CHAPTER 19
BILLIONAIRES—ON PAPER
He who tells a lie is not sensible of how great a task he undertakes; for he must be forced to invent twenty more to maintain that one.
—Alexander Pope
On January 13, 2017, thousands of OneCoin investors around the world logged on and checked their wallets and today’s price. Things had been going pretty smoothly since the new blockchain launch—the price had continued increasing and thousands of new investors were joining. Checking in on their coins was a daily ritual for some of them—just seeing the numbers somehow made them feel rich already. But anyone who switched tabs and logged into xcoinx that day hoping to exchange a few of their coins into Euros was not greeted with the familiar homepage, but a worrying new message:
The Site is Currently Under Maintenance. XCoinX is currently undergoing a system upgrade, which will bring OneCoin to a whole new level, improving every aspect of the trading experience
Even though there had been technical problems and withdrawal limits on xcoinx ever since its launch in 2015, the existence of a quasi-functioning exchange site was always proof of last resort to investors, evidence that OneCoin had a real-world value. And thousands of investors had successfully “cashed out” at least some of their coins on xcoinx over the previous year. Overnight, and with no prior warning, even that small pipeline was cut. Some had thousands of OneCoin in their xcoinx trading account, queued up ready to exchange.
For some investors, the sudden closure sparked panic. By this point, Christine Grablis from Tennessee owned tens of thousands of OneCoin with a nominal value of over a million Euros. She, like hundreds of others, texted her upline (who had recruited her), who told her not to worry—it’s just a “glitch,” he promised. But, in truth, the senior promoters didn’t know what was going on either and watched in horror as their inbox filled with questions and demands from angry downlines. And Sofia HQ wasn’t answering calls.
A simple calculation around this time ought to have persuaded any sane investor that the closure of xcoinx was inevitable. When OneCoin’s “price” hit a new high of €7.85 on November 25, 2016, its “new” blockchain was mining 50,000 coins every minute. (Bitcoin by contrast mined just 12.5 every ten.) In other words, Ruja’s secretive cryptocurrency from Bulgaria was creating over €500 million out of thin air every 24 hours. Even in the high-return world of cryptocurrency, this was absurd. Obviously xcoinx could never pay all that out—even paying 1.5 percent of that was prohibitively costly. And, little known to investors, after the excitement of the Bangkok coin doubling, revenue from new recruits was drying up, falling from £239 million in November 2016 to less than half that the following month.
There were some people for whom xcoinx’s unexpected closure finally tipped the balance and persuaded them OneCoin was a lie. A handful of others had watched Bjørn Bjercke’s YouTube videos about his tests, or read the BehindMLM article that documented Bjørn’s discovery a few days after xcoinx went offline.1 For others, it was a gradual realization that the reality and the promise were drifting apart. Layla Begum, the council worker from London who’d invested her entire life savings equivalent to around €60,000 by this point, grew increasingly wary of her upline’s excuses. Although she’d been told originally that she could get her money out any time, whenever she asked Saleh he was vague and evasive. By late November 2016, she became increasingly panicked and texted Saleh: “I’m extremely distressed pls return my money.” But although her OneCoin account looked healthy, the money was frozen in space, immovable. “There is a way u can have that back instantly,” replied Saleh. “You have to lie though. You have to say to your bank you didn’t do that transaction [to OneCoin].” Layla wasn’t prepared to lie to the bank.
But despite BehindMLM’s articles, Bjørn’s tests and xcoinx’s closure, still many investors continued to believe as fervently as ever. Why?
Good scams aren’t about facts or logic. They are built on the manipulation of common human irrationalities: hope, belief, greed and, above all, by the nagging “fear of missing out,” FOMO. Websites that say “currently under maintenance” or YouTube videos by technical experts are no match for these impulses. Although OneCoin investors were victims, they weren’t entirely without blame. FOMO is driven by a desire to get rich quick, a willingness to replace work or effort with a risky bet. Many of the top promoters, including Igor Alberts, also felt investors were partly at fault. “I felt responsibility,” Igor said later. “Not guilt.” Victims, he thinks, should also have looked into it properly themselves. “This is the risk of life… I told people always: where you can win, you can lose.”
Nevertheless, the sophistication and audacity of OneCoin made it hard to resist. OneCoin was technically three different scams rolled into one. It was primarily a Ponzi scheme, since it was based on the Ponzi accounting trick of paying early investors using money from newer ones. But it was also a pyramid scheme because it recruited new investors using the MLM model, without any real product. Ruja’s masterstroke was to take these two well-rehearsed scams and lay a fake cryptocurrency on top. That allowed her to cover the lies with exciting promises of a “financial revolution” and confusing technical language. The combination rendered facts and logic irrelevant.
Ponzi schemes are named after Charles Ponzi, the genius huckster who conned thousands of Americans in 1920 by promising 50 percent returns within 45 days if they invested in his clever-sounding “international postal reply coupon” scheme. When hundreds who put their money in received their 50 percent back, thousands more rushed to join. It was all a sleight of hand—the new money was just paying the preceding round of investors, who in turn would became unwitting recruiting sergeants for the next round.2 Charles Ponzi’s scam was not the first of its kind. But it became so widely known that the name stuck.
Borrowing from Peter to pay Paul can’t work forever, which is why in the end all Ponzi schemes collapse. But a well-run Ponzi can run for years, sometimes even decades, as long as fresh money keeps flowing. The trick is to identify the payout sweet spot that exploits human greed without causing bankruptcy. If a scheme pays too little, then no new recruits will join the merry-go-round; but if it pays too much, the scam will quickly run out of money. For decades, Bernie Madoff, a well-respected fund manager from New York, had found that spot: His company paid investors a market-busting 10 percent return for forty years. In public he said it was thanks to “sophisticated trading techniques” that only he understood, but behind the curtain there were no investments, no trades, nothing: just a lot of fake accounting and schmoozing. But, just like with Charles Ponzi, investors got their money on time every year, which meant there was always a line of excited Peters and Pauls outside his door. A Ponzi scheme exploits FOMO by making sure enough people really are striking gold so the word gets around. It’s one of the most powerful of all human irrationalities. A Ponzi scheme in Albania in the early 1990s hoodwinked so many people that it almost resulted in the whole country tumbling into a civil war.
Unlike all Ponzis before it, OneCoin had two payouts. First the weekly 4 PM “Happy Monday” sale commissions, based on the volume of sales generated in a promoter’s downline that week. Despite the banking problems faced by Ruja, it normally arrived on time. But only 100,000 or so of the roughly one million OneCoin investors actually recruited enough other people to make decent sales commissions. The overwhelming majority simply bought a package and waited for the value of their holding to grow. This is why the second payout was so important. Until its closure, many OneCoin investors were able to, in theory, exchange their OneCoin on xcoinx for Euros at whatever price was listed at the time: €0.5 in January 2015, €4.45 in January 2016, €7.85 in November 2016. Whereas the commission payments were reliable, xcoinx had those daily withdrawal limits of 1.5 percent and half the time the website didn’t work at all. But the company always allowed just enough withdrawals—roughly €10 million a week according to internal accounting documents—to produce a steady stream of believers who would then evangelize to the next round of victims, just as Ponzi and Madoff’s investors had done. The lucky ones who managed to withdraw experienced something close to a religious conversion and happily deluded themselves that the balance in their OneCoin wallet was just as real as sterling or yen. It was such a powerful feeling that even when xcoinx went offline, most were willing to believe it would only be a short delay before the coin would finally go public on an even bigger, even better exchange.
OneCoin’s Ponzi payout system sucked people in, but it was the pyramid recruitment that persuaded them to stick around. Friends would tell each other about this incredible new “opportunity” they’d discovered. Have you heard about Bitcoin? Well, there’s this new one, which—Layla Begum recruited her mother and brother; Daniel from Uganda convinced his mother to invest. Entire friend and family networks, some stretching continents, got tied into the scam together because they desperately wanted to share their good luck with their loved ones. But this meant that admitting the whole thing was a fraud would also mean admitting they’d inadvertently scammed their own friends and family. The line between perpetrator and victim in pyramid schemes is not obvious. Many were both. That might have stopped some people from complaining about the people above them, in case the people below them did the same. Christine Grablis, the OneCoin investor from Tennessee, would later confess that it was “embarrassment” that kept her believing.
In other words, people desperately wanted to believe and Ruja encouraged this self-delusion by always making sure any bad or suspicious news was accompanied by a dazzling new announcement. That’s why she doubled everyone’s coins (good news!) when she unveiled the new blockchain (bad news).
When xcoinx went offline, Ruja had two exciting new projects ready to soften the blow. First, OneCoin was going to become the first cryptocurrency to be listed on a “major stock exchange,” meaning ordinary people could start buying share options in the company. This would be done via an “Initial Public Offering,” commonly known as an IPO. Ruja invited all investors to go online and turn their coins into share options, which would be redeemable for the share price as soon as the company was listed. (Some advisers at the London RavenR Capital office thought an IPO was a bad idea because there was little prospect that a hybrid MLM-cryptocurrency would clear the regulatory hurdles that come with selling shares to the public.) Second, OneCoin launched a new e-commerce platform, called “Dealshaker,” where investors could spend their coins in exchange for real, physical products. An Amazon or Groupon, but where payments were made in OneCoin.
The key to the OneCoin scam was Ruja’s genius for the just-good-enough. Everything about OneCoin was fake, but she somehow always made it appear plausible. The blockchain, the audits, the education packages, xcoinx—even the Cryptoqueen herself—were all imitations that outsiders found risible. But they were always just-good-enough for anyone desperate enough or invested enough or greedy enough.
Nothing epitomized the power of just-good-enough like Dealshaker. The site was created and maintained by Duncan Arthur, the South African bank compliance specialist who would later find himself being questioned at Los Angeles airport with Konstantin. Ruja initially recruited Duncan in late 2016 to help with the IPO but he came up with the idea of creating a sales site instead. When Ruja first announced Dealshaker just a few days after xcoinx disappeared, she promised it would be a groundbreaking, million merchant platform. “A huge new e-commerce site,” she said in a slick pre-recorded announcement released on January 15, 2017, which would deliver on the promise of “cryptocurrency for the masses.” What investors actually found when they first logged on to Dealshaker in February 2017 was a glorified online flea market. Anyone willing to accept OneCoin as payment could sign up and start selling, but nearly every merchant was a OneCoin promoter and there were only a few hundred products for sale, mostly from Russia or China. Typical products included beard oil, online education courses, marketing DVDs, duvet covers and amateur art. Luxury items like five-star hotel rooms or cars were listed, but the links to purchase very rarely worked.3 And in the unlikely event an investor managed to find something they actually wanted, OneCoin charged a commission of up to 25 percent. Prices (which were typically set 50 percent in Euros, 50 percent OneCoin) were so inflated that the Euro price alone was often more than the RRP price on Amazon. (The HyperX Cloud Revolver gaming headset, for example, cost €107 on Amazon; on Dealshaker it was €200 plus 31 OneCoin.) To make things worse, the site was also riddled with its own sub-scams.4 On day two, Duncan, who was jetting around the world training local franchise holders about how to run Dealshaker in their countries, woke up to find someone had sold a counterfeit handbag. A few weeks later, he deleted a merchant from a small village in China that was selling Louis Vuitton handbags for €19,000 plus 2,000 OneCoin. One morning in March 2017, he removed a Pakistani man who was trying to sell his kidney for 100 percent OneCoin.5 The worst of all was when a group of Chinese miners clubbed together and paid €200,000 in real money on Dealshaker for some cars, which never arrived. The miners blamed OneCoin and turned up at the office in Hong Kong, threatening to kill themselves if the money wasn’t returned. When the Hong Kong boss Fernando Rhys messaged Ruja about this, she said, “I will not pay for members’ stupidity. I am sorry; this will set a precedent that is simply not acceptable.” Her only concession was to give them double the value of their OneCoin back—which, amazingly, they accepted.
All in all, Dealshaker might have been the worst e-commerce site to have ever graced the internet. Ari Widell, the guy who first contacted Bjørn, dubbed it “Deal-shitter.” But investors didn’t see Dealshaker for the unwieldy, ugly, overpriced, scam-ridden site that it was, just as they didn’t see the private blockchain as suspicious, or the xcoinx withdrawal limits as deeply worrying. Hundreds of OneCoin investors logged onto Dealshaker each day and started sending OneCoin (and Euros) to merchants in exchange for insect repellent, pan pipe CDs and nail varnish. Within weeks, OneCoin events included a “Dealshaker Expo,” where vendors would set up physical booths advertising the products they were selling on the platform, and top promoters were instructed by Ruja to start recruiting merchants as well as investors. (Recruiting merchants also generated commissions.) Duncan Arthur later claimed he believed OneCoin was a legitimate business at the time, but would also admit that Dealshaker re-energized the network just at the point it was most vulnerable. “I was responsible for keeping this scam going for longer than it should have.” Investors believed in it for the same reason they believed in OneCoin: because they wanted to.
Dealshaker was more than a life raft for worried investors; it was also a smart way to draw focus away from OneCoin’s increasingly exposed Ponzi-pyramid business model. In one email sent to her legal advisers in January 2017, Ruja said she would “like to position [Dealshaker] as our main area of business, not the classic education packages, with tokens… there is no way on this platform to be a pyramid/Ponzi,” before adding “what are your thoughts how we can utilise this for improving online reputation, standing with regulators, investigations etc???” (Their reply is not known.)
But even with the just-good-enough imitations, the sticky pyramid recruitment and twin Ponzi payouts, nobody expected OneCoin to get as big as it did nor last for so long. But it was helped by an unexpected rival. By 2016, the whole world had the crypto bug, and each week serious magazines wrote how this strange new money was about to revolutionize banking, shopping, land registries, money transfers, international trade and much else. By early 2017, Bitcoin had entered a self-fulfilling hype cycle. Thought leaders, consultancy firms and other tech cheerleaders all said it was “the future” for fear of looking Luddite. And it became the future because everyone started buying it on the basis it was.
When xcoinx was taken offline and Bjørn Bjercke started publishing his findings about the OneCoin blockchain on YouTube and BehindMLM, OneCoin should have collapsed for good. But then Bitcoin went on a record-breaking bull run. Its price broke $1,000 in March 2017, then broke $2,000 in May, $3,000 on June 12, $4,000 on August 12, and $5,000 on September 1. Suddenly cryptocurrency seemed like it was the future, after all—and the promise that OneCoin would match, and even surpass, Bitcoin’s price rally was so tantalizing that investors were happy to ignore any lingering doubts. It was nicer to dream than to think.