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Dubai’s alleged crypto scams are raking in billions. Experts and US authorities have raised alarms about the increasing number of Ponzi and pyramid schemes in the UAE, often disguised as legitimate startups.
Experts argue that over the last decade, Dubai has quietly become a hotbed for a type of crypto scamming that has gone unreported in the shadow of crises at FTX and Binance.
According to US and international authorities, the other wave of enterprises isn’t only squandering client money, like Sam Bankman-Fried, or breaking anti-money-laundering regulations, like Changpeng Zhao.
Unlike FTX and Binance, these other companies allegedly deceive investors into handing over money for digital currencies that they may easily alter or never create. They create sparkling investment platforms and promise enticing returns that they support with capital from newer markets until the schemes collapse under their own weight, possibly a few months later, according to prosecutors.
Dubai’s biggest fraudsters – Details
As Dubai attempted to attract crypto companies in the 2010s, it is believed that scammers also established operations there.
Ruja Ignatova, a Bulgarian émigré, operated OneCoin Ltd. from Dubai between 2015 and 2017. According to US authorities, this was one of the largest fraud schemes ever perpetrated. Ruja Ignatova was included in the FBI’s ten most wanted fugitives list. One of her co-founders has pleaded guilty to fraud.
In another instance, after co-founding the Bitcoin-mining operation, Blockchain Global, Sam Lee relocated to Dubai in 2021 at the age of 32. He solicited individual investments from individuals in Australia, and the company collapsed and entered receivership, with creditors owed $38 million.
According to reports, the US authorities announced at the beginning of the year that they had charged Sam Lee, who was in Dubai, with conspiracy to commit securities fraud and wire fraud in absentia. They claimed that, as the co-founder of HyperVerse, he had orchestrated a crypto scheme that defrauded investors worldwide for nearly $2 billion.
The US Department of Justice and the Securities and Exchange Commission have determined that HyperVerse was a traditional Ponzi scheme, despite its assertion that it would generate returns as high as 1% per day through innovative blockchain-based strategies.
Sam Lee denied the accusations against him and insisted that any misuse of HyperVerse funds must have been attributed to another individual.
Lee then publicly stated that he was merely a “tech provider” and not the mastermind behind HyperVerse. He also attributed the company’s collapse to the mysterious new owners. Authorities in the United States disagreed.
Between 2021 and early 2024, the FTC received 200 HyperVerse complaints. Users from the US and dozens of other countries stated that the company cost them up to $200,000.
It included Rupert Honywood, a 67-year-old who was so impressed by HyperVerse’s promise that he sold the property he lived in with his wife and sent over £130,000 ($165,000) of their money to Lee’s organization.
Sam Lee also introduced Vidilook, a platform that compensated users for viewing advertisements after they paid an initial subscription charge. After a few months, Vidilook discontinued allowing users to withdraw their funds, and several individuals began to express their concerns.
California regulators also issued a refraining order to his investment company, We Are All Satoshi, in late 2023, describing it as a pyramid and Ponzi scheme.
We Are All Satoshi states that the California allegation is outdated due to Lee’s departure from the company, although it also maintains that its business model remains unchanged. Vidilook has ended its operations.
Ultron, a non-fungible token startup banned by Quebec authorities this spring, claims to have raised $200 million from investors. Vitaliy Dubinin, one of its primary salesmen, promotes its NFTs and gives crypto advice from Dubai’s bluest rooftop pools.
Josip Heit, the alleged mastermind of a $1 billion crypto scheme assessed by Texas’ securities regulator, settled fraud charges brought by numerous US states in September without admitting guilt.
UAE regulatory blindspots
To become the crypto industry’s global capital, Dubai has kept its crypto rules permissive as other countries tighten them. International authorities and public documents suggest it is home to a crypto scammer community.
The Financial Action Task Force placed the country on its “gray list” of countries that fail to combat illicit funds in 2022. Since February, it has worked to remove itself from the list and enhance its image through the Virtual Assets Regulatory Authority (VARA). So far, the largest fine the agency has issued was to the unlicensed crypto exchange OPNX, sanctioned $2.7 million.
Some countries tried to restrict Binance Holdings Ltd. from operating locally this spring after a $4 billion settlement with US authorities over money laundering and sanctions violations. VARA walked the opposite lane, granting the exchange a new license.
In February, the International Financial Action Task Force removed the UAE from its “gray list.” However, two months later, Transparency International, a good-government charity, stated that the Government had done little to dissuade fraud between its inclusion on the list and removal.
The UAE was told that it must continue to combat high-risk money laundering when it was removed from the gray list and continues to be subject to monitoring.
According to Utzke, a former IRS investigator, Dubai authorities have continued to prioritize economic interests. “They want to appear tough on crime,” he claims, “but they also want to be at the forefront of innovation.”
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