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Ubiquitous and Creative Fraud is Regular Feature of DeFi | Womble Bond Dickinson


Ubiquitous and Creative Fraud is Regular Feature of DeFi | Womble Bond Dickinson


Much of the crypto fraud is classic old-school scam based on selling to investors’ “fear of missing out.” Like the Ormeus Coin company whose sibling executives were just slapped with criminal and civil charges by the Justice Department. The SEC said the Ormeus Coin execs raised $124 million from over 20,000 investors, lying about the source of Ormeus Coin’s value and spending the money on travel, real estate and personal expenses. The company CEO has been arrested and faces 65 years in prison. Like Stephan Curry, you don’t need to be an expert to invest. But it might help to avoid being scammed.

And some of these scams are creative. For example, a DeFi cryptocurrency project called Beanstalk held hundreds of millions of dollars’ worth of stablecoins that were advertised as being worth $1 apiece. They aren’t worth anything now. Who would have expected an investment disaster from an enterprise whose business model is described in the press as an “honest Ponzi,” which relies on the promise of future investment to assure the claimed value of today’s coins? Disaster may have been predictable, but not the quite-possibly-legal scam that led to the losses.

DeFi and crypto enable a financial tool called flash loans, borrowing large sums to complete a purchase, then selling at a profit and paying the loan back very quickly. Flash loans can allow immediate access to large sums to take advantage of a short-lived investment opportunity. In this case, the loan…

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