By Asim Arshad, Head of Crypto & Blockchain Team at Mackrell.Solicitors

The increasing popularity of cryptocurrencies has led to the emergence of various trading platforms and tools, including trading bots, which are designed to automate trading and generate profits for users.

Whilst a lot of trading bots are genuine tools designed to help traders execute trades more efficiently by using algorithms and mathematical models to analyse market data and make trading decisions, there are some unscrupulous actors which seek to exploit the excitement around crypto trading bots to run Ponzi schemes with the sole purpose of defrauding unsuspecting investors. The iEarn crypto trading bot appears to be the latest in a long string of similar scandals.

A Ponzi scheme is a fraudulent investment scheme in which returns are paid to earlier investors using the capital contributed by newer investors, rather than generating profits through legitimate business activities.

The scheme requires a constant flow of new investors to sustain the returns promised to earlier investors, and inevitably collapses when new investment dries up or investors try to withdraw their funds. Ponzi schemes are illegal in the UK and can result in severe penalties for those involved.

Crypto trading bot Ponzi schemes typically operate by promising investors a guaranteed return on their investment. Investors are under the belief that their returns are generated by a trading algorithm that uses market indicators coupled with artificial intelligence and machine learning to make profitable trades in the cryptocurrency markets.

In reality, the promised returns are not generated by any legitimate trading activity but are paid out of the capital contributed by new investors. The trading bots are often fictitious, and any trading activity is simulated or based on manipulated data rather than live trading.

As the scheme attracts new investors, the returns promised to earlier investors are paid out, creating the compelling illusion of a successful trading operation.

Eventually, the scheme collapses when new investment dries up, and the platform will stop allowing withdrawals, just as has been faced by users of iEarn bot.

This is typically a precursor to the operators then disappearing with the remaining funds, leaving investors with significant losses.

A lot of the time, operators of such schemes go to a lot of effort to give a strong visage of legitimacy to their operation. In the case of iEarn bot, they went to lengths to display ‘financial licenses’ and registrations on their pages, most of which do not really mean anything or are fictitious.

The excitement around cryptocurrencies and trading bots promising a guaranteed passive income to attract a large number of inexperienced investors who unfortunately can be taken by this carefully constructed façade of legitimacy.

Unfortunately, the pseudonymous and decentralised nature of cryptoassets along with the lack of regulation in the sector make it difficult to stop these unscrupulous platforms or recover funds that may have been lost.

One of the first steps in recovering funds would be to identify the actual ‘wrongdoer/s’ in question. This would likely involve conducting thorough tracing investigation on the transactions, as well as communications and using analytic and intelligence tools, coupled with formal legal applications to appropriate entities identified in the course of investigations to identify the person/persons involved.

If the wrongdoer/s can be identified, then it may be possible to seek court orders to freeze assets, including cryptoassets or other assets acquired with the stolen cryptoassets. It may then be possible to bring a claim to recover the stolen funds.

As with most things, prevention is better than cure, and this story highlights the often-quoted mantra in crypto- ‘DYOR’ – or ‘Do Your Own Research’.

If something sounds too good to be true, then it probably is, and if you are being pressured by friends or associates to invest into a platform (as is common in Ponzi schemes) you should conduct your own diligent research into the opportunity being presented.

At Mackrell.Solicitors, we can help investors to conduct due diligence on trading platforms and investment opportunities, ensuring that they are legitimate and comply with UK law. We are also well placed to assist those who may have fallen victim to similar scams and lost funds or cryptoassets.

We are able to advise and assist on gathering intelligence, tracing lost funds, and obtaining freezing orders with a view to recovery. If you believe you are a victim of this or similar scheme, please reach out to our team for a confidential, no-obligation discussion.

If you would like assistance with any crypto-related matters, please contact Asim Arshad by calling +44 (0) 20 7240 0521 or emailing