Cryptocurrency Scam Cases in India: How Cryptokidnapping Is Affecting the Market
Another story of a bitcoin scam hits the headlines in India, but more specifically in the state of Gujarat. It seems that the investigations point out at a bitcoin-based Ponzi scheme that may be related even to the BitConnect scam.
Back in February, the property developer Shailesh Bhatt complained that he had been kidnapped by a policemen and that he had to pay 200 bitcoin. At that time, 200 bitcoin were worth over $1.8 million dollars.
In order to understand what happened, the state’s elite Criminal Investigation Department was called and discovered a very important fraud that was taking place. Because of this investigation, eight policemen were indicted and suspended pending trial.
But the interesting point here is that the kidnapping was carried out by Kirit Paladiya, and masterminded by his uncle, Nalin Kotadiya, former lawmaker in Modi’s ruling party.
At the moment, Mr. Paladiya is in jail and facing charges related to abduction and extortion. The other team members are now fugitive, as the police explains.
It is important to mention that between 2016 and 2017, Bhatt invested in the cryptocurrency scam BitConnect, an important firm that was promoted in Gujarat by Satish Kumbhani. Kumbhani is one of the founders of the BitConnect scam. Indeed, the company recruited clients around the world, asking them to deposit bitcoin and receive the so called BitConnect (BCC) coins. After it they could receive interests rates on their funds, which could sometimes be more than 40% per month.
During 2017, Bitcoin price moved from $1,000 to $20,000, and the same happened to the value of the BitConnect coin, it grew exponentially. The inflow from Indian investors were because Modi decided to ban banknotes that were worth 15 trillion rupees. The main intention was to reduce tax evasion in the country.
Due to this situation, 45 billion rupees ($650 million) dollars moved to Gujarat’s city of Surat. With the Rupees it was possible to buy cryptocurrencies, among other assets. Surat, is known for merchants that travel around the world to set up a family business. And indeed, they dominate diamond trade in Antwerp and have over a quarter of U.S. motels.
And indeed, when Mr. Modi started with the demonetization campaign, Indians started to search in Google how to launder untaxed cash and black funds. And the interesting fact is that most of the searches came from Guajarat, according to Google Trends.
Some of these individuals moved to cryptocurrencies, and indeed, it was possible to purchase them at premium prices in the country.
Kiran Vaidya,product manager at Toronto-based U.Cash, commented:
“After demonetization, we were watching India. We’d seen how bitcoin rose after the Greece economic crisis and similarly after things went south in Venezuela. The volumes were so high that it was obviously people who had the capacity to move markets.”
Due to this situation, the Reserve Bank of India decided to ban virtual currency transactions. Virtual currency exchanges responded with a lawsuit that must resume hearings in the Supreme Court in September.
Bhatt and other individuals decided to kidnap two BitConnect representatives in Surat. They demanded more than 2,200 bitcoin as ransom, as the CID alleged. But there were some members of the team that wanted even more. We are talking about Paladiya, that contacted his uncle Kotadiya. Mr. Kotadiya was able to double-cross Bhatt and extort his bitcoin.
And they were very confident about this situation. They believed that Bhatt was not going to talk with authorities, but they were wrong.
In the end, Bhatt was able to avoid arrest due to the fact that his appeal for bail was rejected. Bhatt denies wrongdoings and says that Paladiya was handling the Bitcoin transfers.
Back on July the 5th, the Congress Party decided to held a press conference and demand the BJP to investigate the situation in Gujarat.
Currently, Kotadiya is no longer part of the BJP and since the Gujarat government initiated the investigation the matter keeps being investigated.