UAE: Dubai’s Alleged Crypto Scams Are Raking in Billions - Bloomberg
On a scorching July day in Dubai, Sam Lee was inside a climate-controlled wine bar, sipping a glass of chilled red, looking untouchable. Near the beginning of the year, US authorities announced that they’d charged Lee in absentia with conspiracy to commit securities fraud and wire fraud. They alleged that, as the co-founder of a company called HyperVerse, he’d orchestrated a
cryptocurrency scam that bilked investors around the world for almost $2 billion. HyperVerse had promised returns as high as 1% a day via cutting-edge blockchain-based strategies, but according to the US Department of Justice and the Securities and Exchange Commission, it was just an old-fashioned Ponzi scheme.
In a series of interviews with Bloomberg Businessweek, Lee, an Australian citizen who’s been living and working in Dubai for the past several years, denied the allegations against him and said any misuse of HyperVerse funds must have been conducted by someone else. “Startups fail,” he said at the wine bar, playfully tilting his glass. “That’s just the nature of business.” Whenever he got a tough question, he paused for a prolonged beat, sometimes cocking a dark eyebrow. US officials had said they were working with counterparts in the United Arab Emirates to hand Lee a summons, but he wasn’t concerned with the US government’s wishes: “They have no evidence, so I don’t have to do anything.”
Although
HyperVerse was defunct, Lee’s other business operations weren’t tough to find. He said he had a network of people running a string of similar projects in Dubai, and US court documents corroborate this, as do interviews with his colleagues and rivals. At the wine bar, he said
Dubai’s booming crypto industry and loose legal frameworks made it the perfect base of operations. “I thrive in this country.”
Over the past decade or so, experts say, Dubai has quietly become a leading home for a strain of crypto scamming that’s gone relatively unnoticed in the shadow of
scandals at the level of FTX and
Binance. According to US and international authorities, this other wave of companies isn’t just misusing customer money, like Sam Bankman-Fried, or violating anti-money-laundering laws, like
Changpeng Zhao. FTX and Binance were still running exchanges that mostly worked. These other companies allegedly sucker investors into handing them money for digital coins the companies can either easily manipulate or simply never create. They develop shiny-looking investment platforms, then promise mouthwatering returns that they finance with capital from newer marks right up until the scams collapse under their own weight, perhaps a few months later, prosecutors say. On top of that, these platforms often grow exponentially by promising higher returns to those who can also bring in new investors—usually their friends and family.
Employing old-school tactics and usually keeping low profiles, those behind these alleged Ponzi and pyramid schemes have taken in a large haul. Since 2017, five of them have defrauded victims of more than $3.4 billion in total, according to US charges, which rank Lee’s operation at the top of that list. Dozens of other people whom US and international authorities have accused of operating similar schemes are also based in Dubai, according to public records and communications with some of those involved. The vast majority of the accused have continued to operate their businesses without serious legal repercussions. Pyramid and Ponzi schemes are illegal in the UAE, as are all investment scams, but prosecutions are few and far between, says David Utzke, a former crypto investigator for the US Internal Revenue Service. “There’s a sense in the UAE that criminals are allowed to come in and do whatever, as long as they’re not harming local citizens.”
The schemes are proliferating at a delicate moment for the UAE’s standing in the world of finance. In 2022 the nation was placed on the international Financial Action Task Force’s “
gray list” of jurisdictions that don’t do enough to tackle illicit funds. It
took steps to get itself removed from the list and has continued polishing its image since it succeeded this past February. But it’s kept its crypto rules loose, even as other countries tighten theirs, in a
sustained bid to become the industry’s global capital. Now, according to international authorities and supported by public records, it appears to be home to a crypto scammer colony.
Reached for comment, the UAE Ministry of Foreign Affairs directed questions to the Dubai Police and the Ministry of Justice. Neither agency responded to inquiries.
Some of the people who’ve reported losing money to scams like these are more willing to talk. Rupert Honywood, a 67-year-old business coach near the southeastern English town of Tonbridge, was so taken with the promise of HyperVerse that he sold the house where he and his wife were living and handed £130,000 ($165,000) of their money over to Lee’s company, then talked their friends into investing, too. They all lost everything, and the Honywoods have had to start over on the housing ladder with a fraction of their original wealth while they try to recover their funds. “I’ve distanced myself from some of this emotionally,” Honywood says, “because I can’t cope sometimes.”
The UAE sometimes extradites people to the US, including
alleged financial scammers, but it doesn’t have a formal extradition treaty with America or many other countries. It’s better known as a global financial center with open visa policies and little regulatory interference, which can make it an
attractive option for people operating in legal gray areas.
As Dubai sought to attract crypto companies in the 2010s, suspected scammers began setting up shop there, too. Between 2015 and 2017, Bulgarian émigré Ruja Ignatova used Dubai as her base of operations while running OneCoin Ltd.—one of the largest fraud schemes ever perpetrated, according to US authorities. They say she siphoned $3.8 billion from victims by promising them digital tokens she never created. The FBI put Ignatova, who’s also known as the Cryptoqueen, on its
Ten Most Wanted Fugitives list, and one of her co-founders has
pleaded guilty to fraud. But her legacy appears to have persisted.
On an evening stroll by the Dubai Mall, visitors in 2023 could see ads for the company Onpassive splashed across the Burj Khalifa, the world’s tallest building. The company’s offices are on the 134th and 151st floors, and a nearby Onpassive-branded metro station still encourages passersby to sign up to the “future of Internet.” According to the SEC,
Onpassive is a pyramid scheme. Last year the agency charged Chief Executive Officer Ash Mufareh with defrauding 800,000 people of $108 million combined. Onpassive’s website stopped processing payments earlier this year.
Mufareh, who didn’t respond to inquiries for this story, has denied the charges and said his company is a legitimate startup. The SEC suit is ongoing.
Few of Dubai’s alleged crypto scammers have been quite as splashy, but many are said to be much bigger. Meta Force is run by Lado Okhotnikov, a Russian entrepreneur who was indicted in Oregon last year for overseeing an alleged $340 million Ponzi and pyramid scheme called
Forsage. Ultron, a nonfungible token company
banned by Quebec authorities this spring, claims to have collected $200 million from investors; one of its main salesmen, Vitaliy Dubinin, continues to promote its NFTs and give other crypto advice from Dubai’s bluest rooftop pools. This September, Josip Heit, the alleged mastermind behind a crypto scam that Texas’ securities regulator estimated at $1 billion, agreed to
settle fraud charges brought by several US states without admitting wrongdoing.
Heit said in a statement that the charges were dropped, although regulators denied that was the case. Heit still has to repay money to investors before the settlement is finalized. None of the other men or their companies responded to inquiries, though Okhotnikov has denied the charges against him and Dubinin hasn’t been charged or sued.
Lee moved to Dubai in 2021, when he was 32. He said at the wine bar that he’s the son of a Singaporean businessman he didn’t name, adding that his parents “spoiled” him. He and his little sister were raised by their mother in Melbourne after their parents split up, he said, and he went to the Royal Melbourne Institute of Technology for a year before flunking out. He spent several years working jobs in marketing and business analysis, then turned to crypto. In 2014 he co-created a Bitcoin-mining operation called Blockchain Global, soliciting individual investments from people in Australia. Blockchain Global later collapsed and went into receivership
owing creditors AUD58 million ($38 million). The
Australian Securities & Investments Commission opened an investigation (still ongoing) into whether Lee and other directors had used customer funds to pay their own bills and invest in other companies.
By then, Lee had spent years with his eyes on a bigger prize. He’d co-founded HyperVerse (originally HyperCash) in 2017, attracting thousands of investors with the promise of daily returns ranging from 0.5% to 1%. HyperVerse tokens were supposed to gain value through crypto mining operations the SEC says never existed. Instead, according to the agency, gains delivered to early investors came from the stakes of other investors, in textbook Ponzi fashion. What’s more, investors were encouraged to sell packages to friends and family and earn more in return, adding to the operation the hallmark of a pyramid scheme, according to the
legal complaint. Retirees and young professionals from dozens of countries took part, joining through friends, family and even accountants or pastors who promised a safe route to a secure retirement, according to complaints later filed with US authorities.
Celebrity endorsements from the likes of
Apple Inc. co-founder Steve Wozniak, actor Chuck Norris and ’N Sync singer Lance Bass contributed to HyperVerse’s popularity. “Be a galaxy pioneer, go on intergalactic explorations,” Wozniak said in a
2022 video about the company’s opaque relaunch. “Can’t wait for the HyperVerse.” Wozniak says he was paid $3,750 to read the script and had no idea the company was an alleged fraud. “This is very embarrassing,” he wrote in an email. Neither Norris nor Bass responded to requests for comment.
Near the end of HyperVerse’s sunny period, it supposedly appointed a new CEO named Steven Reece Lewis, who talked through the latest product updates in videos posted to social media. Eventually, however, “Lewis” revealed he was a
paid actor in Thailand named Stephen Harrison. He said he’d been shocked to learn that HyperVerse was real—he thought he was just reading lines for an acting gig. By mid-2022, investors found themselves unable to withdraw funds, and the HyperVerse platform stopped functioning properly.
Lee then said
publicly that he himself was just a “tech provider,” not the mastermind behind HyperVerse, and blamed secret new owners of the company for the collapse. US authorities disagreed. This past January the SEC and DOJ filed the fraud charges against Lee, saying he was “
centrally involved” with HyperVerse and its related companies. When the charges came in, Lee went on Zoom calls with investors to protest his innocence. While US authorities
arrested and charged associates who put their feet on American soil, Lee continued operating in Dubai.
Visitors who venture beyond Dubai’s dense rows of skyscrapers and glitzy hotels quickly find themselves in the desert. Construction cranes dot the landscape, buses take migrant laborers to work brutal construction jobs, and dusty skies hang over brown grass.
Dubai Silicon Oasis, a sleepy tech hub on the city’s outskirts, housed Lee’s center of operations during the past year. Garrett Blakeslee, a former business partner who visited Lee’s space earlier this year, says inside “there were maybe 100 different offices, just crammed to the top with people from other countries, all on computers, creating pump-and-dump tokens.” Blakeslee, who says he split from Lee after becoming concerned about his operations, says Lee ran a number of fake crypto ventures there and at a crumbling hotel in Ras Al Khaimah, an emirate north of Dubai. This supports the allegations US authorities have leveled against several of the ventures in formal warnings to them.
In interviews, Lee said he had three office spaces in Dubai with 150 full-time workers, plus one large “call center” in Ras Al Khaimah and a big team of workers in India. During a visit to the Dubai-area building Blakeslee visited, Businessweek found the site cordoned off, with no one permitted to enter.
In his second sit-down with Businessweek, at a neon-red bar with a view of the swanky Dubai Marina, Lee said he’s set up shop in a range of locations around the city. “I have three offices for different businesses,” he said. “This is just best practice.”
Over the course of his years in Dubai, Lee has created a series of crypto enterprises that briefly promised great returns before falling apart, according to investors. There was StableDAO, started in 2022, which claimed to recover lost crypto funds; it received a
desist and refrain order last year from California regulators, who accused it of being a “fraudulent pyramid and Ponzi scheme.” Around that time, Lee introduced Vidilook, a platform that paid people for watching ads after they forked over an initial subscription fee. A few months in, Vidilook stopped allowing people to withdraw their money, and many began complaining that they’d been scammed. In late 2023 his investment company We Are All Satoshi also received a desist and refrain order from California regulators, who called it, too, a pyramid and Ponzi scheme. We Are All Satoshi says the California allegation is out of date because Lee no longer runs the company, though it also says its business model remains the same. Both StableDAO and Vidilook are defunct.
After the US fraud charges were announced in January, Lee carried on with new shingles that sounded much like previous ones. He promoted Satoshi Math Club, a social group he ran that he suggested could help predict the future, and a Vidilook spinoff called V.E.N.D. that promised daily returns of 3%.
A couple days after the Dubai Marina interview, Lee brought some of his colleagues to an interview at a coffee shop on Dubai’s Happiness Street, where he was simultaneously helping to run a networking event for memecoin enthusiasts. In the windows of the coffee shop, there were Mercedes-Benzes for sale. Among those present was a man named Sakthi Visakan Rajaguru, who, Lee said, was helping to run the “low-cost” workforce in Chennai, India, that was keeping his websites online. Rajaguru described his operation as an educational venture teaching crypto-related skills to about 20,000 young Indians.
At the coffee shop, Lee described two new projects: smart contracts that would allow people to upload their CVs to the blockchain, and tokens that companies could issue as rewards to loyal customers. Periodically, he decamped to the next table to network and listen to a young mentee talk up the week’s popular memecoins to potential investors. (Tops on the list were
Ponke, a coin symbolized by a monkey often wearing a green helmet, and
Mew, a cat with an angry stare.) Privately, however, Lee made it clear he didn’t respect the people seeking his help finding the next big thing. These kinds of investors were just “a bunch of losers,” he said.
The US Federal Trade Commission received about 200 complaints against HyperVerse or some version of it between 2021 and early 2024. People from the US and dozens of other countries reported that the company had cost them as much as $200,000 apiece. “Now that it’s time for me to get my money out of there, they put it in ‘pending’ and won’t let me have it back,” wrote an investor from Palmdale, California. In the English city of Reading, therapist Diksha Chakravarti invested £14,000 of her nest egg, impressed by video presentations that showed the Burj Khalifa in the background. She lost all of her stake, and so did the friends and relatives who heard her talk up the investment. She’s since made back some of her money through a wealth recovery company that negotiated reimbursement with her bank. “I never had aspirations to be a millionaire, but I wanted to have something for retirement,” says Chakravarti, who’s 67. “I would have liked to have retired by now.”
In some cases, Dubai’s justice system can be punishing. In 2016 a phony foreign exchange company called Exential Group was revealed to have conned thousands of Emiratis out of hundreds of millions of dollars. The company was shut down by Dubai authorities, and a Dubai court
sentenced the company’s two Indian operators to 513 years in prison and imposed the same sentence in absentia on one of their wives. More broadly, however, the country has yet to legislate explicitly on crypto crime.
The UAE has responded, in its way, to international pressure. In 2022, after the country was placed on the international gray list, the government said it would
prosecute more cases tied to illicit finance and increase cooperation with international law enforcement agencies. Dubai, for its part,
created a crypto regulator called the
Virtual Assets Regulatory Authority. So far, the largest fine the agency has issued,
against the crypto exchange OPNX for operating without the proper license, is $2.7 million. This spring, while Binance Holdings Ltd. was reeling from a
$4 billion settlement with US authorities over allegations of money laundering and sanctions violations, some countries took steps to stop it from operating locally, but VARA issued the company a fresh license. On the question of alleged scams such as HyperVerse’s and its cousins, VARA has been largely silent. “VARA is committed to ensuring the virtual asset ecosystem in Dubai is secure, transparent and compliant,” the agency said in a statement. It declined to comment on individual companies.
The international Financial Action Task Force took the UAE off its gray list in February. But two months later, the good-government nonprofit Transparency International said the country
had done little to discourage fraud in the time between its addition to the list and its removal. (A spokesperson for the task force didn’t comment on that assessment but said in a statement: “The UAE was told that it must continue to combat high-risk money laundering when it was removed from the gray list, and continues to be subject to monitoring.”) Utzke, the former IRS investigator, says Dubai authorities have ultimately continued to defer to business interests. “They want to appear tough on crime,” he says, “but they also want to be at the forefront of innovation.”
Early this year, two American HyperVerse promoters were arrested on US soil, and
both have since been charged with defrauding people of millions of dollars. They face years in prison; one has pleaded guilty and is awaiting sentencing. This could be why American crypto entrepreneurs in Dubai were less eager than Lee to meet for interviews. Among the reluctant was John Barksdale, an American in Dubai who, the SEC says, defrauded investors out of $124 million with his
fake cryptocurrency, Ormeus Coin. If he’s extradited to the US, he’ll have to deal with a $79 million default judgment handed down in his absence. He’s also facing criminal charges that carry prison sentences with maximums ranging from 5 to 20 years. Barksdale didn’t respond to requests for comment.
During one interview, Lee showed off texts that appeared to be from Barksdale, saying he’d turned down the chance to talk because he doesn’t “want to poke the bear.” Lee said, “A lot of people are just very cautious,” but added that, as an Australian, he was less worried about blowback from US authorities. In another interview, he said part of what motivated him to speak with Businessweek was that he was working on a “redemption arc”—trying to clear his name in the court of public opinion.
Two months after those interviews, however, Lee’s communications abruptly stopped. Conducting a series of follow-up conversations in Dubai with several of his peers and colleagues, Businessweek attempted to reach Lee for a similar follow-up, but our queries went unanswered. In November, US authorities announced that Lee had been detained in a Dubai prison for several weeks and counting. As of early December, he was still believed to be there, though attempts to contact him were unsuccessful. Inquiries to US and UAE authorities about the possibility of his extradition went unanswered. The US criminal charges carry a maximum of five years in prison.
While HyperVerse is dead, money from the exchange has been withdrawn slowly since its implosion, sometimes transferred through a Dubai crypto exchange called CoinW that VARA authorized to operate last year. About a third of CoinW’s transactions come directly from HyperVerse, according to data from crypto intelligence group
Chainalysis. Matthew Stern, the CEO of crypto consulting firm CNC Intelligence Inc., says this trail should have alarmed CoinW’s compliance department. “Best case, this points to significant gaps in their compliance procedures,” he says. “Worst case, there could be complicity.” In a statement, the company said, “CoinW does not have any formal association or endorsement of HyperVerse.” It added: “We take compliance very seriously and remain committed to safeguarding the integrity of our platform.”
Even if the authorities have ended Lee’s run of alleged scams, the ecosystem he thrived in won’t disappear overnight. Mai Summer Vue, a former saleswoman of Lee’s who says about 26,000 people joined HyperVerse through her, promotes what she calls crypto “opportunities” on a regular rotation of Zoom calls from California. (“We’re not scammers,” she says, stressing that crypto businesses are high-risk and investors should be prepared for volatility. “Nobody’s putting a gun to their heads.”) Crypto promoter Jorge Sebastiao, whose
YEM coin is under investigation in Germany, talks up crypto projects at weekly networking events in Dubai’s Paramount Hotel. (He says he was just the front man for YEM and doesn’t promote the coins showcased at his networking meetups: “I just give a platform, and people can decide for themselves.”)
Shavez Anwar, a young former Lee protégé who helped develop StableDAO and has taken over We Are All Satoshi from Lee, says he now has 120 employees working on various projects, some on a company called BitcoinCode. This company supposedly allows investors to do their own crypto mining. From his luxury apartment in a suite of condos overlooking the Burj, he also just introduced a crypto index called Dodo and a crypto credit card called 9Pay that he claims is supported by Visa Inc. And far from being an enemy of VARA, he says, he often consults with the agency pro bono, offering his insight into the crypto ecosystem. “People like me, we have been very friendly with regulators,” he says. “We want to help them regulate properly.”
Visa said in a statement that it has no relationship with 9Pay. VARA deviated from its stated policy of not commenting on individual companies to say that not only does it not work with Anwar, but it’s also never heard of him.
