The SEC charged two brothers with fraud this week for scamming around 80 investors of $60 million.
Jonathan and Tanner Adam, the individuals in question, promised investors guaranteed returns of 13.5% monthly.
Jonathan, the older of the two, also had three prior securities fraud cases.
This scam is a textbook example of a crypto scam, and here's how to spot these cases.
This week, the US SEC has charged two brothers, Jonathan Adam and Tanner Adam, with acting as the masterminds of a Ponzi scheme worth a staggering $60 million.
This scam involved a crypto bot that, according to the 26 August complaint filed by the SEC in the Northern District of Georgia, simply didn't exist.
The agency claimed that the brothers managed to deceive more than 80 investors into investing in this bot that promised guaranteed (and unrealistic) returns.
How did this happen, and what are some of the signs that would’ve given this away as an obvious scam?
According to the SEC, the Adams brothers told investors that their trading bot could generate an average of 13.5% in monthly returns by fishing out arbitrage opportunities across several platforms and taking advantage of them.
They went further to assure investors that the funds they provided would be pooled into a lending program that the bot could use to create flash loans and complete trades.
However, at the end of the day, the entire operation was a fraud and there was no trading bot or even a valid investment strategy in place.
Charged with fraud
Instead of coming through on their promises, the brothers splashed around $53.9 million of the $61.5 million they amassed on lavish lifestyles, expensive vehicles and a multi-million dollar condo.
They were also careful to give some investors partial returns to keep the scam going for long enough.
So far, the SEC has issued asset seizures on both of these brothers and their companies, GCZ Global, LLC and Triten Financial Group LLC.
The agency also claims that the Adams brothers outrightly misled investors and downplayed the risks involved while presenting their venture as nearly risk-free.
Jonathan Adam also failed to mention to investors that he had three prior convictions for securities fraud.
Overall, the agency is prosecuting the brothers for all-out fraud and is seeking permanent injunctions against their companies, the forfeiture of all funds obtained through the scheme, as well as civil penalties.
The project presented by the Adams brothers had several red flags, the most obvious of which was the "risk-free" value proposition they offered investors.
One of the major signs that a venture is a scam is the promise of ridiculous and guaranteed returns.
No investment strategy could have guaranteed investors 13.5% monthly returns as the brothers claimed to investors—let alone a crypto-related one.
The crypto market is very unpredictable, which is one of the biggest reasons guaranteed returns are virtually impossible.
The second red flag was the sophisticated investment strategy.
Ponzi scammers typically attempt to confuse investors with complicated investment strategies, which is what the Adams brothers did with the “bot, lending programme, flash loan and trading” strategy.
The third and most obvious of these red flags was the lack of registration.
Ponzi schemes are typically unregistered investment projects, considering how legitimate companies are usually required to submit details about their revenue models to the SEC and all other related agencies.
Overall, the $60 million scam on 80 investors, while tragic, could have been avoided.
With this being said, investors must always remember that if an investment strategy sounds too good to be true, it probably is.
Disclaimer: Voice of Crypto aims to deliver accurate and up-to-date information but will not be responsible for any missing facts or inaccurate information. Cryptocurrencies are highly volatile financial assets, so research and make your own financial decisions.