SEC Charges Fraudsters in $14M WhatsApp Crypto Scam
The fraudsters behind unregistered, supposed cryptocurrency asset platforms used WhatsApp groups to entice retail investors into a scheme netting them $14 million, the Securities and Exchange Commission alleged.
According to the complaint filed this week, AI Wealth, Lane Wealth, AIIEF and Zenith claimed to operate “investment clubs” with financial professionals who directed retail investors to trade on crypto asset trading platforms operated by Morocoin, Berge and Cikor.
However, the process was a scam, with “devastating consequences” for retail investors, according to Laura D’Allaird, chief of the SEC’s Cyber and Emerging Technologies Unit.
“Our complaint alleges a multi-step fraud that attracted victims with ads on social media, built victims’ trust in group chats where fraudsters posed as financial professionals and promised profits from AI-generated investment tips, then convinced victims to put their money into fake crypto asset trading platforms where it was misappropriated,” D’Allaird said.
Neither the investment club nor the platform operators ever registered with the SEC, with investigators finding evidence that the individuals running them were based in China, Malaysia and Hong Kong.
Starting in 2024, the club defendants began enticing investors through social media ads to join their “investment clubs,” which were essentially WhatsApp groups that pretended to offer investment recommendations from financial professionals. Each club sent the victims trade recommendations supposedly based on AI-generated tips, and eventually steered them toward crypto trading on the three aforementioned platforms.
“Each platform also provided investors with an interface that mimicked the features and functionality of a legitimate crypto asset trading platform, including displaying real-time price information for various crypto assets, facilitating purported transactions and posting investor account balances,” the complaint read.
Investors funded their accounts with fiat currency or crypto assets.
Platform operators would direct the investors to wire their money to designated bank accounts or hire a courier to pick up the funds in person.
Those using crypto assets were directed to transfer them to “unhosted deposit wallets” managed by the platform (which are not managed or held on a third-party platform or exchange).
“The platform defendants posted purported trading profits and losses in the investors’ accounts, as if the platforms were, in fact, genuine trading platforms. They were not,” the complaint read. “Trading never actually took place on the platforms.”
The clubs and platforms allegedly offered investors fake “security token offerings” of new crypto assets supposedly available on the platform, with an AI Wealth conspirator allegedly calling them “akin to IPOs in the stock primary market.”
In one case, conspirators on the AI Wealth and Lane Wealth WhatsApp groups touted STOs for a crypto asset issued by a company called “NeuralNet,” which claimed to be developing a “brain-computer interface and humanoid robot technology” that would “create an efficient and intelligent way of human-computer interaction.”
According to the SEC, the information was fake, and the company never existed.
Nevertheless, the club operators solicited and sold tokens to victims of the fraud, with one conspirator stating that the token was “hot” because the applications could “also extend to education, the transmission of human civilization, and even the potential to transcend humanity into space.”
In reality, no trading took place on the platforms, and the STOs did not exist. When investors tried to withdraw their funds, the club and platform operators demanded that they pay advanced fees for the withdrawals (which were allegedly never completed).
After investors deposited the crypto assets in unhosted wallets, the fraudsters would transfer the assets across blockchains and through intermediaries, with some funds transmitted through accounts held by Chinese or Burmese individuals in Southeast Asia. The fiat currency was transferred to the fraudsters through at least 27 domestic bank accounts that were wired overseas.
The heads of the crypto trading platforms and investment clubs were not named and could not be reached for comment. In the complaint, the SEC sought a cease-and-desist order, as well as disgorgement and civil penalties, and a jury trial.
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