Cracks appear in Bitcoin Ponzi king Amit Bhardwaj’s empire
New investor money coming into GainBitcoin schemes has slowed down making it difficult for the company to keep its word on payouts to old investorsThe company has created multiple hoops that investors need to go through to get their money back. Most of the time, they don’t succeed in pulling it outTo keep investors in, Bhardwaj is launching new schemes linked to Bitcoin and Ethereum but the catch is: investors will have to stay locked in for even longer
Since late last year, Mayur had been keenly watching this new raging investment avenue called Bitcoins (BTC). He wanted to bet on it but his job involved constant international travel and Mayur wanted help to make the investment.
Enter GainBitcoin, a cryptocurrency investment scheme that guaranteed 10% monthly returns. So confident was Mayur about the investment that he borrowed over Rs 3 lakh from his family and friends in April 2017 to buy into the GainBitcoin scheme.
Mayur’s punt on BTC was bang on. Between April and now, BTCs have grown over seven times in value touching nearly $7,200. He should be ecstatic but he is not. He is left holding crypto tokens called MCAP that few in the rest of the world have heard of and one that is worth less than 20% of the value of his initial investment had it been held in Bitcoins.
“If I had just invested in Bitcoins and not GainBitcoin, today I would have made several times the money. MCAP was forced onto us and was not the payout was supposed to be in Bitcoins according to the original contract,” says Mayur, one among the many investors in a pyramid scheme company GainBitcoin who are now being forced to take Bhardwaj’s own token called MCAP which is valued just around the $1.43 mark.
Sunil, a 24-year-old software engineer from Bengaluru, had a similar fate after investing in the GainBitcoin scheme over a year ago. “Before they used to respond to our queries but as the complaints increased the number of query tickets has also increased and so there is very little or no response from the company,” he says.
Scan social media and you will find scores of posts on Facebook and Twitter of investors complaining how they were sold a lemon by Bhardwaj and his GainBitcoin managers. But, reach out to them and very few want to talk even if offered anonymity. Mayur and Sunil are among the few who opened up and that too on condition that their real names or places of work wouldn’t be revealed. Yes, ‘Mayur’ and ‘Sunil’ are fictitious names of two GainBitcoin investors but their stories are as real as daylight. FactorDaily has verified their stories – as also the stories of others in this story – with document trails and second levels of checks.
GainBitcoin has not commented for this story. An email requesting comment sent to Bhardwaj and his media manager the week before has not been replied to until time of publishing this story. We will update the story if we hear from them.
How it began going wrong
Bhardwaj is arguably India’s biggest cryptocurrency miner and investor with links to Bollywood stars, advertisements in mainstream media and airline travel, and even an electronic book. He is said to control 2.9% of hash power – as computing power in mining BTCs and other cryptocurrencies is referred to – in the Bitcoin universe via his company GBMiners (more on GBMiners later). Over the last two-three years, coinciding with the bull run in cryptocurrencies, he has created a multi-level marketing scheme under the GainBitcoin umbrella that has in excess of 100,000 investors been drawn to his promise of 10% monthly returns and has assets self-declared earlier this year at Rs 1,200 crore.
FactorDaily’s first story early in July on Amit Bhardwaj and his cryptocurrency Ponzi-like operations got us a response like no other story had done until then. Comments came in thick mostly with accusations that our story was “fake news” and Bhardwaj ran a legitimate and profitable shop. By the time our second story on him – ‘The curious story of Amit Bhardwaj and how he made millionaires and fools of Bitcoin investors’, which detailed the modus operandi of Bhardwaj and his related companies – the cheers had died down and there were murmurs of how all was not well with the multi-level marketing scheme.
In the three months since, things have gone into a tizzy in the Bhardwaj empire. He says he’s had a renal transplant and that has kept him away from business. He flipped payouts that were to be made in Bitcoins into a GainBitcoin-issued token called MCAP. The price of this token has been languishing even as Bitcoin soars. Investors find their money locked in with no means of an exit. Most importantly, word started getting around about the dodgy nature of GainBitcoin schemes leading to a slowdown in investors signing up for the schemes and new money flowing into the empire seems to have petered — presenting a classic Ponzi meltdown where old investors can’t be paid (with money from new investors) what they were promised.
An investor who stepped away from putting money into GainBitcoin a few weeks ago wrote to FactorDaily: “Today some members of the GainBitcoin team in Kannur (Kerala) met us – myself, brother and uncle – and introduced their plans. It was quite impressive. But, when I googled I found many articles about GainBitcoin scams, among them one was from FactorDaily,” wrote the investor, whose name we are holding back since we don’t have the permission to reveal it. In our last story, we’d mentioned the case of Zakhil Suresh, an investor from Kodungallur in north Kerala, who was approached by a GainBitcoin promoter to take down his (Suresh’s) Change.org petition because it was showing up on Google searches and affecting chances of roping in new investors.
Before going further, it would be instructive to take a quick look at Bhardwaj’s empire:
GBMiners houses Bharadwaj’s cryptocurrency mining operations, which the company says is run from China.
GainBitcoin is the company through which Bhardwaj bring on board investors by selling them cloud mining and Bitcoin investment plans, which they are told is powering GBMiners’ mining operations and, in turn, driving returns. These investment plans were offered in the form of Bitcoin mining contracts which, according to early investors, gave out monthly payouts in the form of Bitcoins, in lieu of the investments made.
Typically, potential investors are introduced to GainBitcoin through seminars and webinars where attendees are introduced to Bitcoins and told how they can make money by investing in the Bhardwaj company. (The group also comprises of other companies that find mention in the second Bhardwaj story.)
MCAP, the twist in the plot
Investors who initially signed up for GainBitcoin schemes were supposed to get a monthly return of 10% on their investment in Bitcoins. “According to what we were told initially and the original contract, an initial investment of 1 BTC was supposed to grow to 1.8 BTC after 18 months,” says Mayur, who is based in Mumbai.
Things seemed to be going pretty well for Bhardwaj’s GainBitcoin and its onboarding strategy until early 2017 when he launched his new product called MCAP, a cryptocurrency token developed by another company he controlled, MCAP Labs.
When MCAP was initially launched at the Macau MVP event in April 2017, it was supposed to be an option in which investors could opt to get their monthly payouts in. According to Bhardwaj at the event and the MCAP website, the investment made through MCAP tokens would also be used to mine cryptocurrencies like Bitcoin, Litecoin, Dash Coin, Ethereum, Lite Coin, Ethereum Classic, Z cash, and Monero, thereby further increasing the value of their investment.
A short while later, however, MCAP was not just an alternative option to receive payouts in; it became the default and only payout option, replacing Bitcoins, which was the cryptocurrency for payout per the original contract. FactorDaily is not sure when this switch occurred but it seems to have been made sometime in June or July. When the company began to change their payout policy without giving investors an option, many of them began to cry foul and said that the MCAP tokens were forced on them.
“According to the original contract, payouts were 100% BTC payouts for 10% of the investment every month. The first change to the payouts was 50% BTC and 50% MCAP token (to be introduced then) payouts. The second change to the payouts was 100% BTC or MCAP token payouts at the discretion of investor and payout would be on daily basis than after 15 days (as it was) earlier,” Shubham Jain, another victim of GainBitcoin who invested in the plan in April 2017. Jain, who is a chartered accountancy student from Chandigarh, says that the third and final change to make the payouts in 100% MCAP token was what has angered all the investors. “Many of them did not opt for MCAP token during the second change in payouts and that is when the company changed to making payouts only in MCAPs and no more Bitcoins.”
Every investor FactorDaily spoke to said what angered him or her the most was the fact that the original contract in GainBitcoin was changed without the consent of investors. They were left with no option but to obey the new “forced” terms and conditions. “The main issue is there is a breach of contract and trust because terms are changed for the benefit of GB or BGF, not for the investors,” adds Jain. BGF is short for BitcoinGrowthFund, which is another of Bhardwaj’s companies that had initially sold MCAP during its launch. Today the BGF talks about their latest product, an ICO tracker.
The BTC-MCAP-USD hoop
“Now what GainBitcoin is doing is that on the user’s dashboard the payout is shown in Bitcoins but when they transfer the amount to a supported wallet or exchange, instead of BTC they are credited with an equivalent amount of MCAP tokens,” says Shrirang Muley, another investor who was able to take out his initial investment from the company but still has a contract with them. Muley is a Pune businessman.
That, in itself, would not be a problem if MCAPs tracked BTC prices and were liquid. At launch, investors were told MCAP prices would increase to $100 per token in a year’s time from the initial offering price of $5 in a year’s time. The market price is much lower than even the offer price.
Things start getting strange once an investor tries to liquidate his or her holding: according to the company, the value of MCAP is around $15 (don’t ask for the logic behind this). Irrespective of the market price of BTC or MCAP, the conversion fixed is 1 MCAP equals 0.00215 BTC. So when you transfer 1 BTC from your GainBitcoin account to a compatible wallet, you are credited with 465.12 MCAP tokens.
Once you have the MCAP tokens, you will want to convert them to a real world currency like US dollar. But you have only a couple of options. One of them is mcap.exchange, a part of Bhardwaj’s MCAP Labs, but here you are only allowed to place a sell order of between 5 to 15 MCAP tokens per trade. A visit to the page will show up a plenty of pending orders.
“On mcap.exchange, even if you place the sell order, the message that was shown was that the exchange has 0 BTC as balance to pay for the MCAP tokens being sold; so, try again later,” says Muley, the Pune investor who had received payouts in MCAP tokens.
Of all the viable options, then, the one that seems to work is the cryptocurrency exchange called C-CEX. According to cryptocurrency tracker coinmarketcap.com, C-CEX accounts for over 97% of the MCAP transactions — almost all MCAP trades happen on this exchange, in other words. But, unlike GainBitcoin’s self-declared $15 value for each MCAP, C-CEX lists MCAP tokens at around $1.4 (at the time of writing). So, on C-CEX, where you have the highest possibility of being able to sell your MCAP tokens, you will only receive around $650 for the sale of 1 BTC equivalent of MCAP tokens — that is, less than one-tenth of the current market price of about $7,200 per BTC. Nearly 90% of your investment would have vanished in the BTC-MCAP switch.
“Even today the company says that the price of MCAP will touch $100 like Bhardwaj had said during the token launch, but I don’t understand how the token will touch that price when it has not crossed the $2 mark,” says Muley.
Mayur also recollects being informed while joining that taking out the monthly payout returns was supposed to be an easy process. “We would invest via Bitcoins and the returns would be in Bitcoins and it would be very easy to take out the returns, even someone without much technical knowledge will be able to take out the returns,” he says.
Bhardwaj, meanwhile, doesn’t look like he’s done with new schemes. According to a recent blog post by Bhardwaj, the company plans to incentivise investors with Bitcoins if they are willing to hold on to their MCAP token rather than selling them.
The company said in the post that the total supply of MCAP is 100 Million tokens and the number of MCAP tokens an investor holds defines their stake in the MCAP ecosystem. “At MCAP Labs, we generate 100 Petahash worth of Bitcoins on a daily basis and we plan to pass on our earning to MCAP holders in proportion to their stake in the network,” the post read.
Bhardwaj also said in the post that the investors should be able to reap the benefits in coming 6 months — a tactic some investors see as him buying time. It is not clear whether investors with MCAP will be credited with Bitcoins or whether they will be saddled with MCAPs or be given something else.
He also added that at the rate at which the company is progressing, it should be able to release one such product every three months. The website of BitcoinGrowthFund, which was the company under which the MCAP token was launched, has been updated to list a new soon-to-be-coming product which seems to be an exchange for ICOs.
“He has launched a new Ethereum scheme which is supposed be valid for 24 months until it is profitable for the investors. If he can launch an Ethereum plan, then why can’t he pay us our Bitcoins,” aks Mayur.
The Ethereum pivot that Mayur is talking about pertain to mining contracts being presented as part of what the company calls ‘GainBitcoin Phase2’. According to this new plan, investors can purchase Ethereum mining contracts using MCAP tokens. There will be monthly payouts but details of conversion to real world currency and how long the contracts will be are not immediately available.
Silent victims, cops sitting on their hands
If you search for @amitbitcoin, which is Bhardwaj’s handle on Twitter, you can see a barrage of comments from investors venting their frustration about how GainBitcoin is not giving them the promised payouts. But this is just a fraction of the investor pool who are unhappy with the events.
Several victims who contacted FactorDaily did not want to come on record and preferred to stay anonymous because in the past there have been instances where GainBitcoin has blocked account access or BTC balance of users have vanished from the dashboard of users who have raised their voice against the company, like in the case of Zakhil Suresh.
The company has also put out a notice on their website for investors which states that any of them who try to defame the company on its leaders on social channels will have their accounts deactivated without prior notice.
Another reason a lot of the investors are quiet is that anyone who invested in GainBitcoin before January 2017, when BTCs consistently grew from $900 levels, is still making a small profit or at least getting his or her investment back if they sell MCAP tokens at least at $2 each.
“Something is better than nothing and in most cases even now the returns are better than what a lot of the banks offer. So, even though a lot of the investors are not getting what they were initially promised, they are still getting some returns,” says Muley.
GainBitcoin often holds webinars for investors. Mayur says he has attended a few webinars held by GainBitcoin promoters. Most of these events are like a one-way talk. “The moment users raise concerns or ask uncomfortable questions their mics are muted off or they are kicked out of the webinar,” he says.
Some who have taken the complaints to law enforcement authorities have had limited success. “He only paid me payouts for 8 months, and when I raised my voice against the payout he locked my account. Now after I have raised a police complaint against him and the company, my account has been reinstated but I’m still getting my payouts in MCAP,” says R K Sinha, a GainBitcoin investor from Bhagalpur in Bihar.
Other investors have banded together and in the process of filing complaints with the police in different Indian cities. One investor is said to have even moved Dubai Police complaining Bhardwaj, who is based in that city, of defrauding investors.
Until now, Bhardwaj and his teams have managed to out of the grasp of the long arm of the law. Technically, dealing in cryptocurrencies is not illegal in India but GainBitcoin’s multi-level-marketing structure is akin to that of a collective investment scheme (CIS). According to the Securities Laws (Amendment) Act 2014, a CIS is one which pools funds from investors and involves a corpus amount of ₹100 crore or more and such schemes are mandatorily required to register itself with markets regulator SEBI. The Reserve Bank of India had also issued a warning notice about the risks involved in dealing with cryptocurrencies and such scams. It is not clear if GainBitcoin has registered itself with SEBI or RBI.
To be sure, GainBitcoin is one among several other cryptocurrency-based Ponzi schemes in India. The Ken recently wrote a story (login required) on how such cryptocurrency Ponzi schemes are running rampant in India.
Even though many such schemes try to operate below the radar of regulatory bodies and law and order departments, some get busted, too. Just like in the case of OneCoin, another cryptocurrency scheme popular in India, where the Mumbai Police made 23 arrests and said in a charge sheet that the promoters amassed nearly Rs 75 crore through their scheme.
Similarly in the case of ATCcoin, where the Economic Offence Wing (EOW) of Mumbai Police registered a case against Subhashchand Jewria, the founder and director of ATC Coin, for illegally collecting and diverting funds around Rs 85 crore in five months.
This may explain why Bhardwaj is rarely seen in Delhi. “If you want to meet him or set up a meeting with him, you usually pass a message through one of the promoters here and a meeting will be set up in Dubai through them. He doesn’t meet people in Delhi anymore,” says Sunil, the Bengaluru software engineer who has put money in GainBitcoin.
Disclosure: FactorDaily is owned by SourceCode Media, which counts Accel Partners, Blume Ventures and Vijay Shekhar Sharma among its investors. Accel Partners is an early investor in Flipkart. Vijay Shekhar Sharma is the founder of Paytm. None of FactorDaily’s investors have any influence on its reporting about India’s technology and startup ecosystem.