Indian authorities freeze Highrich Group’s assets over alleged crypto fraud

The Enforcement Directorate (ED) of India has frozen approximately ₹32 crore ($3.83 million) in cash deposits and other assets linked to the Highrich online group.

The group is under investigation for allegedly operating a crypto Ponzi scheme.

Per The Hindu, citing sources close to the matter, ED’s investigation uncovered that K.D. Prathapan and Sreena Prathapan’s Highrich Group amassed approximately ₹1,500 crore ($179,532.75) from investors under the guise of high returns and a 15% annual interest rate.

The ED has accused the company’s promoters and stakeholders of engaging in illegal cryptocurrency trading activities on several exchanges and promoting their own cryptocurrency, HR Crypto Coin.

The ED alleges that these crypto assets were used in a Ponzi scheme, where investors were enticed with promises of high returns funded by new investor contributions. According to the agency, investors were also promised a 30% direct referral income to introduce new customers into the scheme.

Since January, the ED has reportedly frozen ₹260 crore ($31.12 million), including ₹212 crore ($25.4 million), from 55 frozen bank accounts of the company and its owners. The investigation also traced ₹15 crore ($1.8 million) in immovable properties linked to the promoters and other leaders, allegedly acquired from proceeds of crime.

Prompted by multiple complaints by Kerala Police, ED raided the premises of HighRich Smartech Pvt. Ltd., HighRich Online Shoppe Pvt. Ltd., and related entities, resulting in the total frozen or seized assets reaching ₹260 crore ($31,119,010.00)

Combatting crypto Ponzi schemes

Ponzi schemes are often disguised as real investment solutions. However, returns for existing investors are funded by new investor contributions rather than actual profits.

These schemes remain a serious menace to global financial markets and investors. Recent high-profile cases underscore the urgency of implementing robust regulatory measures to prevent and mitigate the impact of such fraudulent practices.

In June 2022, Celsius Network, a once-fledgling cryptocurrency lending platform, halted all transfers indefinitely and subsequently filed for Chapter 11 bankruptcy. The company had loaned out $8 billion to clients and managed nearly $12 billion in assets. An internal memo characterized their business model as resembling a Ponzi scheme.

In another notable incident, FTX, the former second-largest cryptocurrency exchange in the world, filed for Chapter 11 bankruptcy in November 2022. It was revealed that customer assets had been used for risky investments, leading to a substantial financial shortfall. 

The U.S. Securities and Exchange Commission (SEC) is actively combating Ponzi schemes, which pose significant risks to investors and the financial system.

U.S. Senator Elizabeth Warren has expressed significant concerns about the cryptocurrency market’s lack of regulatory oversight. She has recently called for stronger SEC supervision to safeguard investors and ensure financial stability. However, Warren’s remarks have ignited a contentious debate within the crypto industry, with some leaders voicing apprehension over the potential implications of a more robust SEC presence.

SEC Chair Gary Gensler has shown a growing inclination towards regulating the cryptocurrency market, advocating for their integration into the financial regulatory framework.

In the same vein, Treasury Deputy Secretary Wally Adeyemo and others have echoed concerns about the necessity for robust regulations to curb the misuse of cryptocurrencies for illicit purposes such as sanctions evasion and terrorist financing.