Africa offers favourable markets to crypto scammers

By Harry Clynch
Posted on Wednesday, 7 September 2022 15:11

Representations of cryptocurrency Bitcoin are seen in this illustration, August 10, 2022. REUTERS/Dado Ruvic/Illustration

While consumers globally have fallen foul of crypto scams, schemes such as Platincoin and PLC Ultima appear to be taking advantage of vulnerable individuals in developing markets, where access to formal financial structures, and financial literacy, is likely to be more limited.

Daniel, a young filmmaker from Kampala City in Uganda, decided in 2017 to invest in a new cryptocurrency called Platincoin, which had been launched by German citizen Alex Reinhardt a year earlier.

Daniel was excited about the opportunity. He had been told by members of the Platincoin team that the blockchain technology underpinning the coin was “ten times faster than [that] of Bitcoin”, the world’s leading and most famous cryptocurrency.

He was also assured that investors’ money would be used for Platincoin’s infrastructure development. Daniel, thinking that ever-improving technology would drive value and greater adoption, invested around $1000 in Platincoin. “It was a lot of money,” he said. “It was equivalent to two semesters’ [worth of] payment in Uganda.”

The young man was hoping to multiply the value of his investment in no time, with purchasing nascent digital currencies proving lucrative in some cases. He also persuaded his uncle to go after the supposedly easy money by investing around $700 in Platincoin.

Platincoin was using multi-level marketing (MLM) strategies, meaning that those who purchased the coin were offered a commission for selling the product to their contacts. Users, Daniel says, were able to work their way up eleven different levels, depending on how many coins they sold, and became eligible for a higher percentage of commission on each level.

He, therefore, earned a small amount of money from his uncle’s purchase but insists that wasn’t the point. “I didn’t get a lot of commission,” he said. “It was [motivated by] love.” He genuinely thought that Platincoin was a revolutionary product and wanted his family to benefit.

“Platincoin was supposed to be an international currency with ATMs worldwide,” Daniel said. While it’s not clear how much money users collectively invested, Reinhardt claimed in a sponsored article last year that Platincoin had over 600,000 “PLC Coin holders” worldwide. 

When he realised that Platincoin would not work out this way, Daniel said it was “heartbreaking”. Eventually, it became clear that the cryptocurrency, which has since been rebooted as PLC Ultima, was a Ponzi scheme doomed to failure.

Broken promises

It appears that the development in infrastructure which Daniel was promised never took place. Instead, the market value of Platincoin seems largely to have been driven by the hype generated from marketing ploys. The coin briefly reached an all-time high of $57.87 in July 2019, but has since collapsed. At the time of writing, the coin was trading at $0.5078, a fall of over 99% from its 2019 high.

Daniel told The Africa Report that, since the collapse, those who had invested in the coin have been unable to access any of their funds. “All Platincoin investors are stuck with their coins in their dashboard,” he said.

Daniel said that they have been promised the opportunity to transfer their coins over to the new scheme, PLC Ultima, and sell those at some point in the future. He added, however, that he personally had been refunded after publishing a number of critical reviews of Platincoin on YouTube.

“Alex Reinhardt reached me on Twitter after watching my videos, and I told him to refund my money,” Daniel said. “He did, and told me to stop publishing negative videos about his company.”

Reinhardt’s new scheme, PLC Ultima, is advertised as “a massive infrastructure project, which combines the innovation of the blockchain technology with the stability of dozens of time-tested business models.”

However, it appears to work in much the same way as its predecessor, operating on similar principles whereby the “community” is rewarded with a commission for selling the product to new users.

PLC Ultima has described itself as having a “powerful strategy to grow the community,” which involves cashback incentives and financial rewards, allowing “PLC Ultima to turn its users into real product ambassadors.” This would appear to fit the definition of a pyramid scheme.

Warning signs

The company which ran Platincoin, Platin Genesis DCC, was criticised by the German Federal Supervisory Authority (BaFin) in 2018. The regulator stated that Platin Genesis had advertised a “Platinum Coin Crypto Fund” on social media that claimed the fund had been “approved and released by BaFin,” which was not the case. 

BaFin also emphasised that Reinhardt’s company did not have permission to offer financial services in Germany. Earlier this year, both Platincoin and PLC Ultima were subject to a fraud warning from Mongolia’s Financial Regulatory Commission (FRC).

The FRC said that “the common denominator of these fraudulent schemes is that they allow for risk-free investments in the short-term, promises of high returns, and incentives to recruit people through membership.” 

The FRC warned that “international and some countries’ financial regulatory organisations have advised not to invest in Platincoin and PLC Ultima,” and urged citizens to take steps to “prevent [themselves] and others from being exposed to fraud, financial pyramids, and economic crimes.”

The Commission also noted that “there are increasing cases of involving and deceiving local citizens by taking advantage of their remoteness from news and information, access to finance, and insufficient level of financial knowledge.”

Such conditions are present in various parts of Africa. Indeed, it appears that PLC Ultima has dedicated resources to marketing on the continent.

One prominent blockchain investor in Nigeria, who approached The Africa Report on condition of anonymity, said that he had recently seen a billboard advertisement for PLC Ultima in Benin City.

Given the advertisement made claims such as “you don’t need [a] CV to make your millions,” he was concerned that PLC Ultima was effectively offering a get-rich-quick scheme.

Because many African countries, including Nigeria, lack regulation on how cryptocurrency products can be marketed, he believes that bad-faith actors, such as Reinhardt, are able to run Ponzi schemes and appeal to consumers in some of the poorest parts of the continent. 

“Projects such as Reinhardt’s represent the ugliest face of Africa’s tech ecosystem, in which common criminals have exploited otherwise positive and beneficial technology for the sake of theft,” he said. 

“Demonstrated by the visibility of such projects in more remote and typically poorer areas such as Edo State, Nigeria, there is a clear modus operandi from the likes of Reinhardt to use poverty and ignorance as tools to push scams.”

Interest through social media

Kernie, from Bamenda in Cameroon, is one consumer who was persuaded to invest in PLC Ultima. She said the coin was widely advertised “on Facebook, everywhere.”

A friend, who would earn commission from Kernie’s investment, invited her to attend some Zoom meetings about the initiative. She was encouraged because, in the months prior to her investment, the cryptocurrency’s value had rocketed. Between January and May 2022, PLC Ultima increased in value by over 400% and reached an all-time high of $104,451.17, around 51% higher than that of Bitcoin. Kernie decided to invest when the price was approximately $100,000. She purchased $210 worth of PLC Ultima, an amount which represented around 75% of her entire savings.

Just as with Platincoin, however, it seems that this dramatic movement was driven by hype alone and that the coin had little underlying value. On its social media channels, PLC Ultima claims to operate a system that ensures price increases.

“More and more community members are buying farms and loading them up with coins,” which they say reduces “the available market supply of the coin.”

PLC Ultima also claims to “burn coins actively,” and argues that these two limits on supply “increase our coin’s value, according to the crypto market laws.”

Such guarantees of returns are a common feature of crypto scamsIndeed, despite PLC Ultima’s claims, the coin’s market value has declined by 93% since its all-time high. This has left many investors, such as Kernie, significantly out of pocket. Before the coin began to spiral earlier this year, Reinhardt claimed that PLC Ultima had over one million users.

Once she saw the value of her investment plunging, Kernie also found it very difficult to close her position. “PLC Ultima cannot be conveniently converted to any currency” including other cryptocurrencies, she said.

Echoing Daniel’s experience with Platincoin, Kernie says that many of the exchanges PLC Ultima is traded on intermittently have restricted withdrawals, and thus many investors were potentially unable to cut their losses. Platincoin and PLC Ultima did not respond to a request for comment.

Chainalysis, a blockchain consultancy firm, recently reported that illicit crypto activity has fallen this year, but also emphasised that “we can’t afford to rest on our laurels.”

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