The bitcoin Ponzi scam that won't go away

New tech, old MLM techniques.

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    This article was produced in partnership with Point, a YouTube channel for investigative journalism.

    In an industry rife with scams, one cryptocurrency trading startup -- USI Tech -- was paying real dividends on its customers' investments.

    At least, it appeared to be.

    In reality, USI Tech was a classic Ponzi scheme. It offered outrageous rates of return and encouraged investors to boost their earnings by introducing more people to the USI Tech family, with the fees from new investors then used to pay off existing customers.

    It wasn't long before authorities in the United States, Canada and New Zealand caught up with the company and issued cease and desist orders. Just a few months later, an estimated tens of millions of dollars had vanished from investors' accounts.

    But that wasn't the end of USI Tech's story. The model soon reappeared with a new name: Eyeline Trading. The former USI Tech website was redirected to Eyeline, but when authorities caught on to the seemingly rehashed scam, Eyeline rebranded to its current form: WealthBoss.

    Bitcoin inserts

    We spoke with six victims of USI Tech who have collectively lost thousands. One man, a security guard from Tel Aviv, who didn't want to be named, said he lost more than $147,000 to scammers behind USI Tech and Eyeline. He earns about $8.50 an hour, so a loss of that scale is irretrievable. Being duped also had an impact on his confidence and mental health. "I lost all my life; I can't recover from this," he said, "I don't have any kind of a future."

    How was it possible for USI Tech to trick investors out of huge amounts of money? Its polished trading platform and lush, real-world investor events in Europe and Australia certainly helped.

    "I lost all my life, I can't recover from this."

    But its biggest draw was the "breakthrough" mining technology, which placed mining rigs in an underground vault in Iceland. USI Tech claimed the rigs could run for longer without overheating and, therefore, mine "14 - 16 bitcoin a day," which would put it in the top tier of mining operations in the world. It even published a video tour of the mining rig that featured clear USI Tech branding inside the facility.

    However, our investigation has discovered that some of the footage was taken from Genesis Mining, a cloud bitcoin mining company that has a facility in Reykjavik, Iceland. Genesis confirmed to Engadget and Point that some of the footage in the video above is from one of its facilities and that it has no affiliation with USI Tech, nor did it give USI Tech permission to use its video.

    Eyeline, just like USI Tech, claims to make profits by both trading and mining Bitcoin. It also offered lofty returns on investments -- as high as 0.66 percent a day, which would turn a $1,000 investment into $11,000 over the course of a year. A USI Tech website, usitech.io, also redirected to Eyeline.

    But Eyeline didn't last long after the British Columbia Securities Commission in Canada placed the venture on its Investment Caution List, so it rebranded in January 2019 to WealthBoss.

    The question of who is behind these companies is complex. Publicly, four key influencers have operated across every rebrand and claimed to make huge amounts of money in the process.

    In online victim support groups, these influencers are known as "Ponzi pimps."

    Eyeline's business model explainer is suspiciously pyramid shaped.

    Lee Oakey, Kerry Stockton, Rodney Burton and Michael Faust were all associated with USI Tech, recruiting thousands of investors to part with their cash.

    In one Facebook post, Oakey, from the United Kingdom, said that when you have an "amazing business" like USI Tech, "all you want to do is tell the world... so I did!"

    Stockton, who is also a Brit and -- according to her Facebook profile -- is in a relationship with Oakey, boasted that the company was changing lives. In one Facebook status, she posted a link to a USI Tech video and claimed a man had paid for his daughter's university education by investing in Bitcoin.

    Oakey and Stockton now live together in Australia.

    Meanwhile, Burton -- also known as "Bitcoin Rodney" -- flaunted how his success reportedly allowed him to buy a $350,000 Lamborghini with Bitcoin. Burton was released from jail in 2010 after serving five years for drug dealing, but claimed he, "has learned from my past mistakes and errors."

    In a YouTube clip of a USI Tech party on a Spanish island, Faust said he'd recruited at least 3,000 investors.

    The level of involvement of these Ponzi pimps isn't clear, and who ultimately owns USI Tech, Eyeline and, now, WealthBoss isn't made immediately obvious to investors.

    Bitcoin inserts

    Both Eyeline's old website and the newer WealthBoss iteration list R&D Global as the company's true name. While the WealthBoss website has no named contact details, Lee Oakey, Kerry Stockton and Michael Faust are listed as admins for the company's official Facebook group.

    But the real person in charge of R&D Global appears to be a man called Dan Putnam, who is helped along by these so-called Ponzi pimps.

    In a number of promotional YouTube videos, the 45-year-old Putnam admits to being the CEO and founder of WealthBoss/Eyeline Trading.

    In one of the clips filmed by Burton, Putnam boasts that a mere $40 investment can grow to $10 million in just 18 months at Eyeline Trading. While his grandiose claims of money making are highly unlikely, it is likely that he is the man behind R&D Global -- the parent company of WealthBoss and Eyeline Trading.

    R&D Global is registered as a limited liability company in Putnam's home state of Utah under the name of Richard Theodore Putnam. A background report on Dan Putnam conducted by a public records search service reveals that Richard Theodore Putnam is a 75-year-old probable relative of Dan Putnam. Furthermore, the agent address listed on the LLC registration matches a possible location of Dan Putnam highlighted in the background report.

    R&D Global and Dan Putnam are nothing if not prolific. They specialize in multi-level marketing (MLM) businesses -- industry speak for companies that use pyramid structures of commissions and bonuses to encourage existing customers and investors to refer new people to the business.

    In addition to his Eyeline and WealthBoss dealings, Putnam is also the CEO of Modern Money Team, another company that claims to make money through cryptocurrency mining and trading. He's a serial MLM founder -- there are 118 website domains registered to Dan Putnam, but that list isn't exhaustive because it doesn't even include Eyeline Trading or WealthBoss.

    Bitcoin inserts

    Putnam wasn't always a Bitcoin Ponzi specialist, he simply takes advantage of whatever is trendy at the time. For the moment, that's Bitcoin and cryptocurrency, but R&D Global has also set up shop as O2 Worldwide and B-Epic, which present themselves as wellness companies.

    O2 Worldwide has since rebranded as Lurra Life, which, along with B-Epic, also has a pyramid referral business plan like USI Tech, Eyeline Trading and WealthBoss. Both Lurra Life and B-Epic are on an MLM watchlist.

    The fact that it takes such a large amount of digging to find out who really owns these companies is a major red flag, warned Joseph Rotunda, Director of the Enforcement Division at the Texas State Securities Board, which issued USI Tech with a cease and desist order in 2017.

    "Investors were turning over their life savings and their retirement, essentially to a ghost."

    A normal, credible investment company would readily list its top employees and founders on the websites. They'd also include a mailing address and phone number.

    "Because USI [didn't] disclose the names of its principles, investors were turning over their life savings and their retirement, essentially to a ghost," he said. "At the same time, the company was promising outrageous rates of return."

    The scammed security guard from Tel Aviv is not alone. He's one of six former investors who Point and Engadget interviewed for this story. All told, they lost every cent of the money they handed over to USI Tech.

    By the time the scheme collapsed in spring 2018, Rotunda estimates the organizers could have extracted hundreds of millions of dollars from the general public all over the world.

    We spoke to a woman from northern England who was introduced to USI Tech by her daughter. She asked to remain anonymous for fear of what her friends and family would say if they knew she'd been conned. For the purpose of this article, we've called her Joy and refer to her daughter as Alice.

    Joy and her husband initially invested £1,000 (around $1,300). "We monitored it and it seemed to be doing really well," she said. "We then decided to invest [$26,000]."

    "I can't get my head around it that they could introduce it as a sort of family and friends scheme and then have it just be such a scam."

    "They did tell us at the beginning that you were more or less guaranteed to get your money back," said Joy. "I feel so silly now I could cry."

    Alice, who invested and lost a total of £2,000 ($2,600) feels guilty that she introduced her mom to USI Tech to get the advertised referral boost to her investment. "It haunts me," she said. "I can't get my head around it that they could introduce it as a sort of family and friends scheme and then have it just be such a scam."

    Many others wouldn't speak on the record for fear of social stigma. Alice said it's a tough thing to talk about because the referral system naturally means most investors also introduced family and friends who also lost their savings.

    Meanwhile, Rotunda says it's important for law authorities around the world to keep on top of this whack-a-mole Ponzi problem. "The longer these things operate, the more victims they bring in and the more people who are going to be out of money at the end of the day."

    All the victims interviewed by Point and Engadget want to know if they'll ever get justice. Rotunda is cautiously optimistic.

    "These schemes can go on for a long time. There are a lot of very creative people out there who are very adept at covering their tracks and concealing their location, but at the end of the day things tend to catch up with them, so I'm confident that whoever is behind it will be brought to justice."

    We reached out to Dan Putnam and all of the USI Tech/Eyeline promoters named in this story, but none replied to us by the time of publishing.

    Update 7/3/2019: Dan Putnam has responded to our request for comment. He said that WealthBoss is a separate corporation to R&D Global, and that the R&D Global name on the website is an error on the web designers' part that is being corrected.

    Eyeline Trading, Putnam said, was on the British Columbia Securities Commission's Investment Caution List solely due to it "not being possible to register a crypto-based company" with the exchange at that time. He added that he has "no idea who runs or owns usitech.io," the site that was redirected to Eyeline Trading's site.

    Putnam maintains that no people have lost money with WealthBoss or any R&D Global company. The rebrand to WealthBoss, Putnam said, came about because another company named Eyeline asked them to rebrand due to "100-percent false scam reports" that were affecting the unrelated company's business.

    Putnam said he has nothing to do with USI Tech. He knows "very little" about that company, although he did note that "some of their distributors are also [WealthBoss] distributors." WealthBoss' aim, Putnam said, "is to introduce people to crypto currencies, educate them and help promote our wallet, exchange and crypto in general ... we feel there are a lot of benefits and people should at least get educated."

    Engadget and Point would like to clarify that, although the business models and target market are similar, some of the key distributors are the same and a USI Tech domain forwarded to Eyeline Trading, we are not asserting that USI Tech is or was an R&D Global or Putnam company. There was one line in the original story that conflated the two entities, and this has been corrected. We apologise for the error. We have reached out to Putnam for further clarification and comment on this story, and will continue to update this story as appropriate.

    Bitcoin Ill

    Credits:
    Reporters: Benjamin Plackett, Jay McGregor, Aaron Souppouris, Marianne Lehnis
    Editors: Aaron Souppouris, Jay McGregor
    Copy editor: Lucy Cripps
    Images: Eyeline Trading (business model diagram); Aaron Souppouris (illustrations)

    Video by Point
    Narrators: Jay McGregor, Benjamin Plackett
    Producers: Aaron Souppouris, Jay McGregor
    Editor: Anton Novoselov

    All products recommended by Engadget are selected by our editorial team, independent of our parent company. Some of our stories include affiliate links. If you buy something through one of these links, we may earn an affiliate commission.
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