CHAPTER 15
PROJECT X
Hong Kong, Summer 2016
No one knows exactly how the meeting came to pass. Maybe it was via Ruja’s long-standing contacts in finance. Perhaps Dr. Hui’s fascination with cryptocurrency allowed him to be bewitched by the crypto businesswoman with a new office in Hong Kong. However it happened, a few days after the London event, Ruja found herself sitting at a meeting room table in Hong Kong with Sebastian, Hong Kong’s second richest man, Dr. Hui Chi Ming, and, reportedly, Neil Bush, the brother of one former US president, and son of another. They were discussing a deal to buy an African oil field.
Dr. Hui was one of Hong Kong’s most powerful men, a billionaire Beijing loyalist with a glittering career. Born into a poor family in Guangdong province in 1964, Hui epitomized the ambition and drive of Deng Xiaoping’s “new entrepreneurs.” He was the youngest ever recipient of the Order of the Bauhinia Star—a civilian honor equivalent to a Commander of the Order of British Empire medal, something he’d earned for his work on poverty reduction in the country. His loyalty and drive helped him build a fortune in property and then energy, where he became the boss of one of the country’s largest energy companies, Hoifu. At the turn of the century, Hui purchased—in a deal that upset some of the locals—9,000 square miles of oil-rich land in Madagascar, called “Area 3112.”1 There was approximately $4 billion worth of untapped oil under Area 3112, all owned by one of his companies, called Barta Holdings.
Dr. Hui was also a technophile with a keen interest in cryptocurrency and, given its popularity in both Hong Kong and mainland China, it is hardly surprising he knew of Dr. Ruja. And he was prepared to sell Barta Holdings—and its oil field—to Ruja for $560 million. Dr. Hui was keen on the deal. According to later court testimony Neil Bush—who had a long-standing relationship with Dr. Hui and sat on the board of some of his companies—reportedly flew over to attend too. Ruja loved being surrounded by rich, smart people talking about big deals. She proposed paying $60 million cash up front and the remaining $500 million in OneCoin at the-then price of €7 a coin. She told Dr. Hui that as he exchanged his coins back into real money Ruja would own an ever-increasing portion of the land. “I think this is a very innovative idea,” Dr. Hui said at the time. According to someone close to the deal, Ruja called it “Project X.”
When Ruja sent the details about Barta Holdings and Area 3112 to her RavenR Capital advisers, Gary Gilford later recalled that staff there tried to talk her out of the deal entirely. But Ruja, for reasons no one fully understood, had her heart set on Area 3112. On July 7, 2016, Dr. Hui and Ruja signed a “term sheet for future cooperation,” which outlined the prospective deal. It revealed that, for Ruja at least, there may have been more to this transaction than simply a purchase of land.
Ever since OneCoin hit momentum in late 2014, the company had been growing in almost every country on earth. But nowhere was quite like China. The country fell in love with Dr. Ruja in the same way it had fallen in love with Bitcoin two years earlier. Network marketing and cryptocurrencies were both enormously popular with the opportunity-hungry middle class and OneCoin’s promise of a “centralized” blockchain was more in tune with the politics of the nation than Bitcoin’s libertarian origins. By the time Dr. Hui and Ruja met, roughly €1.5 billion had been invested from Chinese investors alone. One man who’d spent 23 years wrongly imprisoned even spent all one million yuan of his compensation money on OneCoin.
Notwithstanding the country’s importance, however, Ruja had never managed to acquire an official network selling license for mainland China. She had tried in 2015 and 2016, but her applications always got ground down in China’s confusing licensing systems—and neither cryptocurrency nor education were “approved products” permitted under MLM rules. (In fact, at some point in mid-2016, the Ministry of Public Security in China opened an investigation into OneCoin.)2 As OneCoin continued to grow and grow, Ruja grew increasingly worried that the Chinese authorities might move against her.
The deal with Dr. Hui appears to have been, for Ruja’s part at least, a hedge against the risk of her Chinese market collapsing. The “term sheet” stated that Dr. Hui would “support OneCoin in becoming a recognised and as official a currency as possible and strive towards granting it a banking license making the work easier in China.”3 In addition to the $560 million, Dr. Hui would be given his own downline of OneCoin promoters and could take a small cut of their sales. (Dr. Hui later explained that he understood the true meaning of this statement of support was to ensure the payment of $560 million made in OneCoin could ultimately be redeemed as official currency, and was not an indication that he personally supported the project, in which he had no stake.)
Shortly after signing the term sheet with Dr. Hui, Ruja told Mark Scott she wanted this strange deal run through the Fenero Funds.
The problem was that the Fenero mission statement stated that the fund invests in “struggling EU technology companies,” not oil fields in Africa. It was therefore unlikely Apex would sign off an investment so far outside the fund’s stated objectives. But Ruja, as usual, had a solution. She already owned an EU-based technology firm, which she’d set up years earlier. The “CryptoReal Investment Trust,” which was registered in Zurich, was an aborted effort to create her own investment fund in 2012, but she’d never disbanded the company. (It was the company she’d pitched at her final BigCoin event with Sebastian in July 2014.) Ruja’s German lawyer Martin Breidenbach was appointed director and owner. A power of attorney was drafted around this time, which gave Ruja control over the company. (It is not known whether this was ever signed.)4
Mark informed Apex that he had found a second investment opportunity for Fenero: a $30 million loan to a technology company called “CryptoReal Investment Trust” that was owned by a German lawyer called Martin Breidenbach. He explained that CryptoReal was planning to buy an oil field in Madagascar, and the Fenero Funds wanted to lend money toward the deal and earn interest from the loan. On July 12, Mark wrote to Apex formally requesting the payment of $30 million be processed. “Purpose: Loan to CryptoReal Investment Trust Ltd (BVI) Martin Breidenbach for acquisition of Madagascar oil field.”5
Loans to German lawyers for oil fields in Madagascar wasn’t a standard deal, even in the complex world of private equity. Paul Spendiff thought it was on the “very edge” of what was in the mission statement. But Apex received a reassuring letter from Martin Breidenbach, signed off on the loan and wired $30 million over.
That was when things started to come apart.6
Dr. Hui wanted his second $30 million by August 4, 2016. By now, over €100 million had been sent to Fenero Equity Investment LP. But there were other deals and commitments (including a transaction Ruja had lined up for buying 29 industrial extraction and haulage vehicles in Venezuela), and it’s possible the fund needed more money in order to make the second payment.7 Not only that, IMS Germany—which had been the most active investor—was now being seriously investigated by the German authorities, following that tip off months earlier. (The Münster public prosecutor ended up freezing an IMS bank account in mid-August 2016.)8
On short notice, Ruja told Mark to fly to Sofia to talk in person.9 He left Florida on July 19 and was met in Sofia the following day by Ruja’s armed bodyguards. “Even police is polite. LOL,” Mark texted his partner, Lidia, who was back in Florida. When he arrived at OneCoin HQ, he was greeted by Konstantin, now settled into his new role as Ruja’s PA, who gave him a drink and took him up to Ruja’s office on the fourth floor.
According to Konstantin, Ruja sent everyone on the fourth floor home. Exactly what was discussed is not known, but based on what happened next it’s probable Ruja wanted to discuss a new investor called “Star Merchants,” which she would use to send more money. The next morning, Mark returned to the airport and flew 20 hours back to Florida. Before he took off, he texted his wife: “Earned another $175K today… And hanging [out] with Ruja may be about 25 [million] in next 18 months.”
One week later, Mark messaged Apex to say he’d found another big investor for Fenero: a Hong Kong company called “Star Merchants” run by a businessman called “Zhoulong Cai.”10
Paul Spendiff didn’t like it. He was increasingly unhappy with the information he had on B&N, Irina Dilkinska, and IMS. And now there was Zhoulong Cai too. He emailed Mark asking for further paperwork. “Need to talk,” Mark emailed Irina. “Due to high amounts administrator wants more information. We can handle but need to coordinate.” Even Ruja was nervous, unusually emailing Mark from a long-haul flight demanding updates.
Paul had worked in fund administration long enough to know when something didn’t feel right. Over the weekend of June 30 to July 1, he sat at home examining all Mark’s letters, incorporation documents, mission statements and bank accounts, trying to work out the relationship between all the different parties. Anti-money laundering laws require that fund administrators like Paul are confident that a client’s wealth has been acquired legally. As he was scanning back through the Fenero files, Paul spotted that Mark had emailed him with a few more documents about this mysterious new investor, Mr. Cai.
But Mark had made a big mistake. He had accidently forwarded an email to Paul without first checking the thread that came below it. Fund managers are notoriously busy, and forwarding sensitive emails is a common error. Fund administrators are trained to “check the thread” because it can be a useful source of information about a client and sometimes even reveals who’s really in charge.
Paul scrolled down the thread and spotted an email address he’d not seen before. It was Irina@onecoin.eu.
He started Googling and found a Daily Mirror article from a few weeks earlier: “Who wants to be a OneCoin millionaire?” ran the headline. “YOU don’t—here’s why hyped-up web currency is virtually worthless.” The founder, Paul learned, was a Bulgarian woman called Dr. Ruja Ignatova. It was a name he hadn’t heard before.11 A few clicks later, he was on the website BehindMLM.
By now, BehindMLM had turned into a one-stop-shop for anything to do with OneCoin. Its armchair sleuths—people with usernames like “Passerby,” “MelaniefromGermany” and “WhistleblowerFin”—had collectively posted tens of thousands of times about the company, accumulating a publicly accessible gold mine of information about Ruja and her cryptocurrency. They dug up old company records in Gibraltar, scoured YouTube videos looking for familiar names, spent hours researching top promoters. Everything they found they posted on BehindMLM. The site had become such a nuisance to Ruja that she banned everyone who worked for OneCoin from visiting it, a rule they mostly ignored. One particular talent of these citizen journalists was finding and identifying the senior staff who worked at OneCoin’s head office. As he scrolled down Oz’s slightly old-fashioned looking website, Paul Spendiff learned that Irina Dilkinska wasn’t simply a “wealthy European investor” looking to put her vast wealth into a fund. She was head of legal and compliance at OneCoin’s HQ in Sofia.
Why hadn’t Mark ever mentioned OneCoin before? And how come an ordinary member of staff had so much money?
When Paul arrived at the Apex London office on Monday morning, he immediately called an emergency meeting with his risk and compliance teams. Now that he suspected foul play, there were procedures to follow. He sent a “suspicious activity report” to the UK’s Financial Intelligence Unit, which is a legal obligation if a firm like Apex believes criminal activity might be taking place. Although Apex could continue to ask Mark questions, they couldn’t alert him about their suspicions in case that constituted tipping off. The compliance team agreed that Paul should play dumb, refuse to move any more of Mark’s money and secretly record any subsequent calls.
“I am very, very dissatisfied with what’s going on here,” Mark told Paul in a phone call on August 9, with the second payment to Dr. Hui for the Madagascar oil field now overdue. He was clearly panicked. “We’ve really pushed to a level of due diligence here that we do not experience in our other funds… And we’re getting to a point where we have investors who are leaving.”
“We never seem to have a complete picture in terms of the involved entities,” replied Paul calmly. He knew, of course, that the call was being recorded. Everything had to be done exactly by the book. In order to process the second payment, he needed proof of how Irina made her money, and now, how OneCoin fit into all this.
“What do you mean complete picture…?” asked Mark.
“It’s become very difficult to get… the due diligence we require to provide us with the comfort in source of funds,” said Paul.
Mark was irate. He threatened to sue. He protested. He complained. He wanted the money out. “Every little piece of paper was sent to Apex,” Mark shouted. “You are screwing up our business!”
It’s normal for fund managers like Mark to lean on their fund administrators, to pressure them into making payments. But Paul wasn’t going to budge. “No money is going out today,” said Paul. “And not tomorrow, or until we can clear this up one way or the other.”
The next day Mark cleared it up the only way he could: he fired Apex.
Five days later, Mark was back in the Cayman Islands, where he re-registered the Fenero Funds with a new administrator. (Strict privacy rules in the Caymans make it impossible to know whether the second payment was ever processed. However, according to Dr. Hui’s spokesperson, Ruja never made the second payment even though the share transfer took place, and he is currently working with the Madagascar government to revoke the deal.)12
With the funds re-registered, the money started flowing again too. IMS Singapore sent another €60 million into the Fenero Funds. Within a few weeks, IMS Singapore sent over another €34.5 million. Star Merchant, run by Zhoulong Cai, sent €95 million. Now that things were back on track, Mark started spending some of his earnings. 13 In October 2016, he paid off the remaining $1 million balance on his house in Coral Gables, Florida. A few days later, he purchased a $2.8 million house in Cape Cod outright. Before the year was out, he’d treated himself to a 2011 Ferrari 599 GTB, a $121,000 emerald engagement ring for his girlfriend and half a million dollars’ worth of watches and luxury handbags. In the end, Mark earned around $40 million for his work.14 But not before the truth would finally emerge about OneCoin’s blockchain. News which would transform Mark’s cleverly designed Fenero Funds into something else entirely.