Cryptocurrency Frauds And Indian Criminal Law
What is Cryptocurrency Fraud?
Cryptocurrency fraud involves deceptive or fraudulent schemes to obtain money or digital assets from individuals or organizations by misrepresenting facts or promising unrealistic returns using cryptocurrencies (like Bitcoin, Ethereum). Common forms include:
Ponzi schemes or investment scams promising high returns.
Fake Initial Coin Offerings (ICOs).
Phishing and hacking attacks targeting wallets/exchanges.
Money laundering and unlicensed crypto trading.
Manipulation or insider trading in crypto markets.
Applicable Indian Laws (overview)
India does not yet have a comprehensive cryptocurrency regulatory statute, but several existing laws have been invoked:
Indian Penal Code (IPC), 1860
Section 420 (Cheating and dishonestly inducing delivery of property): Used for fraudulent schemes.
Section 406 (Criminal breach of trust).
Section 415/416 (Cheating and cheating by personation).
Section 66C/66D of the Information Technology Act, 2000: Punish identity theft and cheating by impersonation using computers.
Prevention of Money Laundering Act (PMLA), 2002
Used to investigate money laundering through cryptocurrencies.
Reserve Bank of India (RBI) circulars & Supreme Court judgments
RBI had banned banking support for crypto exchanges in 2018 (later lifted by Supreme Court in 2020).
Crypto activities often investigated in light of RBI’s stance and evolving regulatory framework.
The Companies Act, 2013 and Securities Laws (SEBI Act, 1992)
In cases involving unregistered investment schemes or securities violations.
Case Studies of Cryptocurrency Frauds in India
1) Kuberan Rajasekaran & Crypto Ponzi Scheme (2020) — Chennai
Facts
The accused operated a cryptocurrency investment scheme promising fixed monthly returns (10-15%) using Bitcoin and Ethereum investments.
Investors were lured with promises of high and guaranteed returns.
The accused allegedly collected crores of rupees but failed to pay returns and eventually disappeared.
Investigation
Police registered FIR under IPC Section 420 (cheating), 406 (criminal breach of trust), and IT Act provisions.
Blockchain analysis helped track some fund movements.
Victims complained through various consumer forums and cybercrime cells.
Legal issues
The accused was charged for running an unlicensed investment scheme using cryptocurrency as a façade.
Lack of clear regulations complicated prosecution, but traditional fraud provisions were applied.
Outcome
The accused was arrested; investigation ongoing.
The case highlighted the need for consumer awareness and stronger regulatory framework.
2) Zebpay Exchange Fraud Allegations (2018)
Facts
Zebpay was one of India’s earliest cryptocurrency exchanges.
Some users complained of delayed withdrawals and suspected manipulation or unauthorized transactions.
There were rumors of internal employee fraud or hacking.
Investigation & legal action
The company voluntarily cooperated with cybercrime police in Mumbai and Pune.
No criminal charges were formally filed, but this led to heightened scrutiny by law enforcement and RBI warnings.
The Supreme Court hearing on RBI’s banking ban indirectly influenced Zebpay’s operational model.
Significance
This case emphasized the vulnerability of exchanges to internal fraud and hacking.
Led to calls for exchanges to implement robust KYC/AML measures and cybersecurity standards.
3) GainBitcoin Ponzi Scam — Bangalore (2019)
Facts
GainBitcoin allegedly ran a cryptocurrency mining and investment scheme.
Promoters promised high returns from bitcoin mining rigs and pooled investments.
Investigation revealed no actual mining; instead, it was a Ponzi scheme. Investors lost over ₹2,500 crores.
Legal Proceedings
FIRs registered under Sections 420 (cheating), 406 (criminal breach of trust), and relevant IT Act sections.
Enforcement Directorate (ED) investigated money laundering under PMLA.
Several promoters arrested and sent to judicial custody.
Court rulings
Courts rejected bail applications citing prima facie evidence of cheating and financial fraud.
Some accused surrendered and agreed to cooperate for victim compensation.
Significance
One of the largest crypto Ponzi cases in India.
Highlighted how fraudulent schemes can misuse the crypto hype.
4) Pioneer Forex Scam Involving Crypto Trading (2021) — Mumbai
Facts
A firm called Pioneer Forex claimed to trade cryptocurrencies and foreign exchange, promising assured profits.
They collected crores from investors but failed to return investments.
The scam came to light after investor complaints.
Investigation
Mumbai Police cybercrime registered a case under IPC Sections 420 and 406 and IT Act.
Digital evidence seized included WhatsApp chat records, payment trails, and crypto wallets linked to accused.
Investigators struggled with cross-border tracing of funds due to crypto’s pseudonymous nature.
Outcome
Arrests of key promoters were made.
Ongoing proceedings focus on asset recovery and victim compensation.
5) Unocoin KYC Violation & Investor Complaint (2019)
Facts
Unocoin is an Indian Bitcoin exchange.
Some users alleged improper KYC processes allowed fraudsters to open accounts and commit fraud using their platform.
Complaints made to cybercrime cells and consumer courts.
Legal aspects
The company cooperated but faced scrutiny under IT Act and RBI guidelines on KYC/AML compliance.
Highlighted the need for stringent verification to prevent identity theft and fraud.
Significance
Showed the regulatory gap on exchange accountability.
Led to calls for clearer exchange licensing and monitoring.
Summary of Legal Challenges & Enforcement Issues in India
Regulatory vacuum: Absence of a specific cryptocurrency law complicates investigation and prosecution.
Cross-border challenges: Cryptocurrency fraud often involves foreign servers, exchanges, or perpetrators, making jurisdiction and evidence collection difficult.
Lack of awareness: Victims often lack understanding of crypto risks, delaying reporting.
Technical challenges: Pseudonymity and encryption hinder tracing; blockchain analysis tools help but aren’t foolproof.
Evolving legal responses: Supreme Court’s lifting of RBI banking ban (2020) revived the crypto ecosystem, increasing demand for regulations to curb frauds.
Legal Provisions Typically Invoked in Cryptocurrency Fraud Cases in India
| Law/Section | Description |
|---|---|
| IPC Section 420 | Cheating and dishonestly inducing delivery of property |
| IPC Section 406 | Criminal breach of trust |
| IPC Section 415/416 | Cheating and cheating by personation |
| IT Act Section 66C/66D | Identity theft and cheating by impersonation via computers |
| PMLA | Money laundering investigations |
| Companies Act | Violations related to unregistered investment schemes |
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