A Swedish crypto gangster has been handed a 15-year sentence following a cryptocurrency scam that defrauded more than $16m from investors.
Roger Nils-Jonas Karlsson operated a company called Eastern Metal Securities (EMS), offering investors plans in which shares – purchased using cryptocurrencies – would make huge returns in gold stocks.
The fraud ran from 2012 to 2019, culminating in the extradition of the 47-year-old from Thailand to face justice in the US.
In order to join the scheme, investors were asked to purchase shares using cryptocurrencies including Bitcoin (BTC) and Ethereum (ETH).
Potential investors were reassured that, in the ‘unlikely’ event their shares failed to reach the promised value, up to 97% of their original investment would be returned to their wallets.
However, Karlsson syphoned-off the cryptocurrency payments to fund his lifestyle in Thailand – including the purchase of a luxury resort – while feeding investors tales of SEC regulations to explain delays in promised returns.
“Karlsson admitted he had no way to pay off the investors,” said a Department of Justice spokesman.
“Karlsson’s fraud targeted financially insecure investors, causing severe financial hardship for many of them.”
The Department of Justice estimates the proceeds of the scam exceeded $16m, and Karlsson has been hit with a monetary judgement requiring him to pay it all back.
Joshua Scigala, Co-Founder of the TheStandard.io, a DeFi infrastructure project, argued cases like this set the crypto industry back years and drive misconception in the eyes of regulators.
“These types of scams are absolutely terrible, not only for the people getting scammed but for the entire industry,” he said.
“The biggest problem is that well-meaning governments come in to try to regulate it, which can slow innovation and competition.
“The cryptocurrency and gold industries are primarily made up of good people that are working hard on projects like The Standard to minimise scammers.”
But what happens to the money?
This isn’t the first major crypto bust in recent months. Earlier in July, specialist detectives from London’s Metropolitan Police cracked a huge international money laundering operation, seizing more than $250m (£180m) in cryptocurrency, following on from a prior seizure of $150m (£114m) and the arrest of a 39-year old woman.
With seized cryptocurrency holdings approaching half-a-billion in value, the Metropolitan Police is rapidly becoming one of the UK’s biggest crypto whales – and this begs a very important question, what happens to the seized cryptocurrencies?
Police in Finland have been wrestling with this issue since 2016, which saw the arrest of one of Scandinavia’s most prominent drug dealers, and the capture of 1,981 BTC (valued at $58m as of today).
Finnish authorities spent two years debating what to do with the proceeds of the investigation.
Following the bull-run in Bitcoin earlier this year, the Finnish customs department finally moved forward to auction the seized Bitcoins.
“Customs can sell its seized cryptocurrency either by itself or tenders an intermediary to it,” said Finnish customs officer Pekka Pylkkänen.
In France, a recent police auction of seized cryptocurrency has seen the assets go under the hammer for as much as $5m.
This indicates that holding the assets may become an active strategy for law enforcement agencies, as it represents a significant potential source of future funding for the organisations.
However, this could have serious implications. Asset forfeiture has become a major source of self-funding for the US Drug Enforcement Administration, with the powers leading to a focus on cash seizure instead of narcotic seizure (which can’t be sold).
There is a concern then that cryptocurrency could become the increasing target of operations by law enforcement agencies aiming to protect their bottom-line.
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