$70 million ICO scam in India could torpedo efforts to lift local crypto ban


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Recent news headlines report that police have made another arrest in connection with a $70 million Initial Coin Offering (ICO) scam in India. This scandal is unfolding at the same time that an inter-ministerial committee reviews current policy directions related to cryptocurrencies. Currently, a quasi-ban exists that is being administered by the Reserve Bank of India. The central bank has forbidden all banks from servicing any crypto businesses in country. Without bank accounts, crypto commerce has been curtailed.

This scam storyline broke last June, but it has continued to dominate headlines, as more details have come to light. The scandal has involved a host of characters from a real estate magnate to the royal family in Dubai to local celebrities in Mumbai. There was even a feature length article in the Middle East version of Forbes that was used to dupe investors, estimated to be in excess of 25,000.

The ICO scam was the brainchild of a local real estate executive, Amit Lakhanpal. For the last two years, he had been raising funds from investors to support his intended “Money Trade Coin (MTC)”, claiming that it was about to be approved. Lakhanpal even went so far as to connect with the royal family in Dubai and dupe Forbes into publishing a complimentary piece about his intentions.

When investors alerted authorities that they had not received promised high returns, the police in Mumbai raided the offices of the Flintstone Group, the company behind the ICO, on June 5 and left 60 employees stranded. Arrest warrants were issued, but Lakhanpal and his chief accountant, Sachin Shelar, had fled the country, and their exact whereabouts are unknown. A local police administrator has also been implicated in the scam, along with a fourth man, Rohit Kumar, who was a collection agent working on behalf of Lakhanpal and Shelar.

In India, the second most populous nation next to China, the road to cryptocurrency acceptance has been a rocky one. In many respects, Indian officials have followed the lead of China, their neighbor, but not to the extent of a total ban. Crypto enthusiasts and investors in India have had to maneuver about many obstacles put in their way by the Reserve Bank of India in its request to impeded the progress of cryptos in the country.

According to one report:

The first inter-ministerial group met in 2017 and suggested that a ban might be appropriate, but no official rulings followed. What did happen was that the Reserve Bank of India (IRB), its central bank, moved aggressively against cryptos. It forbade any bank from allowing a crypto related enterprise to have a bank account, thereby effectively blocking crypto commerce at a critical juncture.” The result was that the local crypto exchange, Zebpay, had to close its doors. Investors have had to rely upon foreign-based exchanges for support since its closure.

At present, the IRB continues its campaign against cryptos, but the global positioning of regulators regarding cryptos has softened. Pressure has mounted within Indian agencies to reconsider its current stance. The latest leak from an insider on the committee attests that, “There is a general consensus that cryptocurrency cannot be dismissed as completely illegal. It needs to be legalised with strong riders. Deliberations are on. We will have more clarity soon.

Will the recent ICO scandal reverse what appears to be a positive development for cryptocurrencies within India? Expectations are that the inter-ministerial committee will release its report in February. Crypto supporters remain hopeful, but time will tell.

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$70 million ICO scam in India could torpedo efforts to lift local crypto ban

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