Russian police officials are investigating one of the biggest alleged Ponzi schemes in the country involving cryptocurrency. One of the founders is under arrest, while others have reportedly left Russia. Victims’ losses might be up to $95 million.
The company, named Finiko, offered lucrative investment options using a network of promoters who pulled in new users for referral fees. Investors were supposed to put in bitcoin and get the native token of Finiko in return.
In July, Kirill Doronin, one of founders of Finiko, was arrested under fraud charges. Before the arrest, he obtained Turkish citizenship under a different name, Onur Namik. On Wednesday, Finiko’s other co-founders – Marat and Edward Sabirov and Zygmunt Zygmuntovich – were put on a wanted list by the Russian police.
Edward Sabirov was also a co-founder of a firm led by Nikolay Nikiforov, a former Russian minister of communications, which planned to build homes in Kazan, the city where Finiko was founded. Now, other partners are trying to expel Sabirov from the owners’ list by court action, according to data in the Russian arbitration court system.
About 100 people reported Finiko to the police, officials said, and the amount of claims totaled to around 70 million Russian rubles, or slightly less than $1 million. However, Russian business publication The Bell cited an anonymous source at the Bank of Russia that said Finiko might have accumulated up to 7 billion rubles, or close to $95 million.
Money siphoned out
Finiko operated between 2019 and 2021, offering investment opportunities via crypto, including a deposit service with 20-30% APY (annual percentage yield), The Bell wrote. Clients invested in bitcoin, which Finiko exchanged for its native token.
In June, Russian crypto new outlet Forklog reported that Finiko halted bitcoin withdrawals from its website, only allowing users to take out the native token FNK, which lost 97% of its value in three weeks.
Then, in July, Finiko stopped all withdrawals, Forklog reported, demanding that users first submit a package of documents, including their income reports, reports on the banking transactions for one year, a confirmation of tax payment for the previous year and a “recommendation letter” from their bank, among others.
The Bank of Russia put Finiko on the list of entities that “have signs of a Ponzi scheme.”
Sergey Mendeleev, founder of crypto exchange Garantex, believes that Finiko’s founders might have stolen even bigger amounts of money than The Bell reported, perhaps up to $1 billion.
“In January, the entire Moscow [crypto market] was on fire when Finiko cashed out about $100 million in just one week,” Mendeleev said.
He also pointed to a particular transaction of 1,023 BTC, which was sent, reportedly, from Finiko’s wallet in December.
“There was a scandal, of course, as people are not crazy about dealing with Ponzi money,” Mendeleev said. “But then it somehow calmed down. You can’t always tell whose money you’re dealing with, and Finiko’s bitcoin still hasn’t been labeled as scam funds [by blockchain tracing systems].”
Most people got involved in Finiko by word of mouth from their friends and relatives, who reaped generous referral fees for that, The Bell wrote. The same people who referred their friends might have been helping them buy crypto for the first time to invest in a lucrative venture, Mendeleev said.
Russian-language crypto Telegram channel Ghost_In_The_Block wrote in July about identifying Finiko’s crypto addresses. According to the summary published by the anonymous authors, Finiko’s USDT wallet processed more than 400 million USDT.
Blockchain analytics firm Crystal Blockchain identified 1.8 million USDC, 111.3 million USDT and 888 ETH tied to Finiko’s digital wallets, as well as 110 million native tokens. Kyrylo Chykhradze, product director at Crystal Blockchain, told CoinDesk that the funds were partially sent to the decentralized exchange Uniswap, as well as to some centralized exchanges.