What is it about money that brings out the worst in people?
Although the 2018 bear market sent many scammers back into their hiding holes, the recent bitcoin price boom has provided an opportunity for unscrupulous and unethical individuals to con unsuspecting people of their savings.
And they have.
It’s no secret that Africa is a hotbed for crypto scams. Bad actors based in either Europe or the United States target and exploit uneducated and often poor Africans with investment opportunities that promise outstanding results within a short time.
The swindlers then disappear several months after setting up business leaving the poor investors out of pocket.
Crypto scams have resulted in many Africans losing confidence in digital currencies. If you were to mention bitcoin to anyone whose family member has fallen victim to a scam, you’d probably be met with a quick objection and reasons why bitcoin itself is the biggest scam ever.
In this article, I explain some of the worst bitcoin scams to have hit the African continent — scams that have contributed to the slow rates of bitcoin adoption in Africa.
Let’s dive in.
Mavrodi Mundial Moneybox (MMM) is one of the oldest and largest Ponzi schemes in the world. Founded by Sergei Mavrodi, a convicted Russian fraudster, the company has been in operation since 2007 — with on-and-off operations in different countries.
The rise of Bitcoin propelled MMM’s entry into the African space in 2012. In Kenya, MMM became popular in late 2017, which is when I first heard of it. A friend’s mom tried to convince me to join the outfit as her referral. While trying to convince me to join, she promised 50 percent return on my bitcoin/cash investment.
Long story short, I didn’t join due to lack of funds to pay for the membership. This lack of funds was a blessing in disguise, since MMM came crashing down a few months later after its founder died.
Before coming to Kenya, MMM had previously scammed thousands of South Africans and Nigerians out of their savings using a similar approach to the one used in Kenya.
The MMM approach to the African market took advantage of Bitcoin’s promise to free people from banks and social inequality. In both Nigeria and Kenya, MMM claimed to be a mutual fund platform where users would contribute their bitcoin to a common funding pool and, in turn, realize 50 percent returns on their investments.
2. Nigerian Calabar Company
Nigerians have garnered a negative reputation of being online scammers, so any news of Nigerians having being conned is seen by some as karma paying them back.
Such was the case in April 2018 after a Bitcoin company based in Calabar, Nigeria, disappeared with millions of Nigerian naira in client investments.
According to the Guardian, over 1,000 people had invested in the bitcoin trading company after being promised quick returns — up to 30 percent interest in one week. However, several weeks into operation, the company shut down, leaving investors stranded.
After this scam, the Nigerian government warned its citizens against investing in cryptocurrencies indicating the negative impact that scams have on bitcoin adoption.
3. BTC Global
If it sounds too good to be true, it probably is.
This was the case in South Africa in May 2018 after thousands lost more than $80 million total in a bitcoin swindle orchestrated by BTC Global, a bitcoin trading company.
The company targeted members of the public and urged them to invest with a promise of 2 percent interest daily, 14 percent weekly and 50 percent monthly. However, after two weeks of operation, the company closed shop and fled with millions in investments.
4. Bitcoin Lottery Scam
In January 2019, scammers took a different approach to swindling South Africans.
Rather than posing as an investment opportunity, scammers created a fake lottery in which participants were required to donate bitcoin in order to be entered into a drawing where they could win $70,000.
As has occurred in the U.S., the fraudsters used celebrity endorsement to gain public confidence. Hackers took control of the South African Cricket Federation Twitter account and used it to promote the scam.
Fortunately, the scam was discovered early enough and the South African cricket body was able to warn its followers against sending their BTC to the scam lottery.
5. Velox 10 Global
In March 2019, hundreds of Kenyans were left in shock after a bitcoin investment company they had invested in collapsed. Velox 10 Global, a Brazilian investment company, collapsed after just one year of operation, leaving investors stranded and confused as to the fate of their investments.
The company had launched in a colorful ceremony in one of Kenya’s most expensive hotels and had employed a team of local marketers to help in its operations.
During its one year of operation, Velox 10 was able to draw in thousands of Kenyans, with some claiming to have lost as much as $30,000 (3,000,000 KES). To join the investment outfit, members were required to pay a registration fee of $100, after which they were promised daily returns of $4,000.
The company promised its top investors trips where they would meet up with leading business gurus who’d advise them on how to improve their wealth.
After MMM and Velox 10 global, more Kenyans have become skeptical about investing in bitcoin, which is now being associated more readily with scams.
6. Bitcoin Wallet
South Africans seem to be the target of many crypto scams.
In June 2019, a company by the name of Bitcoin Wallet was reported to be raking in over $130,000 daily from an alleged bitcoin scam.
Based in the KwaZulu-Natal province, a rural town in South Africa, Bitcoin Wallet has taken advantage of the current bitcoin price boom and used it as an opportunity to promise unsuspecting investors 100 percent profits on their investments.
Bitcoin Wallet is targeting poor and uneducated villagers who don’t understand the dynamics of how bitcoin works.
For example, bitcoin has never soared by 100 percent in three weeks. Any shrewd investor would know this fact. However, by targeting people in rural villages (people who don’t understand that the bitcoin price has never soared that high in such a short time), Bitcoin Wallet has been able to rake in hundreds of thousands in dollars daily.
According to the company’s CEO, Bitcoin Wallet makes money from buying and selling bitcoin and only charges an administrative fee of 10 percent to its customers.
The scheme was active for several months, quickly increasing in popularity, which resulted in an increase in membership fees from $6.74 to $337.
Local news outlets, however, called out the outfit for being a Ponzi scheme.
The allegations that Bitcoin Wallet was a scam seem to have proven themselves to be true. At the beginning of July 2019, the founder disappeared, prompting angry investors to loot and torch his home.
Avoid Falling Victim to Bitcoin Scams in Africa
Have you been approached by a family member or friend telling you about the newest and fastest way to make money through bitcoin? Has someone from work been preaching about this new investment opportunity that’s too good to be true? Have you received an email promising you to-the-moon-and-back returns on your bitcoin investment?
If you’re a crypto enthusiast in Africa, you’ve probably come across one of the above scenarios.
So, how does one identify a crypto scam? Look out for the following:
1. The Promise of Outrageous High Returns
Most of the bitcoin scams mentioned above are multi-level marketing (MLM) scams. These frauds often depend on network marketing to get more users.
One of the most common characteristics of MLM scams is the promise of outrageously high returns. A business that promises you 100 percent returns in only a few weeks after investing is probably a pyramid scheme.
MMM, Bitcoin Wallet and Velox 10 Global used this tactic to lure more people into their nets. They promised exponential returns to investors — promises of returns never again seen in the bitcoin market.
So, the next time you’re looking to invest in a Bitcoin company, consider the promised returns versus how the market is behaving at the moment. A company can’t promise 100 percent returns while bitcoin is only seeing 10 percent gains weekly.
Also, understand that bitcoin is highly volatile. Therefore, anyone giving you a guarantee of high returns either knows something that the rest of the world doesn’t or is lying to you (and it’s probably the latter).
2. High Pressure Sales Tactic
“Be among the first investors. As a pioneer investor, you can earn more as more people join the company. It’s better to be an early investor; at least you will have reaped your investment if things fall apart (translation: When the scam comes crashing down).”
While trying to enroll me for MMM, my friend’s mom used the same exact statement. As an early investor, I’d be able to earn more from MMM.
These high-pressure sales tactics are meant to make you invest your money without conducting enough due diligence into the company.
If you’re being pushed to invest your money “early,” take great care. There’s a good chance you’ll end up losing your money while waiting for the crowd to join.
3. Expensive Onboarding Training
“To join, all you need to do is invest $100, then pay for training.”
This is a common explanation among Bitcoin MLM scams in Africa. From MMM to Bitcoin Global, you either must pay a high membership fee or have to pay for training. Or both.
Legitimate companies should train their marketing teams for free and hold annual conventions and networking events for their members.
If a company requires you to invest a high amount of money in training for promises of high returns, this is likely to be a scam.
Avoid it like the plague.
4. Does the Founder Have a Criminal Past?
Would you invest your money with someone who has been convicted of financial crimes? Or with someone who has no demonstrated history of expertise in their industry?
In the case of the scams above, many of the founders are either convicted criminals or people who have zero experience with bitcoin and other cryptocurrencies.
The MMM founder was previously convicted of financial crimes in Russia. The Bitcoin wallet founder, Sphelele “Sgumza” Mbatha, is a former paramedic who has no technological or financial training to launch a bitcoin investment company.
If you don’t want to finance the activities of a convicted criminal or incompetent dilletant, conduct extensive research into the company’s team before investing. If your research turns up nothing good, walk away.
Be a Bitcoin Proponent to Advance Bitcoin Adoption in Africa
Bitcoin has the potential to help fight off poverty in African countries. However, crypto scams that target the same people that bitcoin is bound to be helping negatively affect the reputation of the king of crypto, which has negatively affected its adoption in the continent.
As an investor, avoid the “microwave” mentality. Success doesn’t occur overnight. If a company is promising returns that are unheard of, think twice. Do your research before investing in any crypto company.
Also educate fellow Africans on the basics of Bitcoin and reiterate its core benefits and philosophies. Let them know that Bitcoin, itself, represents sound, unhackable and non-confiscatable money that is not intended to be put in the control of anyone else. Then show them how to spot MLM scammers who are trying to undermine this ethos. If Bitcoin is to become mainstream in Africa, it will take the effort of each and every enthusiast who cares about the continent.