Bitcoin Pyramid Schemes Wreak Havoc in Brazil’s ‘New Egypt’
CABO FRIO, Brazil (AP) — In April, Brazilian Federal Police stormed the helipad of a beachfront hotel in the state of Rio de Janeiro, where they arrested two men and a woman charging a helicopter with 7 million reais ($1.3 million) in carefully wrapped bills.
The detainees told police they worked for GAS Consulting & Technology, a cryptocurrency investment firm founded by a former server-turned-multimillionaire who is the central figure in what is believed to be one of the world’s largest pyramid schemes. from Brazil.
Police say the company owned by Glaidson Acácio dos Santos, 38, carried out transactions worth a total of at least $7 billion (38 billion reais) from 2015 to mid-2021 in connection with a Bitcoin-based Ponzi scheme that promised investors 10% monthly returns.
In hundreds of pages of documents obtained by The Associated Press, police and federal and state prosecutors accuse dos Santos of staging a sophisticated racket defrauding thousands of small investors who thought they were getting rich off the high appreciation of Bitcoin. He is now in a Rio jail awaiting trial on charges of racketeering, financial crimes and ordering the murder and attempted murder of two business competitors. He remains under investigation into the attempted murder of a third competitor.
Dos Santos has repeatedly asserted his innocence. His attorneys did not respond to requests for comment from the AP.
Despite the accusations, dos Santos represents an unlikely hero for the fans. Many see him as a lowly black man whose unorthodox bitcoin business has made them rich by gambling on a financial system they believe is rigged by wealthy white elites.
The case also highlights the growing appetite for cryptocurrencies in Brazil, where years of economic and political crises have made digital currencies an attractive shield against the depreciation of the Brazilian real and double-digit inflation.
Bitcoin fervor was high in Cabo Frio, the resort where GAS was based. As GAS revenues grew, enriching early adopters, copycat companies sprung up, seeking to profit. A wave of cryptocurrency violence followed.
With so many alleged pyramid schemes, Cabo Frio has become known as “New Egypt”. And as the top dog in town, dos Santos has been dubbed the “Bitcoin Pharaoh.”
According to police, dos Santos started trading bitcoin in 2014 after quitting his job as a server. He enlisted clients of the Universal Church of the Kingdom of God, where he had once trained as a preacher, promising a referral fee to those who brought in new recruits, authorities said.
In a statement, the Universal Church accused dos Santos of “harassing and recruiting” pastors and their flocks to join his company.
In 2017, dos Santos was making a lot of money and attracting the attention of the authorities. That year, his company’s transactions totaled 10 million reais ($1.8 million), 15 times more than the previous year. The country’s financial intelligence unit also noticed that the company – registered as a restaurant – regularly traded cryptocurrencies on online exchanges.
Prosecutors say the alleged scheme worked like this: Clients deposited their money in bank accounts run by managing partners. The money was then transferred to dos Santos or his Venezuelan wife, Mirelis Yoseline Diaz Zerpa, who would pocket it, buy bitcoins and other cryptocurrencies as well as traditional financial assets, or reimburse other members of the program.
Clients were promised a 10% monthly return on their investments on contracts of 12 to 48 months, but did not own the bitcoins they were told GAS had purchased with their money. And, they were assured, it was risk-free: they would recover their entire initial investment at the end of the contract.
As Bitcoin fever rose, dos Santos was quickly becoming a celebrity in Cabo Frio.
“If he wanted to run for mayor or even governor, he would win,” said Gilson Silva do Carmo, 52, one of dos Santos’ alleged victims.
The chubby young man in thick-rimmed glasses was also taking a liking to the high life, buying expensive jewelry and a posh apartment as contracts poured in from elsewhere in Latin America, the United States, Europe and the Gulf.
Brazil’s lenient laws governing cryptocurrency have helped fuel the rise of dos Santos, experts say.
At the same time, the Brazilian securities regulator was making cryptocurrency more attractive: it allowed investment funds in the country to invest in digital currencies in 2018, giving them greater credibility. Last year, Brazil approved Bitcoin exchange-traded funds, only the second country in the world to do so.
In and around Cabo Frio, where residents watched their neighbors reap the rewards by investing their savings in GAS, many began to worry that something was missing out.
Do Carmo was among them.
After his therapist told him he had sold his house to invest in GAS and had been receiving monthly returns of 10% for a year, do Carmo invested just over half of his retirement fund.
In Cabo Frio, the success of dos Santos inspired others: some competitors promised even higher returns: 20% or more per month.
Dos Santos was not happy.
In mid-April, he discussed with associates how his rivals were encroaching on his territory, according to WhatsApp messages intercepted by federal police.
Four months later, Wesley Pessano, a cryptocurrency trader, was shot dead in his Porsche. Police accuse dos Santos of ordering the hit.
Rio state police have also linked two attempted murders to dos Santos. On March 20, a shopkeeper was shot dead while driving his BMW in Cabo Frio. Three months later, the operator of another company was targeted, his car hit by 40 bullets. Both survived.
Things came to a head on April 28 when Rio police seized the 7 million reais at the Insolito Boutique Hotel helipad outside Cabo Frio. A months-long investigation into dos Santos’ affairs followed.
On August 25, federal police raided more than a dozen locations linked to GAS, including the home of dos Santos where he was found with 13.8 million reais ($2.5 million ) and stopped. Officers also found hard drives containing 10 times that amount in Bitcoin, gold bars, jewelry, and several sports cars.
Sixteen associates have also been charged, including Diaz Zerpa, dos Santos’ wife, who left the country weeks before the raid and is believed to be in Florida, authorities say. They say she withdrew more than 4,300 bitcoins worth $185 million (1 billion reais).
Do Carmo looked on in horror; he had invested the rest of his savings in the business a few weeks earlier.
“I thought, ‘My God, what have I done?’ “, he said. “You look at everything you fought for, your whole life fades away at any moment.”
Brazilian law enforcement is still trying to uncover the true size of dos Santos’ empire.
Prosecutors have identified at least 27,000 victims in at least 13 Brazilian states and seven other countries, including the United States, United Arab Emirates, United Kingdom and Portugal.
However, the true tally is likely much higher, said Luciano Regis, an attorney representing dozens of victims.
“It’s hard to have a conversation with someone in Cabo Frio who doesn’t know someone who has invested,” he said.