Dubai’s Alleged Crypto Scams Are Raking in Billions

Over the past decade or so, experts say, Dubai has quietly become a leading home for a strain of crypto scamming that’s gone relatively unnoticed in the shadow of scandals at the level of FTX and Binance. According to US and international authorities, this other wave of companies isn’t just misusing customer money, like Sam Bankman-Fried, or violating anti-money-laundering laws, like Changpeng Zhao. FTX and Binance were still running exchanges that mostly worked. These other companies allegedly sucker investors into handing them money for digital coins the companies can either easily manipulate or simply never create. They develop shiny-looking investment platforms, then promise mouthwatering returns that they finance with capital from newer marks right up until the scams collapse under their own weight, perhaps a few months later, prosecutors say. On top of that, these platforms often grow exponentially by promising higher returns to those who can also bring in new investors—usually their friends and family.

Employing old-school tactics and usually keeping low profiles, those behind these alleged Ponzi and pyramid schemes have taken in a large haul. Since 2017, five of them have defrauded victims of more than $3.4 billion in total, according to US charges, which rank Lee’s ( an Australian investor  who as the co-founder of a company called HyperVerse orchestrated a cryptocurrency scam that bilked investors around the world for almost $2 billion – US authorities announced that they’d charged Lee in absentia ) operation at the top of that list. Dozens of other people whom US and international authorities have accused of operating similar schemes are also based in Dubai, according to public records and communications with some of those involved. The vast majority of the accused have continued to operate their businesses without serious legal repercussions. Pyramid and Ponzi schemes are illegal in the UAE, as are all investment scams, but prosecutions are few and far between, says David Utzke, a former crypto investigator for the US Internal Revenue Service. “There’s a sense in the UAE that criminals are allowed to come in and do whatever, as long as they’re not harming local citizens.”

The schemes are proliferating at a delicate moment for the UAE’s standing in the world of finance. In 2022 the nation was placed on the international Financial Action Task Force’s “gray list” of jurisdictions that don’t do enough to tackle illicit funds. It took steps to get itself removed from the list and has continued polishing its image since it succeeded this past February. But it’s kept its crypto rules loose, even as other countries tighten theirs, in a sustained bid to become the industry’s global capital. Now, according to international authorities and supported by public records, it appears to be home to a crypto scammer colony.

The US Federal Trade Commission received about 200 complaints against HyperVerse or some version of it between 2021 and early 2024. People from the US and dozens of other countries reported that the company had cost them as much as $200,000 apiece. “Now that it’s time for me to get my money out of there, they put it in ‘pending’ and won’t let me have it back,” wrote an investor from Palmdale, California. In the English city of Reading, therapist Diksha Chakravarti invested £14,000 of her nest egg, impressed by video presentations that showed the Burj Khalifa in the background. She lost all of her stake, and so did the friends and relatives who heard her talk up the investment. She’s since made back some of her money through a wealth recovery company that negotiated reimbursement with her bank. “I never had aspirations to be a millionaire, but I wanted to have something for retirement,” says Chakravarti, who’s 67. “I would have liked to have retired by now.”

In some cases, Dubai’s justice system can be punishing. In 2016 a phony foreign exchange company called Exential Group was revealed to have conned thousands of Emiratis out of hundreds of millions of dollars. The company was shut down by Dubai authorities, and a Dubai court sentenced the company’s two Indian operators to 513 years in prison and imposed the same sentence in absentia on one of their wives. More broadly, however, the country has yet to legislate explicitly on crypto crime.

The UAE has responded, in its way, to international pressure. In 2022, after the country was placed on the international gray list, the government said it would prosecute more cases tied to illicit finance and increase cooperation with international law enforcement agencies. Dubai, for its part, created a crypto regulator called the Virtual Assets Regulatory Authority. So far, the largest fine the agency has issued, against the crypto exchange OPNX for operating without the proper license, is $2.7 million. This spring, while Binance Holdings Ltd. was reeling from a $4 billion settlement with US authorities over allegations of money laundering and sanctions violations, some countries took steps to stop it from operating locally, but VARA issued the company a fresh license.

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