Crypto investors lost nearly $1 million as part of an international scheme involving fraudsters posing as managing directors at fake global investment firms in WhatsApp group chats, according to new SEC charges.
The SEC's Division of Enforcement disclosed the cases on Tuesday, marking the first two enforcement actions alleging relationship investment fraud. SEC Enforcement Director Gurbir Grewal said these types of scams pose “a risk of catastrophic harm” to retail investors as they become more popular with criminals.
In SEC v. NanoBit Limited et althe commission argued that the scammers impersonated financial industry professionals and encouraged victims to trade on fraudulent crypto platforms between October 2023 and June this year. Beginning in 2023, the defendants solicited NanoBit investors to join several WhatsApp groups featuring financial advice from purported industry professionals. (NanoBit was incorporated in 2023 in Colorado, and its officers or managers remain unknown, according to the SEC.)
In one case, investors were invited to a WhatsApp group led by a purported managing director and head of global research and investment strategy at a global investment firm. While someone with that name worked at the firm in question, the person in the WhatsApp group was a fraud.
The “pseudo-director” made recommendations for equity securities, which were supported by his assistant and several other members of the WhatsApp chat; according to the SEC, all are believed to have been part of the scheme.
After building investor support, in November, several defendants impersonating investment professionals asked channel participants to create accounts and trade on the NanoBit platform, even promising that cash investors could trade with it by logging in regularly.
According to the commission, the platform presented an interface that appeared to offer trading in dozens of crypto assets and allowed investors to view their alleged account balances.
“In reality, there is no evidence that a crypto asset trading platform existed and no evidence that any transactions were executed on the NanoBit Platform,” the complaint said.
The platform also pointed out that its “subsidiary,” NanobitUS Securities, was an SEC-registered broker and was affiliated with NASDAQ and Apex Clearing, which were all false claims, according to the SEC. To make larger investments, the schemes promoted several fake initial coin offerings, including Cosmic Energy and VTrade. NanoBit went so far as to issue fake whitepapers for ICOs, downloadable through the platform.
However, some investors eventually became suspicious.
An unidentified investor sent WhatsApp messages to customer support representatives (who were indeed participants in the scheme) when he was unable to make a withdrawal. Before the withdrawal was processed, he was told he owed $10,692 in what they called “Ghana Miner Fees”.
According to the complaint, he was kicked out of the WhatsApp group when he accused NanoBit of being an illegal business. Similarly, other investors were dropped when they asked NanoBit to process their withdrawals.
During this time, the defendants spent more than $2 million in foreign wires to bank accounts in Hong Kong held by various companies incorporated there, including funds from investors. A debit card linked to one of the companies named as a defendant was used to purchase concert tickets, meals and charter flights.
In one case, the SEC alleged that Zhao Tropical Deli (which is apparently a Hong Kong-based food chain), received $188,633.80 in “unaccountable wire transfers.” The defendants also sent investor funds to homeless crypto addresses.
The NanoBit platform was shut down in June; while some investors received “small transfers” of crypto assets after requesting withdrawals, the SEC expected fraudsters to do so to “legitimize” the scheme.
In total, about $7.2 million in crypto assets were transacted over the course of the scheme. At least 18 investors lost around $967,835 in crypto assets and other currencies. The commission speculated that the defendants appeared to be part of a “larger group engaging in ongoing fraud of a similar nature.”
In the other case involving the alleged fake platform CoinW6, the commission alleged that schemers pretended to be “young, rich professionals” who contacted victims on Instagram and LinkedIn and lured them into romantic relationships via WhatsApp.
They claimed that investors could get a return of 3% per day from the platform, but the investors' funds were wasted. According to the commission, when they tried to withdraw the money or profits, the fraudsters told investors that their funds were being held due to law enforcement investigations. Some of the schemes even tried to blackmail investors with “compromising” romantic chats from WhatsApp, according to the SEC.