A multi-platform, multi-continent scam roped in hundreds of people for at least $1,000 each over the course of 2017 and…
A multi-platform, multi-continent scam roped in hundreds of people for at least $1,000 each over the course of 2017 and 2018. The old Cloud Mining exit scam in the extreme. An altcoin called “Bitcoin 2nd Generation,” B2G or Bitcoiin2G came out of the charade with actor Steven Seagal reportedly endorsing the cryptocurrency. The B2G ICO (Initial Coin Offering) culminated in New Jersey, where The New Jersey Bureau of Securities cracked down on B2G advertisement in the state. A company called Dragon Mining is allegedly behind the whole scheme, possibly including B2G itself.
A group calling themselves The Crypto Crime Fighters have contacted CCN and provided further information. Several exchanges and “cloud mining” operations have participated in the execution of the scam. CCN spoke to a few of the principal victims by phone to get the lowdown.
Jorge, one of the lead organizers of the victimized group, explained that the scam involved several companies and an altcoin called BITCOIIN2G.
“They’re labeling it as a second generation Bitcoin,”
The pyramid of problems began, for most of the group, with a company called Start Options. If you visit startoptions.com today, you are immediately presented with a popup asking you to go somewhere else if you’ve never been paid. Jorge explained everything in great detail. We’ve archived the Start Options website.
They call themselves a cloud mining company. So the way this company works, or at least used to work, investors would put in around $1,000 of investment, at a minimum. In return, this company would promise to pay out anywhere between 25% and up on a monthly basis.
Investors could log in. They have a back-end where the investor will see results of their account, from the "mining operations" they had. Many of us, from different walks of life, put money into this cloud mining company from 2017 to 2018.
There are legitimate cloud mining outfits. Nicehash and Bitcoin.com both seem to sell actual hashpower. Their mining power is measurable on the networks they are said to run on. There are also companies that connect miners and renters, such as MiningRigRentals.com, which have done business for years without users complaining of scams.
The existence of legitimate cloud mining contracts makes it difficult to say “cloud mining is a scam.” However, in this reporter’s experience, most cloud mining outfits do turn out to be scams.
They had what they called a contract. Some of these contracts went for 30 days. Others 60 days. Some 90 days. Meaning, at the end of that period, investors were expecting to get paid. So if you had a contract that was a 90 day contract, and you put in let’s say $1,000, at the end of that period you expected to get your investment plus a return.
Start Options did not allow withdrawals prior to the expiration of a contract. Many cloud mining outfits do. Jorge says he viewed it similar to a bank Certificate of Deposit, where he would make a deposit and once it matured, he would reap the reward.
Veteran cryptonaughts are probably already hearing bells ringing. It sounds a lot like the company GAW Miners from back in the day. Headed by Josh Garza, GAW Miners managed to defraud investors in the millions. Originally selling rebranded mining equipment, they later launched a cloud mining outfit which was later proven to be nothing more than a Ponzi-scheme.
GAW’s scheme was selling “digital miners” that they called “Hashlets.” These were produced in limited batches and were transferable. The lengths that Garza and his cohorts went to conceal their scheme were admirable. Hundreds of people who were actively being duped came to Garza’s defense when this reporter and this publication began to publish stories questioning the integrity of the company.
One of the claims on the website is a copyright date of “2012/2017.” This is where Jorge gets the idea that they have have been around for “several years now.”
However, when we look at the web archive of startoptions.com, one of the older sites that we’re able to pull up is something that has nothing to do with mining. It appears to be some kind of traditional stock options website.
Whether the old Start Options company and the new Start Options scam are related is unknown. Domains can be bought and sold.
We know that there are no archives of the site in September 2016, while it was archived most months prior to that. If the domain changed hands, we assume it happened during this period.
We are relatively sure these aren’t the same people because the older company used French on its website and appeared to be Euro-centric. The new company was based in Hong Kong. No one's really sure about that part. Operations were also in the Philippines for some of the scams.
It was during the bull run of 2017 that our story really begins, regardless of when Start Options entered the fake mining industry.
From a scammer’s point of view, bull runs are the best time to run crypto scams. All the old scams of “bitcoin generators” and worthless altcoins are suddenly back on the table.
Thousands of new people enter the market ready to plunk down their money. Often these people are experienced in some other form of business. They don’t fully understand the technology. A sense of FOMO (fear of missing out) drives them to make quick decisions. All they know is that they must get into this thing before it's too late.
This is the context in which the Crypto Crime Fighters were drawn into the Start Options scheme. Start Options was just the beginning.
This reporter asked Jorge if he had ever seen proof that the company was actually mining. For larger pools, this proof is found when they hit blocks. In the GAW scam, they were able to mine some blocks and prove it, at least in the early days. Jorge says:
Some investors supposedly vetted them out. Apparently they had been in business for several years. There were pictures that were shown. One of the investors actually went to Hong Kong and visited their office. There were pictures and as far as we knew, they looked legit. At the time. It allowed more of us to gain confidence and jump in with some money.
Like most things crypto, legitimate or not, Start Options used affiliate marketing to grow its victim base. Affiliate marketing gives users incentive to encourage others to join a program or buy a product. In its best form, it’s simply a convenient way for small scale marketers to get paid for their efforts. At its worst, it essentially involves the affiliate in the scam as an active promoter. Other recent large-scale scams such as BitConnect Club used affiliate marketing to extend their multi-million dollar rake.
In lieu of actual network hashpower, Start Options provided pictures and testimonials. Here is a picture of “their offices”:
The white man in the photo is named John De Marre. We’ll talk more about him at the end of the article.
Hashpower is publicly available data. When a miner mines a block, they have the option to signify that it's them doing it. In the earliest days of mining, simply the address that the reward went to was available. But in modern times we can identify mining pools because they publish their names in plain text.
As far as we know, Start Options and its associated outfits have never mined a Bitcoin block. If they ever were mining, they were likely mining through a larger pool.
Even the most gullible newbie will not just jump on board. The reader is probably putting together the elements of this scam by now. Jorge says:
Apparently some members got paid at the beginning of this thing, sometime in 2017.
Deposits were accepted via Bitcoin or bank draft. The minimum deposit was always $1,000.
CCN has notified federal authorities about the events herein. We will update this story if we receive any feedback. Unfortunately, at present time law enforcement resources are limited at the federal government level.
About the bank transfers, Jorge tells CCN:
Those transfers went out to two different destinations. One destination, as I understand it, went to the bank account of Start Options in Hong Kong or the Phillipines. The other destination was based here in the US.
When most investors were introduced to Start Options in 2017, they were expecting to mine Bitcoin, Ethereum, and Litecoin. These are stable networks with global brands.
It’s conceivable, especially during the bull run, that people could make profits without mining at all. Some schemes in the past have simply taken deposits intended for mining contracts and traded them in order to return profits. These schemes have probably lasted longer.
In February of 2018, Start Options posted a notice to their website:
06 February 2018, Hong Kong– On Monday morning Start Options CFO, Mr. Felix Logan announced they going to add Bitcoiin 2Gen (B2G) in their Mining & Trading platform.
Investors will be able to trade B2G in the first week of April 2018. He added it is important to diversify the portfolio to lessen the risk causing by the constantly fluctuating prices of Bitcoin. Adding a new coin will make mining a more profitable business due to the low percentage of difficulty to mine a new coin.
Bitcoiin2gen (Bitcoin Second Generation), which intentionally uses two I’s and has the domain bitcoiin.com, describes itself this way:
Bitcoiin2Gen proposed a self-sustaining cryptocurrency, which is transforming the cryptocurrency world by creating a digital ecosystem. Bitcoiin’s self-sustaining ecosystem is an open, collaborative environment of a cryptocurrency (B2G), mining ecosystem (Dragon Mining Tech), and a crypto-wallet (B2G wallet).
Thus far in the investigation, we have determined that Start Options did not exist for “several years.” The earliest they might have been operational was the end of 2016.
As previously noted, it was in February of 2018 that they decided to integrate a random altcoin into the platform called B2G. This is when things began to get hairy for investors.
While some people probably experienced problems prior, the real scamming started after that point.
They changed everything. As far as the payouts – prior to that, they were very responsive. After they switched over to B2G, then they created this other platform called Thorex.
He says they changed the withdrawal process. Now a platform called Thorex.net along with SMT coins were required to realize gains. We draw nearer to the central part of the scam, a total lack of liquidity of altcoins that were required to derive income from the platform. Jorge continues:
The process switched. They went from making the payouts in Bitcoin directly to the investor’s Bitcoin wallet. Now the investor had to go to the Start Options platform, request a withdrawal. That withdrawal would then go into this Thorex platform that they created for B2G. It would get converted into this other coin that they internally called SMT. SMT claimed to be 1:1 to the dollar. [A stablecoin.]
Jorge says that people who tried to use the Thorex platform never actually got paid.
People who tried to go that route never got their money out because it would get stuck in the Thorex platform. Literally forever.
Thorex.net appears to be an active website. The user can instantly convert one of three tokens to B2G. SMT is one of those tokens. Importantly, the user cannot convert B2G to anything else using the platform.
Getting paid in an altcoin is better than not getting paid at all. But the altcoin must have some form of liquidity. The majority of altcoins use bitcoin for liquidity. They are paired with Bitcoin across various exchanges, and those who transact in them can realize their funds by converting them to bitcoin and then converting bitcoins to dollars, or just holding the BTC.
Jorge says B2G was listed on two exchanges, one of which is well-known exchange HitBTC. Like many altcoin exchanges, HitBTC will allow altcoins to get themselves listed for a fee.
The other one was called Exrates.
Now at HitBTC, you could buy B2G’s, but you couldn't deposit. So let’s say at Start Options you got paid in B2G, let’s say $2,000. Ideally, you could take those B2G and put them in say Exrates - but you could not put them in HitBTC.
HitBTC did not allow deposits of B2G. Coins were initially put on the exchange by the coin’s team and these were being actively traded. New deposits and withdrawals were disabled.
Across exchanges during the crypto boom, the price of B2G went as high as $240.
However, on closer inspection, these prices were only available at HitBTC. That would mean a user would have to make a deposit with some other cryptocurrency on HitBTC, buy the coin before the bubble, and then sell it.
Such rates have never been available at Exrates, which was the only exchange offering a USD pair with B2G, and in fact, at the time, the only operable way to actually use the B2G investors were now being paid with.
Effectively, these rates were fictitious. The actual value of a coin is in what you can do with it. If you can’t even deposit or withdraw the thing, it’s not really an asset on the platform. Further, if more tokens can’t enter the trading pool, then it’s protected from normal trading routines like oversupply and dumping.
Presumably, there would have been a lot of dumping if Start Options users had ever been able to use the HitBTC markets.
Now on the other exchange, Exrates, B2G was trading for pennies on the dollar. I’m talking about cents. So if you had initially $2,000 worth of B2G that you got paid from Start Options with, if you were to trade those at Exrates, literally you would maybe get $10 if you were lucky.
It seems that Start Options used the highest rate available – the rate produced by HitBTC’s locked market – to denominate the payments it made users in B2G. Thus it would give them $X in B2G, which at HitBTC was supposedly worth the amount that was owed to the investor, but the investor would not be able to achieve liquidity through HitBTC.
Their only actual option was Exrates, which had far more realistic values in place and traded directly against the dollar.
The story gets more interesting here. Around the time the Crypto Crime Fighters contacted CCN, B2G claimed to be launching a lawsuit against HitBTC for “wash trading” B2G tokens.
The subject of their suit is questionable. HitBTC may end up arguing that it was the token’s creators themselves who did all the trading that created the bubble described above. It was in their interest, after all, not the exchange’s.
They even retweeted someone asking CCN to investigate the matter. Don’t worry, B2G. We’re investigating you, alright.
An “exclusive” report on Medium.com reads, in part:
The Hong Kong exchange is now being accused of failing to honor their part of the agreement. During the course of several months, B2G was never promoted on the front page and, although it was listed, the deposits and withdrawals were never made available. HitBTC eventually blocked all communication with B2G team when B2G team requested the reimbursement of the 75 bitcoins which they paid to HitBTC but never received what they paid for. B2G has sent a crime report to the Honk Kong police and is in the process of filing a lawsuit.
A Chinese-based company called Dragon Mining stands over the whole scheme. You may remember them from the earlier screenshot where Start Options encourages people looking to get their money to go to DragonMining.tech.
Dragon Mining is intimately involved with B2G. Billed as the “world’s most efficient miner,” we found a video of what appears to be an Antminer S9 being called a “Dragonmint” and claiming to mine at 16 TH/s.
Now, at the time of writing, the total network hashrate for B2G was just 36 GH/s. This means that not even one of these alleged miners is mining on the network.
A 51% attack would be very feasible for even a small operation. You can buy a 1TH/s rig for less than $1000. The best conclusion as to why HitBTC did not want to allow deposits or withdrawals of B2G is the fact that its network had no hashrate. 51% attacks would be trivial.
DragonMining is actually producing real hardware. They are also selling mining contracts. CCN found some units for sale on eBay and a few other retailers. How they stack up against the Antminer series in terms of price versus performance, we don’t know.
Dragon Mining has most likely funded their hardware operations through defrauding investors in cloud mining. Jorge explains that another company "saved the day" when Start Options executed the exit scam. Jorge says this happened around June of 2018, when the first mining contracts from the B2G era of Start Options began to mature.
After the 90 day contract came due, Start Options stopped answering phone calls, messages, and e-mails.
Then we hear that another one of the partners says, ‘Hey, Start Options is closing their doors. We are going to rescue you all. So we’re going to take a number of accounts for Start Options and we’re going to migrate those accounts over. However, for those accounts that want to be migrated, you have to pay out a certain amount of money. Don’t worry. That money is going to be added to your account. So when your contract is due, you’re going to get that money back.’
Obviously everyone were happy to hear that because Start Options had gone silent. We’re happy to come on board. They seem to be legit. Some members have been getting paid by this company. That company is what we call BTW, Bitcoin Trading World.
Jorge goes on to explain that BTW couldn’t take on everyone from Start Options, so another company in the twisted web called BTC Mining Factory takes the remaining accounts on in a similar fashion.
The deposit or “migration fee” for both companies varied. Bitcoin Trading World charged a percentage of the amount the user had previously invested with Start Options. BTC Mining Factory charged a flat rate of $500 plus 2%, if Jorge recalls correctly.
The exact figures are unimportant. What’s interesting is that these other companies were capitalizing on the pool of verifiable victims. Rather than extending actual life rafts, they handed them more snake oil.
The victim is living their worst nightmare and assumes they will be helped. Only to be attacked again.
At one point, says Jorge, the companies offer to let people exchange their B2G for BTC. They created an obvious arbitrage opportunity: you deposit “$25,000 worth of B2G” and we’ll give you the Bitcoin value. The catch? You have to pay a fee.
Another member of the Crypto Crime Fighters says that every new “opportunity” came with a sales pitch. In the case of the move from Start Options to BTW and BTCMF, users were offered a “buy one get one” deal as regards Bitcoin investments. That’s right: they claimed they would give users a free Bitcoin worth of hashpower for every Bitcoin they invested.
For people who don’t understand the very slim profit margins available in Bitcoin mining, such opportunities might not seem too good to be true. But by this point, the red flags are flashing.
It’s now October 2018. At this point, it’s been around six months since the transition to B2G and subsequent problems at Start Options. Jorge says that a typhoon hit Hong Kong right around the time their contracts came due.
Similar to Start Options, Bitcoin Trading World has a popup when you visit their website directing you to get your payout from Dragon Mining:
They asked for a couple weeks to make payouts. Jorge says most of the people were very sympathetic and willing to wait. However, he says, Bitcoin Mining Factory just does the same Start Options had done:
With BTC Mining Factory, they just went silent. They just wouldn’t respond. They closed down their live chat. And that was the end of it.
BTC Mining Factory has the same popup directing people to Dragon Mining.
As with all scams, there is by now a clamor of people trying to warn new investors. CCN discovered this contrary video where a woman claims to successfully make a withdrawal on Bitcoin Trading World:
She, of course, has a referral link in the video description.
Bitcoin Trading World, before they exited as the others had, used a common scam tactic in the crypto scam world: they offered a prepaid debit card.
They said, we have been in touch with Visa International. We have paid around $100 million for them to issue out prepaid debit cards. It’s easier for us to pay with fiat than in Bitcoin at this point. So we’re going to issue out Visas and we’re going to have about four different levels of Visas. There’s this free one where you can withdraw $500 per month. And we have other levels.
Jorge says that some of the Crypto Crime Fighters contacted Visa and found out that there was nothing of the kind going on with Visa.
Let’s step back a second and look at what we just learned. Start Options completely scammed these people after it moved to the B2G model. It’s unclear if they were ever legitimate at all, but it’s clear that they became insolvent after they decided to integrate B2G and exclusively pay out in B2G.
We can reasonably assume that plenty of people chose not to enter the new scam, but the size of the minimum investment would have made any potential rescue attractive to most.
What the Start Options victims represented, then, were prime marks. They were in a position where they felt they needed the new companies. They'd already gone in on previous scams. A perfect market. The dynamics of this scam are unique in this respect. When GAW and other scams imploded, some outfits did appear trying to pretend they could save the day, but they were not successful.
In the hustle and bustle of the crypto boom, however, when all eyes were on Bitcoin hard forking and the latest tweets of Craig S. Wright, our informants fell prey to some extremely advanced scam tactics.
As this reporter said to the Crypto Crime Fighters:
It’s like they decided they wanted to make another X% over and above what they had already stolen, so they came up with a scheme and executed it.
It gets better than that.
Eventually, we learn that DragonMining had several other very similar schemes to Start Options. They are as follows:
Every one of these companies had a similar model. They sold mining contracts, eventually paid out in B2G, and had an association with DragonMining.
Dragon Mining told investors in all the scams that they had an insurance policy, as Jorge explains:
They said, we are not going to take an additional penny out of you. We have this insurance policy that was put together awhile ago and we are calling out to the victims of the companies so that they can get paid at least the amount they deposited. That was a relief to us, so we filled out the forms online.
Jorge was right, though. It does get better. He says the notice we see today was slightly different for a while. It encouraged people to go and fill out their insurance claims. “Here was the offer of the insurance, at which we were all pissed,” he says.
Initially Dragon Mining said look, we’re not going to ask anybody for any additional money. Now when they started calling people back about the insurance claims, they wanted more money. This was the structure of their offer: they said we’re going to pay you 50% of your initial deposit within a year. You have to give us X amount of percentage in order to participate in the insurance program. Then after a year, the price of B2G is going to go up, and you’re going to be able to get your entire deposit back.
Jorge says few, if any, of the victims participated in this program. Trying to get people to buy into this last-mile scheme seems to be the extent of Dragon Mining’s involvement these days. The insurance program page says:
Any client that has invested in these Mining Platforms (previously listed under our Mining Programs) has the right to claim either their initial deposit or their whole account balance at the specified Mining Platform.
Jorge says they get hungrier as the extent of their scam comes to light. They offered express processing of insurance claims “within 72 hours” for the low price of 1BTC.
Again, few of the burned victims, if any, have attempted to see these things through. These people have overwhelmingly shown themselves to be untrustworthy time and again.
The insurance scam seems to be the last of their efforts, to date. Crypto Crime Fighters have filed police reports and are working on a class action suit against the perpetrators of the scam. Some of the parties are US persons.
Now we talk about who was involved. Each company had an alleged corporate structure, but there were principal players who had the most to do with the victimization of innocent noobs in the crypto game.
John De Marr is a principal promoter of Start Options and Bitcoin Mining Factory. He has been a registered private investigator in California. De Marr's in the picture above at the Start Options “headquarters” along with other pictures provided to CCN.
Along with him is Derek Deresh aka Kumar Deresch, seen below (left) along with De Marr (middle) and another promoter called Michael Latjay (bottom right).
Of course, we’d be remiss not to reiterate the involvement of Steven Seagal. Seagal endorsed the B2G ICO. That’s bad news for Seagal, who may find himself slapped with fines as other celebrities have been.
Images captured by the author's computer or provided by Crypto Crime Fighters. Featured image from Shutterstock.
Last modified (UTC): January 23, 2019 8:22 AM