An online vigilante who exposed a US$1 billion crypto scam

New Zealander Danny de Hek, who wears geeky glasses, may not be a crime buster, but thousands of people globally probably owe their life savings to him for exposing crypto scammers.

The 52-year-old social media newbie became an online vigilante in 2021 after his friend forwarded an e-mail about a company that guaranteed outsize and clockwork returns. Investors in what was then known as HyperFund – it has since been rebranded twice – could triple their money in 600 days.

“It’s the best passive income retirement plan I have ever seen,” the acquaintance wrote. That message changed Mr de Hek’s life – after a few days of looking into HyperFund, he concluded it was a scam, one that he estimates has attracted at least US$1 billion (S$1.4 billion) by recruiting thousands of participants, some of whom put up as little as US$300 or as much as US$50,000 or more.

By March 2022, he had crafted a new online identity: crypto Ponzi scheme buster. He has since denounced HyperFund in over 130 videos posted to YouTube, some of them nearly two hours long, lecturing viewers in a style that toggles between goofball and scold.

“When I looked into HyperFund, to me it just seemed black and white,” Mr de Hek said during one of several interviews from his home in Christchurch. “Then I thought, I need to warn people about this.” He is one of the few voices flagging crypto-based Ponzi schemes, which United States investigators say are a severely under-publicised scourge. Just how volatile the market is can be seen in the collapse of one of the world’s largest cryptocurrency exchanges, FTX, in November.

Amid that kind of uncertainty, many investors have decided that if their tokens will not recover from the steep drop in value that began in November 2021, why not take a flier on a company that sounds crypto-adjacent?

“People are desperate, and out of desperation they’re giving it a go,” he said. “It’s depressing because this is often a last-ditch effort.”

A Ponzi scheme is an age-old fraud in which inflows of new money pay off earlier investors. Using cryptocurrencies does little more than lend the whole plate-spinning contraption a patina of the cutting edge and makes it harder to pin down who is in charge. But the story ends the same way: Champagne for those at the top, tears for everyone else.

US investigators have busted a handful of crypto Ponzis over the years. Among them is OneCoin, which was based in Bulgaria and which prosecutors allege brought in roughly US$4 billion from investors around the world. The scam’s charismatic co-founder Ruja Ignatova disappeared after the fund closed in 2017.

“We’ve worked multiple cases that involve more than US$1 billion, and those are only the ones we hear about,” said Mr Jarod Koopman, the acting executive director of the Cyber and Forensic Services section of the US Internal Revenue Service, which spearheads crypto-Ponzi investigations. “These are traditional Ponzi schemes that have been adapted to the digital landscape, recruiting investors through social media to make them look great. And they’re completely bogus.”

For instance, HyperFund has attracted the attention of regulators in Britain, where the Financial Conduct Authority has a webpage warning investors to “be wary of dealing with this unauthorised firm”. Dozens of HyperFund investors have left withering takedowns on the company review site Trustpilot. One person who said he had lost US$10,000 wrote: “For the love of God – stay away from this scam.” A Facebook page called HyperVerse Scam – Now What!? has 6,200 members.

To Mr de Hek, everything about the Hyper empire seems suspicious. On its website and in promotional videos, HyperFund said investors could buy “memberships”, starting at US$300, and earn “rewards” that would accrue daily in their account. Those rewards took the form of “HU”, the internal trading currency, said to have parity with the US dollar.

And why would everyone’s HU triple in 600 days? Because HyperFund’s putative founders Ryan Xu and Sam Lee – described on promotional sites as a pair of superstar blockchain entrepreneurs – were going to pour all that cash into promising and profitable crypto projects, which they claimed would eventually serve 30 million customers. They also said the company would go public on the Hong Kong Stock Exchange.

It sounded plausible. Whoever ran HyperFund exploited the craze for crypto, which to most people then was a bafflingly complex technology that seemed to mint millionaires. But HyperFund never went public, and the only product it sold was memberships to HyperFund. Members who recruited new members got a cut of their recruits’ rewards, a perennial feature of pyramid schemes and an occasional feature of Ponzis.

Since end-2021, the HyperFund faithful have been severely tested. In December 2021, the firm rechristened itself HyperVerse, an apparent bid to cash in on the vogue surrounding all things metaverse. Also, everyone’s HU was suddenly called HV. The new packaging did not solve a larger problem. In November 2021, Bitcoin began an epic fall, from about US$64,000 apiece to roughly US$16,000 today. Thousands of other coins are down 95 per cent or more. With a crypto winter under way, it seemed impossible for HyperFund or its successors to keep paying rewards if they were truly the fruits of crypto-related investments.

As the anger mounted, HyperVerse pivoted yet again and became HyperNation. Again, the rules changed. Members could transfer their rewards to the new platform only if they bought one of several bespoke non-fungible tokens, or NFTs, like a “purple box”, which cost US$10,000. Large returns were again promised.

In his videos, Mr de Hek treats all these twists in the Hyper plot with a light touch, one befitting a farce. That is especially true when the topic is Mr H, a figure who now appears on HyperNation videos as some kind of spokesman, wearing a gold mask and a black hoodie and uttering slogans – “HyperNation will be an equal, fair and transparent platform that can solve the pain points of today’s society” – in various slick studio settings. It is like getting lectured about utopia from a character in Squid Game.

Who really runs HyperNation is a mystery that Mr de Hek continues to plumb. In September, a man with a British accent named Keith Williams said in a Zoom call of HyperNation elite – an insider sent Mr de Hek a link to the recording – that he had been named “by corporate” as the global head of sales. He did not name anyone in corporate, and Mr de Hek has theorised that Mr Williams is now in charge.

With just 2,500 subscribers, Mr de Hek’s YouTube audience is tiny, and his labours on that platform have yielded only US$1,200, after taxes, which works out to cents per hour. Without that drop-shipping business, he would struggle. This does not seem to bother him, in part because he is a born optimist and thinks this online scam-busting thing could one day catch on. Viewers have sent him dozens of links to likely online Ponzi schemes, and he plans to name and shame them all. If that creates enemies, fine.

“I’ve already had my life threatened,” Mr de Hek said, with a smile. “My saving grace is that I live in New Zealand. I’m a long way from everyone.” NYTIMES