Case Studies On Cryptocurrency Fraud
1. Punjab National Bank (PNB) Cryptocurrency Fraud Allegations – 2018–2019
Background:
Though not a cryptocurrency-specific scam initially, the PNB fraud incident involving $1.8 billion raised awareness about digital financial frauds, including crypto platforms where fake transactions were mirrored. Several defrauded individuals had invested in crypto schemes promising high returns.
Case Details:
The Punjab National Bank case was connected to the fraudulent issuance of Letters of Undertaking (LoUs) by bank employees.
Fraudsters encouraged victims to invest in schemes mimicking crypto trading, which were actually Ponzi operations.
Legal Reasoning:
Courts observed that digital and crypto-like schemes, even when not officially backed by banks, fall under the Indian Penal Code (IPC), 420 (cheating) and 406 (criminal breach of trust).
The Supreme Court highlighted the necessity of due diligence by financial institutions and warned investors against high-yield crypto schemes without verified platforms.
Outcome:
Multiple arrests of middlemen and operators of fraudulent schemes.
Regulatory attention from RBI and SEBI toward crypto-related investment schemes.
2. WazirX Case – Enforcement Directorate (ED) Investigation, 2023
Background:
WazirX, a major Indian crypto exchange, was investigated for allegedly illegal fund transfers and money laundering. Investors’ funds were allegedly routed through crypto platforms to obscure sources.
Case Details:
ED filed a PMLA (Prevention of Money Laundering Act) case against key executives of WazirX.
The allegations included violations of foreign exchange laws and failing to report suspicious transactions.
Legal Reasoning:
Courts emphasized that cryptocurrency exchanges in India are subject to AML (Anti-Money Laundering) compliance under PMLA.
The Supreme Court reaffirmed in Internet & Mobile Association of India v. RBI (2020) that crypto operations are under the regulatory ambit of financial authorities.
Outcome:
ED continues investigation; temporary freezes on accounts and strict compliance measures for crypto exchanges.
Landmark in emphasizing AML/KYC enforcement for crypto operators.
3. GainBitcoin Scam – 2018
Background:
GainBitcoin was a Ponzi scheme in India, allegedly defrauding investors of ₹2,500 crores by promising returns from cryptocurrency mining operations.
Case Details:
Victims were promised 50% monthly returns from mining Bitcoin through GainBitcoin.
Investigation revealed no real mining operations, and most funds were siphoned off by company founders.
Legal Reasoning:
Courts invoked IPC Sections 406, 420, 467, 468, and 471 for criminal breach of trust, cheating, forgery, and fraud.
The Bombay High Court and NCLT classified GainBitcoin as illegal investment and not a legitimate crypto enterprise.
Outcome:
Arrests of founders including Harshad Mehta (not the stockbroker, same name).
Recovery of some assets and warnings issued to investors against unregulated crypto ventures.
4. OneCoin Global Fraud – International Case
Background:
OneCoin was a global cryptocurrency fraud disguised as a legitimate crypto, defrauding investors in India and abroad for billions of dollars.
Case Details:
Indian victims invested millions believing in OneCoin’s mining and trading platform.
Investigations revealed no blockchain support; OneCoin tokens were purely fabricated.
Legal Reasoning:
Courts in India treated it under IPC Section 420 (cheating) and 406 (criminal breach of trust).
International courts, including the US District Court, sentenced founder Ruja Ignatova in absentia, highlighting cross-border fraud jurisdiction.
Outcome:
Indian courts initiated enforcement under PMLA to trace illegal fund transfers.
Highlighted the risks of unregulated international cryptocurrency schemes in India.
5. Bitcoin Ponzi Schemes – 2019–2020
Background:
Several Indian companies offered Bitcoin investment schemes promising daily returns, targeting inexperienced retail investors.
Case Details:
Investigations by the Economic Offences Wing (EOW) revealed funds were diverted to personal accounts, with no real crypto trading.
Platforms included BTC Global and Bitconnect-inspired clones.
Legal Reasoning:
Courts consistently applied IPC 420, 406, 467, 468, 471, and invoked Consumer Protection Act for mis-selling investment products.
Recognized cryptocurrencies as high-risk assets without legal tender status in India, making fraud cases actionable.
Outcome:
Arrests of promoters, asset attachment, and investor warnings.
Set a legal precedent: cryptocurrency investment schemes must follow financial regulations, else promoters are liable for fraud.
Key Takeaways from These Cases
Regulatory Oversight: SEBI, RBI, and ED are central in prosecuting crypto frauds.
IPC Provisions: Most crypto fraud cases invoke Sections 406, 420, 467–471 of the IPC.
Investor Awareness: Courts repeatedly warned that unregulated platforms carry high risk of Ponzi-style schemes.
Cross-Border Jurisdiction: International crypto scams require coordination between Indian authorities and foreign regulators.
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