Iowan Narrowly Escapes CryptoCurrency Ponzi Scheme

ELKHART, Iowa -- Though it's been around for a few years, crypto currency like Bit-Coin is just now working its way into mainstream culture; and when there is a new trend there are people trying to run schemes off the hype, as one Iowan found out.

Bit-Coin is essentially a made-up currency, it doesn't have any physical money or government backing it.

However, it can be bought, traded, and in some places spent online like any other currency.

Experts, however, say it is a risky investment.

“Cash investments in the United States, it's backed by the FDIC so you have limits on your potential for loss, but this is an area that's totally unregulated, and is not only subject to that problem but is subject to theft, subject to misrepresentation, and other types of fraud” said Iowa Insurance Division Commissioner Doug Omen.

However, it hasn’t scared off some investors like Royce Johns.

“You see something go from $600 to $19,000 in a three or four-year period and it's like…there's something here” he said.

In its simplest form, Bit-Coin is a digital currency that you can purchase with real world dollars and its value has skyrocketed since it started out.  Once upon a time it used to be that $100 bought you one Bit- Coin, which you could spend and trade in fractions.  In December, it was trading at $20,000 per Bit-Coin.

Royce Johns eventually decided to invest in Bit-Coin, the most well-known and reliable crypto-currency.  He did well on his initial investment of $2500.

“At the time $2500 bought .46-something Bit-Coin. So, I essentially bought half, and then I just kind of watched it for a week and it climbed to $5,000 and then $10,000 and I just let it hang out” he said.

Currently Bit-Coin has lost steam and is trading under $10,000 dollars.  Since it's development other crypto currencies have been created, allowing you to buy their currency with Bit-coin. That's where Johns ran into some trouble. A currency called BitConnect offered to trade a ton of their new currency for a fraction of a Bit-coin, essentially pennies on the dollar.  They offered if you loaned them their currency back, so they could buy more Bit-Coin, you would see a return with interest.

“In my 75-day experience it was anywhere from .01% to 2% so on average it was 1.1%. Every day that I could take out of there, I didn't have to reinvest it, so I gave them $1,040” said Johns.

Johns made around $800 with his experiment successful he was getting ready to invest a lot more.

“I was this close to doing it, but then Bit-Coin was fluctuating a lot and it was just kind of complicated, but I didn't do it and good thing I didn't” he said.

It was a good thing he didn't because BitConnect was found out to be a Ponzi scheme.  They got cease and desist letters from two states and have shut down their lending program.

BitConnect says they will return everyone's initial investment in its 15-day average, but after the Ponzi scheme, Johns says that's pretty much worthless.

“They gave me three BitConnect coin which is equivalent somehow to my initial investment, however they did it, and all of a sudden it's worth five dollars a coin” he said.

While Johns pretty much lost his initial investment, he says he was lucky to have banked the profits he made while BitConnect was running, he says others were not as lucky.

The Iowa Insurance Division has issued some recommendations to those thinking about investing in Crypto Currency: https://iid.iowa.gov/press-releases/iowa-insurance-division-reminds-investors-to-approach-cryptocurrency-with-caution