say prosecutors. U.S. officials finally uncovered the scam in June 2019.
The fraud was carefully planned and — up to a point — professionally executed. reynolds registered Control- Finance at Companies House in 2016, a procedure that critics say is far too open to abuse.
in January this year, graeme Biggar, the director general of the national economic Crime Centre, told MPs
that it was considered ‘too easy to set up companies’ in the UK, and that Russian gangsters were exploiting the UK’s loose corporate framework to launder billions from the proceeds of crime.
There were people who were suspicious about Reynolds and Control-Finance from the start and tried to warn others in YouTube videos. Some expressed scepticism over how ControlFinance could possibly guarantee investors such enormous returns.
One sceptic, himself a Mancunian, even contacted the Manchester address and phone number given on the Control-Finance website, posting a YouTube video showing how the phone went unanswered and the management of the supposed office building knew nothing about the business supposed to be operating there.
Meanwhile, visitors to the company’s website might have noticed a few oddities. For a supposedly British operation, it was odd that it used American spellings for words such as ‘recognizing’. Some sentences were gobbledygook, such as its assurance that ‘we frequently develop directions such as China, Japan, Turkey, Germany, Malaysia and many others’.
MOST suspiciously of all, there was the great Reynolds himself. Although the fraudsters have since removed almost every trace of themselves from the internet, one of the scammer’s online pep talks to customers remains. In it, ‘Reynolds’ is a supremely confident, slim young man with blond hair, designer stubble and opennecked shirt, sitting at a desk decorated with a Control-Finance flag as a colleague taps at a computer.
He could be an archetypal bright young internet entrepreneur — except for one glaring inconsistency. Despite his very Britishsounding name, he speaks with a strong East European accent.
Online speculation was that he could be none other than the Estonian Mr Mets. An Estonian connection may be no surprise given that internet entrepreneurs there have had a significant involvement in the development of Bitcoin.
Whatever the case, ‘Reynolds’ — whose last irony-laden words were to assure punters: ‘We make money here’ — sounds many miles away from Old Trafford.
And yet, despite such deafening warning bells, in poured the dupes in astonishing numbers.
According to the U.S. regulators, Reynolds and Control-Finance solicited then stole at least 22,190,542 Bitcoin from more than 1,000 customers around the world, including at least 169 in the U.S. This was estimated to be worth $143 million at the time of the fraud and $1.3 billion today. Of that sum, Reynolds returned only $13,411 to customers, say officials.
The CFTC has in recent years ratcheted up its efforts to track down Reynolds. In 2019, it published the legal orders relating to the charges against him in The Daily Telegraph, but had no response. Few involved in this scandal feel there is much chance of catching Reynolds — or the real villain — and that if he were ever in the UK in the first place, he’s long gone now and will place himself as far as he can from the American justice system.
Britain’s Financial Conduct Authority (FCA) said this type of cryptocurrency operation doesn’t come within its regulatory remit, although it has been assisting the CFTC.
The Control-Finance deception may seem elaborate, but it pales beside another Bitcoin Ponzi scheme exposed last year, which even exploited Prince Charles.
The separate Bitcoin venture, PlusToken, had many similarities with Control- Finance ( even, strangely, using the same sort of background music in its promotional videos) and again targeted investors whose critical faculties were blinded by the desire to make a quick buck.
Like Control-Finance, it promised investors extraordinary returns by trading their cryptocurrencies. And — more curiously still — just like Control-Finance, it was also fronted by a young blond Eastern European man (although not the same one).
‘Leo’, purportedly the company’s Russian chief executive, claimed to be an artificial intelligence developer at Google who had secured hundreds of millions of dollars of investment from Prince Charles’s charitable foundation.
An organisation called PlusToken Alliance tried to strengthen this claim by posting online two photos of ‘ Leo’ meeting the Prince at a charity reception in London in 2019.
In June that year, Chinese authorities concluded PlusToken was a fraud and arrested six Chinese nationals who were allegedly running it from the Pacific island country of Vanuatu, where — no doubt entirely coincidentally — Prince Charles is an honorary high chief and where two villages worshipped the late Duke of Edinburgh as a god.
According to Chainalysis, a U.S. firm that investigates illegal cryptocurrency traffic, PlusToken netted at least $ 2 billion from victims who mostly lived in China and South Korea. The ControlFinance operation also has links with South Korea, which are being investigated.
As Bitcoin continues to slide into the mainstream, experts warn that the fraudsters will inevitably proliferate. Some target people on social media, preying on the naive by offering bogus ‘investment’ schemes that turn out to be swindles.
According to Special Agent Chris Janczewski, a cybercrime investigator at the U.S. Internal Revenue Service, these fraudsters exploit the naivety of those who have heard the get- rich stories surrounding Bitcoin, but are painfully ignorant about the complex world of cyber currencies.
‘A lot of it’s just traditional crime dressed up,’ he says. ‘They’re still always driven by fear, or confusion, of missing the next boom.’
Put another way, the cryptocurrency crowd may like to think they’re ahead of the curve.
Untimately, however, they’re painfully old-fashioned when it comes to falling for one of the oldest tricks in the fraudster’s book.