UK Fraud Office Launches Major Crypto Investigation Following $28M Basis Markets Rug Pull

UK Fraud Office Makes First Major Crypto Arrests in $28M Basis Markets Rug Pull

The Serious Fraud Office (SFO) in the United Kingdom has taken significant action in the world of cryptocurrency enforcement by arresting two individuals believed to be connected to the $28 million collapse of Basis Markets, a decentralized hedge fund that disappeared along with investors' funds in 2022.

Key Takeaways:

The UK SFO has made its first major enforcement move within the crypto space by arresting individuals linked to the Basis Markets incident.
Basis Markets raised over $28 million through NFTs and tokens before allegedly misappropriating the funds into personal wallets.
The project failed to deliver any products, vanished in 2022, and left investors empty-handed.

The SFO announced that officers, in conjunction with local police, conducted coordinated raids in Herne Hill, South London, and Bradford, West Yorkshire. They detained one man in his thirties and another in his forties on suspicions of fraud and money laundering.

SFO's First Major Crypto Investigation: Basis Markets

At this point, no formal charges have been pressed, and the SFO described the case as a "suspected fraud," with the investigation still underway.

This action represents the agency's initial significant foray into the cryptocurrency sector.

“With our expanding cryptocurrency capabilities and increasing expertise in this field, we are committed to pursuing anyone who attempts to use cryptocurrencies to defraud investors,” stated SFO director Nick Ephgrave QPM.

Basis Markets kicked off in late 2021 with ambitious claims. An independent research group, Crypto Sleuth Investigations, found that the project team presented themselves as experienced professionals, with over 80 years of combined expertise in finance, software development, and crypto infrastructure.

They proposed a decentralized hedge fund capable of generating “delta-neutral” returns through arbitrage strategies typically used by institutional traders.

The project successfully sold out a membership NFT collection, raising 32,000 SOL, which was about $7 million at the time. They later held a public sale for their BASIS token, collecting an additional $20.7 million in USDC.

NFT holders were promised profit-sharing opportunities, while those who bought tokens were assured of receiving performance fees and governance rights within the future Basis Markets pool.

Despite assurances that funds from both NFTs and tokens would be directed into a project treasury with locked allocations for the team, investigators revealed that these funds were instead funneled into the personal wallets of the founders.

No functional product was ever delivered, even as founders showcased luxury purchases within the project's Discord community.

Basis Markets initially projected a total value locked (TVL) of over $1 billion within a year, with early pitch decks suggesting that a single NFT, priced at approximately $1,880, could yield up to $18,000 monthly by the third year. The team later adjusted this estimate to an ambitious $30,000 cumulative, yet by mid-2022, operations ceased abruptly, citing regulatory challenges, and the project disappeared without refunding investors.

UK Investigates Expansive Crypto Laundering Scheme

As previously reported, the UK’s National Crime Agency (NCA) has exposed a large-scale money laundering operation that channeled billions in illicit funds into cryptocurrency, assisting sanctioned Russian entities in evading restrictions and facilitating the war in Ukraine.

Collaborating with authorities from the US, France, Spain, and others, the NCA has made 128 arrests and seized over £25 million ($33 million) in cash and cryptocurrency in Britain as part of Operation Destabilise, the largest crackdown on “cash-to-crypto” laundering networks.

This ongoing action showcases the UK’s commitment to addressing fraudulent activities and illicit transactions within the cryptocurrency space.