Thomas Daniels
India’s Enforcement Directorate (ED) has frozen approximately ₹32 crore ($3.83 million) in cash deposits and other assets tied to Highrich Group, an online entity under scrutiny for allegedly running a crypto Ponzi scheme.
Sources close to the matter, cited by The Hindu, reveal that the ED’s investigation has discovered that K.D. Prathapan and Sreena Prathapan’s Highrich Group amassed around ₹1,500 crore ($179.5 million) from investors by promising high returns and a 15% annual interest rate. The ED accuses the group’s promoters and stakeholders of engaging in illicit cryptocurrency trading activities on various exchanges while promoting their own cryptocurrency, HR Crypto Coin.
According to the ED, these crypto assets were utilized in a Ponzi scheme, enticing investors with promises of high returns funded by new investor contributions. Investors were also reportedly promised a 30% direct referral income for bringing new participants into the scheme.
Since January, the ED has frozen ₹260 crore ($31.12 million), including ₹212 crore ($25.4 million) from 55 bank accounts associated with the company and its proprietors. The investigation further traced ₹15 crore ($1.8 million) in immovable properties linked to the promoters, allegedly procured using proceeds from the fraudulent activities. Acting on multiple complaints from Kerala Police, the ED raided Highrich Smartech Pvt. Ltd., Highrich Online Shoppe Pvt. Ltd., and related entities, resulting in total frozen or seized assets amounting to ₹260 crore ($31.12 million).
Combating Crypto Ponzi Schemes
Ponzi schemes, often masked as legitimate investment opportunities, rely on new investor contributions to pay returns to existing investors rather than generating genuine profits. These fraudulent schemes continue to pose significant threats to global financial markets and investors. Recent high-profile cases underline the critical need for stringent regulatory measures to prevent and mitigate the impact of such scams.
In June 2022, Celsius Network, a cryptocurrency lending platform, suspended all transfers indefinitely and later filed for Chapter 11 bankruptcy, managing nearly $12 billion in assets. Their business model was internally described as resembling a Ponzi scheme.
Similarly, FTX, once the second-largest cryptocurrency exchange globally, filed for Chapter 11 bankruptcy in November 2022, after it was revealed that customer assets had been misappropriated for risky investments, resulting in a substantial financial deficit.
The U.S. Securities and Exchange Commission (SEC) is actively working to combat Ponzi schemes, recognizing their significant risks to investors and the financial system. U.S. Senator Elizabeth Warren has raised concerns about the cryptocurrency market’s regulatory gaps, advocating for stronger SEC oversight to protect investors and ensure financial stability. However, her call for more rigorous supervision has sparked debate within the crypto industry, with some leaders wary of increased regulatory intervention.
SEC Chair Gary Gensler has shown growing support for integrating cryptocurrency markets into the broader financial regulatory framework. Treasury Deputy Secretary Wally Adeyemo and others have emphasized the need for robust regulations to curb the misuse of cryptocurrencies for activities such as sanctions evasion and terrorist financing.
