WazirX denied its involvement in the scam and maintained that it followed strict guidelines; in another case, the trading platform was served a show-cause notice from the ED.
The Cyber Crimes Division of the Hyderabad City Police has arrested a person for allegedly cheating several people to the tune of Rs 3,14,526 lakhs online on the pretext of selling cryptocurrencies.
Based on a complaint by Manish Reddy, a resident of Hyderabad, the police arrested Bengaluru resident Akshay Gowda and booked cases under Sec 66D of the Information Technology Act 2000 and Sections 419, 420 of the Indian Penal Code.
- Sec 66D of the IT Act 2000: Punishment for cheating someone by personation using a computer resource.
- Sec 419 and 420 of the IPC: These two sections deal with offences related to cheating and dishonestly inducing delivery of property. Sec 420 warrants imprisonment that may extend to seven years.
According to Avinash Mohanty, Joint Commissioner of Police in the Detective Department of the Cyber Crimes Division, Gowda allegedly befriended cryptocurrency traders through Binance and WazirX websites.
“Initially the accused sold bitcoins to the online traders by receiving money to his bank account. After selling bitcoins 2 to 3 times, he would gain the confidence of them and starts offering them huge commission on buying bitcoins. Believing the version of the accused, the victims have transferred huge amount to the accused. After receiving huge amount, when the victims called to the accused, he stopped responding to their calls & messages and cheated them,” Mohanty said in a release while advising citizens to verify credentials of online bitcoin traders.
Why it matters: Cryptocurrency and its trading platforms have been under the scanner of regulatory bodies not just in India, but the entire world due to security concerns such as money laundering, scams, and so on. Although cryptocurrency exchanges maintain that they adhere to due diligence processes for preventing such offences, such incidents are reported occasionally.
WazirX follows strict KYC checks: Spokesperson
When contacted, a WazirX spokesperson said that they follow strict KYC checks at the time of new user registration to identify bad actors. This is their full response to MediaNama’s queries —
The press release shared by the police doesn’t mention that any scam happened on the WazirX trading platform. The release clearly states that it is a private transaction between individuals. WazirX follows stringent KYC checks at the time of new user registration as well as ongoing transaction monitoring to identify bad actors. Our open order book system is designed in such a way that buyer and seller of cryptos are not aware of each other’s identity and other details. We would also like to highlight that two people can become friends on a variety of social media platforms and crypto exchanges like WazirX are not the most efficient medium for it — WazirX Spokesperson
WazirX P2P facilitates USDT transactions but interaction not possible
According to the company’s support page, WazirX’s P2P feature facilitates transactions of Tether (USDT), and its “Preferred Matching” sub-feature gives a user the choice to be matched with a buyer/seller of their preference. For doing that the user has to create an XID, a unique WazirX ID that can be used to trade with preferred buyers and sellers.
In order to identify and appeal to buyers and sellers, WazirX in their Support page said, “Share your XID with everyone in crypto groups! For eg, if you want to buy USDT, you could make the following announcement in Telegram and WhatsApp groups: “I’m ready to buy 700 USDT on WazirX P2P. If anyone is selling USDT, add my XID Siddharth to your sell order! I will make payments very fast to your bank account.”
WazirX made it clear that it does not have any feature or option, even for P2P where two users can interact with each other.
ED had sent WazirX a show-cause notice
On June 11, the Enforcement Directorate issued a show-cause notice to WazirX Cryptocurrency exchange under the Foreign Exchange Management Act (FEMA) 1999 for alleged transactions involving cryptocurrencies worth Rs 2,790.74 crore. In a statement issued by the Enforcement Directorate, and verified by MediaNama, the agency said that it initiated the FEMA investigation on the basis of an ongoing probe into Chinese-owned illegal betting applications. The agency also said that the notice was issued to WazirX CEO Nischal Shetty and co-founder Sameer Hanuman Mhatre.
ED allegedly found that Chinese nationals had laundered Rs 57 crore by converting the INR into Tether (USDT) cryptocurrency. The same was then transferred to Binance, which is an exchange registered in the Cayman Islands “based on instructions received from abroad”.
“In the period under investigation, users of WazirX via its pool account, have received incoming cryptocurrency worth ₹880 crore from Binance accounts and transferred out cryptocurrency worth ₹1,400 crore to Binance accounts. None of these transactions are available on the blockchain for any audit or investigation,” ED said in their statement.
How to avoid cryptocurrency scams: FTC
The United States of America’s Federal Trade Commission has advisories in place for citizens to avoid cryptocurrency scams. “Scammers are always finding new ways to steal your money using cryptocurrency. One sure sign of a scam is anyone who says you have to pay by cryptocurrency. In fact, anyone who tells you to pay by wire transfer, gift card, or cryptocurrency is a scammer. Of course, if you pay, there’s almost no way to get that money back. Which is what the scammers are counting on.” the FTC advisory read.
Here are some cryptocurrency scams to watch out for, according to the FTC:
Investment and business opportunity scams: The FTC said that some companies promise that users can earn lots of money in a short time and achieve financial freedom. Some firms also tell users to pay in cryptocurrency for the right to recruit others into a program. They promise to pay rewards back in cryptocurrency. “However, the more cryptocurrency you pay, the more money they promise you’ll make. But these are all fake promises, and false guarantees,” the FTC said.
Blackmailing via emails: The FTC said that scammers would often send emails that say they have embarrassing or compromising photos, videos, or personal information about the user. “They threaten to make it public unless you pay them in cryptocurrency. Don’t do it. This is blackmail and a criminal extortion attempt,” the FTC said.
Social media scams: “If you read a tweet, text, email, or get a message on social media that tells you to send cryptocurrency, it’s a scam. That’s true even if the message came from someone you know, or was posted by a celebrity you follow,” the commission added.
- Enforcement Directorate show cause notice to WazirX for crypto transactions worth Rs 2,790 crore
- Guide: A complete low-down on crypto-currency regulation in India