Crypto
High-return, guaranteed crypto schemes promoted online are often scams, warns UK's FCA. Pinterest

A £21.4 million ($28 million) crypto 'hedge fund' called Basis Markets is at the centre of a major fraud investigation, resulting in two arrests following police raids in London and West Yorkshire.

This case represents a significant development for UK regulators, marking the Serious Fraud Office's (SFO) first major move into the crypto space. The firm sold investors on a compelling promise: a way to profit from crypto's volatility while being shielded from its infamous price swings. The security, they claimed, was guaranteed by a sophisticated AI trading bot.

However, the SFO now alleges the entire operation was a fabrication, designed solely to conceal a straightforward theft.

The Phantom AI Trading Bot

Basis Markets raised its £21.4 M through two funding rounds in late 2021, including a sale of Non-Fungible Tokens (NFTs). These NFTs served as membership passes, granting access to the firm's proprietary trading tools.

The pitch was enticing for crypto investors: a method to generate profits despite market volatility. To bolster credibility, Basis Markets published 'educational guides' on a 'delta-neutral' strategy. These articles, filled with technical jargon like 'perpetual futures' and 'funding rates,' created an illusion of scientific authority.

The company's most ambitious claim was the 'Basis Trade Engine'—a purported automated tool designed to execute complex trades and generate consistent, hands-off profits for members.

A Well-Worn Playbook

The promise of a high-return, guaranteed crypto investment is a classic red flag, warns the UK's Financial Conduct Authority (FCA). The regulator specifically highlights these schemes, often promoted via slick online marketing and social media influencers, with unauthorised firms such as 'Crypto Bot' listed on its warning list.

Typically, investors are told to trust a 'black box' algorithm, with no audited proof of its efficacy or safety. This playbook—reliance on secrecy, hype, and a supposed proprietary technology—is a hallmark of fraudulent schemes like Basis Markets.

The Regulatory Smokescreen

In June 2022, Basis Markets suddenly halted operations, citing 'proposed new US regulations' as the reason. The timing aligned with the introduction of the Lummis-Gillibrand bill—a major piece of US crypto legislation designed to establish clear rules and consumer protections, not to shut down firms.

This move was a common tactic to create regulatory confusion and facilitate an exit. But the bill's details suggest it was intended to regulate rather than ban crypto firms. The official explanation given by Basis Markets does not withstand scrutiny, raising questions about the true reason for the abrupt closure.

A New Front in Crypto Fraud Enforcement

For years, victims of complex crypto scams faced limited recourse. The investigation into Basis Markets signals a potential turning point, with UK authorities demonstrating a willingness and capacity to pursue such cases.

Solicitor General Ellie Reeves MP described the crime as one that 'harms communities and destroys business confidence,' pledging to support the SFO in tackling cryptocurrency fraud and protecting consumers.

This political backing is translating into concrete action. Nick Ephgrave, Director of the SFO, issued a clear warning to the industry: 'With our expanding cryptocurrency capability and growing expertise in this area, we are determined to pursue anyone who seeks to use cryptocurrency to defraud investors.'

For crypto firms operating in the UK, the message is no longer 'be careful'—it's 'we are watching'.

The case of Basis Markets highlights the risks of crypto scams promising high returns through 'cutting-edge' technology that often turns out to be a façade. The UK's increased regulatory focus signals a more assertive stance against fraud, aiming to protect investors and restore confidence in the digital asset sector.

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