Virtual currency creators suspected of defrauding €8 million
The National Criminal Police detained four men suspected of investment fraud in early October. The men are suspected of providing false information to sell dagcoins which they had created, and thereby making nearly €8 million.
In the spring of 2018, four Estonian men created an opportunity to acquire the virtual currency dagcoin, which was promoted through multi-level marketing and sold on dedicated trading platforms, among other means. The suspects gave the impression that dagcoin was a virtual currency developed and sold by independent and trustworthy persons, but according to the allegations, two of its creators were secretly running companies related to the coin.
District Prosecutor Kristiina Laas explained that the men are suspected of providing false information to sell the virtual currency. “The price of dagcoin depended on the number of users – the more people accepted dagcoin as a means of payment, the higher the price. Based on the information gathered so far in the criminal proceedings, there are grounds to believe that the suspects artificially inflated the price of dagcoin and the number of its users in order to make a profit, creating a public perception of a functioning virtual currency that keeps increasing in value and can be used as a means of payment or for generating income from its deposit.”
According to preliminary estimates, these practices have caused investors around €8 million in losses. Most of the victims are from abroad.
The Prosecutor’s Office requested permission from Tartu County Court to remand two of the suspects in custody in order to prevent them from continuing to commit crimes or evading criminal proceedings. “The court considered the suspicion to be well founded and as the suspects could continue to commit crimes while remaining at large, granted the request of the Prosecutor’s Office and remanded the men in custody for up to two months,” Laas added.
According to Leho Laur, Head of the Economic Crime Bureau of the National Criminal Police, the creators of dagcoin took advantage of the situation where the field of virtual currencies was practically unregulated in Estonia. “Dagcoin was sold by companies holding a virtual currency licence, and the licences were deliberately advertised to add credibility. This brought about a dangerous situation, as the licences issued by Estonia gave investors the confidence and the courage to put their money into dagcoin, while in fact it was very easy to obtain a licence in Estonia and the reputation of our e-government was exploited. Although the laws have now been tightened, the virtual currency sector still needs constant supervision,” said Leho Laur.
The company’s licence to provide virtual currency services in Estonia was valid from 16 June 2020 to 15 June 2022.
According to Leho Laur, it is difficult to detect fraud because of the extensive resources criminals invest in large-scale fraud schemes. “Criminals often create websites that look genuine, imitate customer communication techniques of real companies and, for instance, pay profits to investors. These techniques are used to boost their credibility in order to swindle even more money and make bigger profits. When investing, it is important to be extremely cautious and bear in mind that every single investment carries a risk. The promise of high profits and zero risk is the first sign of danger," added the Head of the Economic Crime Bureau.
The investigation is being conducted by the Economic Crime Bureau of the National Criminal Police under the leadership of the Southern District Prosecutor’s Office.
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