Last November, following up on a Private Eye story, I asked whether the FCA had withdrawn a “scam warning” against the international billion-dollar Ponzi scheme OneCoin, after threats from notorious libel lawyers Carter-Fuck (more vulgarly known as Carter-Ruck).
As a refresher, OneCoin took in £4 billion from investors in exchange for “OneCoins”, its made-up cryptocurrency. OneCoins were given an imaginary and ever-increasing value, which investors could cash out to a very limited degree via an exchange. These withdrawals were funded by new investors’ money, in the classic Ponzi scheme fashion.
The scheme collapsed in 2017 when it ran out of money and the exchange was shut, although OneCoin limps on to this day as a pyramid scheme, despite the arrest or disappearance of virtually all its former top brass.
In 2016 one of OneCoin’s promoters / victims had a Road to Damascus moment and started making videos calling out OneCoin as a scam. OneCoin hired Carter-Fuck to send letters threatening her with libel action.
McAdam stood her ground, declined to remove her videos and heard no more from Carter-Ruck.
So far, still so cookie-cutter cryptocurrency scam.
Where it gets interesting is that Private Eye notes that the Financial Conduct Authority issued a scam warning against OneCoin in September 2016.
Shortly after Carter-Ruck sent its SLAPP attempt to McAdam, the FCA withdrew its warning.
The FCA has refused to comment on whether the removal of the OneCoin scam warning followed any lobbying from OneCoin’s end.
Yet nonetheless, somehow and for some reason it was persuaded to remove an entirely factual scam warning.
Thanks to the BBC’s “Missing Cryptoqueen” podcast, we now know the answer to the question “Did the FCA spinelessly cave in to a half-baked Ponzi scam” is “yes”.
BehindMLM picks up the story: (quotes are from the Missing Cryptoqueen podcast, transcribed by BehindMLM)
[22:28 Gary Gilford, a lawyer for OneCoin mastermind Ruja Ignatova] At the time, when I think Carter-Ruck and Chelgate were involved, the Financial Conduct Authority put out a warning on their website, about anyone doing business with OneCoin and OneLife.
So Carter-Ruck and Chelgate were writing to the Financial Conduct Authority.
Whatever they did, was convincing enough for the FCA to take the (OneCoin) notice down. […]
[24:42, Simon Harris, former Chelgate employee] In the weeks prior to my arrival (at Chelgate) on August 2017, there was a warning on the … FCA’s website.
And Chelgate worked with Carter-Ruck to pressurize (the FCA), to weaken their public stance on OneCoin.
The FCA’s withdrawal of the scam warning led directly to further investor losses, as OneCoin promoters used the withdrawal as “proof” that OneCoin wasn’t a scam.
[26:34 Ken Labine, OneCoin promoter] If they (the FCA) still thought we were a fraudulent company, OneCoin, then guess what; that warning’s not removed. Game over.
The FCA made no visible attempt to stop OneCoin promoters portraying the removal of the scam warning as approval.
It has bleated that it took the scam warning down because OneCoin was not carrying out any regulated activities.
The FCA does not regulate cryptocurrency assets, and therefore it could not take this matter further.
This, of course, is bollocks.
OneCoin investors handed their money to OneCoin in order to invest in their made-up points, which were tracked via an SQL database. They were able to cash out a return for as long as OneCoin had enough investors’ money in the system to honour withdrawals. Investors took no part in the day-to-day running of OneCoin, simply sat back and watched their “coins” increase in value and/or attempted to make a return by taking withdrawals (paid with other investors’ money).
This pooling of investors’ money to pay out returns, with no day-to-day involvement by investors, represents a collective investment scheme. Promoting a collective investment scheme to UK invstors requires authorisation from the FCA.
The fact that the scheme in question was a Ponzi scheme with no real underlying investment is irrelevant. That investors handed over money for coins tracked via an SQL database rather than, say, car parking spaces is irrelevant. The essential elements of a collective investment scheme are the pooling of investor money and the lack of day-to-day involvement by investors, both of which were true of OneCoin.
There are plenty of Ponzi schemes which manage to conceal their nature from regulators. London Capital and Finance, for example, could not be publicly called out as a Ponzi scheme until after it had collapsed, and the administrators had revealed that its half-billion-odd of asset security didn’t exist, and it had no income-producing assets funding returns to investors.
OneCoin was not one of them. It operated openly as a Ponzi scheme from the beginning, with no serious attempt to pretend that it had any source of funds with which to honour withdrawal requests other than investors’ own money.
BehindMLM first described OneCoin as a Ponzi scheme in 2014. Despite Carter-Ruck’s threats (which came a whole 2 years later), nobody was ever found guilty of libel in a court of law for describing OneCoin as a scam.
And the real scandal is not that the FCA’s scam warning was entirely factual, and trivially proven as such from facts publicly available at the time, but that this didn’t even actually matter as the FCA has statutory immunity from being sued.
Suing the FCA for libel for publishing a scam warning against you requires persuading a court not just that you aren’t a scam, but that the FCA acted unlawfully or in bad faith, a virtually insurmountable bar which OneCoin was never going to clear.
The good news here is that the OneCoin scandal gives the FCA a golden opportunity to prove it has actually changed under new head Nikhil Rathi.
By publicly naming the official who gave OneCoin the green light to scam UK investors, sacking them for gross misconduct (if they are still there), and giving an unconditional apology to all UK OneCoin victims. (An apology with zero compensation – the UK taxpayer should not underwrite foreign Ponzi schemes.)
Anything less will confirm that the FCA still views consumer protection as an annoying and tedious distraction from its real job of high-level thought leadership.
