In 2017, thousands of investors in over 175 countries found themselves with empty pockets after having invested nearly US$4 billion in a cryptocurrency called “OneCoin”. The mastermind behind the project, Ruja Ignatova, vanished with what is believed to be the entire amount missing.
This news item struck a nerve in the cryptocurrency world. The BBC even devoted a podcast to it. And while this case was one of large-scale fraud, the fact remains that fraudulent schemes are frequent in the world of crypto-assets, which includes cryptocurrencies (such as Bitcoin) and non-fungible tokens (NFTs). Possession of these tokens grants investors rights that can take different forms (either access to a good — like a work of art — a service or something similar to owning a stock).
I have been interested in the study of fraud for many years, first in my professional practice as an auditor and forensic accountant, then as a researcher. I am primarily interested in the factors that lead to fraud, as well as the indicators and impacts of fraud. More recently, my interest has focused on fraud related to crypto-assets, since these new technologies carry new risks and limitations that both users/investors and regulators face.
An alarming amount of fraud
A 2018 report from a crypto-asset firm estimates that nearly 80 per cent of all initial coin offerings (ICOs) launched in 2017 — such as the issuance of new cryptocurrencies — were fraudulent. Of course, it is not possible to accurately measure the number of frauds that occur each year, not least of all because most are not reported to the relevant authorities. However, this alarming figure should still raise questions for potential investors about how to manage the risks they are taking.
It should be noted that crypto-assets are subject to little or no regulation around the world. Regulatory bodies such as Québec’s Autorité des marchés financiers and the Security and Exchange Commission in the United…
