Meet Danny de Hek, the crypto Ponzi scheme avenger

Last year, Danny de Hek was a social media guru badly in need of a social media guru. A buoyant New Zealander with geeky glasses, he dispensed advice about how to vastly expand your online audience, to a group of just 350 subscribers.

He earned a living by drop shipping electronics as he searched for ways to make serious money. Then, in February, the husband of a friend sent the 52-year-old de Hek an email crowing about a company that somehow 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. Get in now then sit back and watch the cash roll in.

The message changed de Hek’s life, though not in the way his friend might have hoped. After a few days of looking into HyperFund, de Hek concluded it was a scam, one that he estimates has attracted at least $1 billion by recruiting thousands of participants, some of whom put up as little as $300 or as much as $50,000 or more.

By March, he had crafted a new online identity: crypto Ponzi scheme buster. De Hek has since denounced HyperFund in more than 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,” de Hek said during one of several interviews from his home in Christchurch. “Then I thought, I need to warn people about this.”

De Hek is one of the few voices flagging crypto-based Ponzi schemes, which U.S. investigators say are a severely underpublicized scourge. The past month has shown just how volatile the market is: One of the largest cryptocurrency exchanges in the world, FTX, collapsed and the industry, is in meltdown.

Amid that kind of uncertainty, many investors have decided that if their tokens won’t recover from the steep drop in value that began last November, 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,” de Hek said. “It’s depressing because this is often a last-ditch effort.”

A Ponzi scheme, for those in need of a refresher, 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 — Hey, it’s on the blockchain — 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.

U.S. 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 $4 billion from investors around the world. The charismatic co-founder of that fraud, Ruja Ignatova, disappeared after the fund closed in 2017 and is the subject of an 11-part BBC podcast, “The Missing Cryptoqueen.”

“We’ve worked multiple cases that involve more than $1 billion, and those are only the ones we hear about,” Jarod Koopman, the acting executive director of the Cyber and Forensic Services section of the IRS, which spearheads crypto-Ponzi investigations, said in a phone interview. “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.”

Koopman would not comment on cases other than those that are already public, and he declined to discuss HyperFund. The company 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 unauthorized firm.”

Dozens of HyperFund investors have left withering takedowns on the company review site Trustpilot. One person who said he had lost $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.

“So that’s my money gone,” read the top comment in mid-October. “Lesson learned.”

To de Hek, everything about the Hyper empire seems suspicious. On its website and in promotional videos, HyperFund explained that investors could buy “memberships,” starting at $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 U.S. dollar.

And why would everyone’s HU triple in 600 days? Because the putative founders of HyperFund — 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 to many. Whoever ran HyperFund exploited the craze for crypto, which to most people at the time 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.

This sale of memberships, in the absence of any product, was a blazing red flag that de Hek had seen all too often. Before the pandemic, he had created Elite: Six, a company that hosted twice-a-week, in-person networking meetings for small-business owners in Christchurch. Those who paid $60 a month could introduce themselves and pitch their company. De Hek vetted every pitch, and in more than a few cases the main product was a joining fee, which earned the right to recruit others and get a cut of their joining fee. And so on.

“They were basically multilevel marketing companies,” de Hek said. “I hate them with a passion. I never let them in.”

To understand that passion, and his mission to wipe out crypto Ponzi schemes, you need to know something about de Hek’s childhood. Like everyone in his family, he was raised as a Jehovah’s Witness, a Christian denomination that teaches that only believers will survive the imminent destruction of Earth.

“From the age of 5, I was knocking on the doors of strangers, telling them that fires and earthquakes were happening for a reason, that the world was ending soon,” he said.

He eventually started questioning some of his beliefs, and at 23, when he confessed to a romantic fling — premarital sex was forbidden — church elders “disfellowshipped” him, as excommunication is called.

Only later did de Hek conclude that he had been raised in a cult. (The church disagrees. “No, Jehovah’s Witnesses are not a cult” is an answer to a frequently asked question on its website. “Rather, we are Christians who do our best to follow the example set by Jesus Christ and to live by his teachings.”)

To de Hek, the way that HyperFund investors talked about the company, in chats and on YouTube videos, was an eerie echo of what he had experienced at a child.

“Everyone in the Jehovah’s Witnesses loves other members, and it’s that sense of community that is the most precious thing to them,” he said. “Everyone in those HyperNation Zoom chats keeps talking about how much they love each other. And in both cases, there is no talking anyone out of their faith. For the Witnesses, it’s faith in the Bible and in end times. For HyperNation, it’s faith in the blockchain.”

Since the end of last year, the HyperFund faithful have been severely tested. In December, the company rechristened itself HyperVerse, an apparent attempt to cash in on the vogue surrounding all things metaverse. (“Open a space factory,” it says in the Galaxy Pioneer section of the HyperVerse homepage.) The internal currency was changed, too; everyone’s HU was suddenly called HV.

The new packaging didn’t solve a larger problem. Last November, bitcoin began an epic decline, from about $64,000 apiece to roughly $16,000 today. Thousands of other coins are down 95% or more. With a crypto winter underway, it seemed impossible for HyperFund or its successors to keep paying rewards if they were truly the fruits of crypto-related investments.
By late last year, members had started to howl online that they could not withdraw their rewards. One of them was Mike Lucas, 61, who lives in Paterson, New Jersey, and spent much of his working life in the shipping department of A&P supermarkets. He was introduced to HyperFund through a friend of a friend.

“He’d invested in it, and he said, ‘Give it a try,’” Lucas said in an interview. “He showed me this chart of how much I’d earn in 600 days if I invested $50,000. Then I looked into Ryan and Sam, and they were real people who did crypto stuff.”

Last year, Lucas put $25,000 into HyperFund, all of it from an individual retirement account. A few months ago, when he tried to make his first withdrawal, nothing budged. At first he thought it was a technical problem — the instructions are fantastically complicated. At some point, he realized that his money was gone.

“I was hoping to use it to spend more time somewhere warmer, rent a place south, maybe North Carolina,” Lucas said. “Those plans are on hold, and I’m furious. At a loss for words.”

Over the summer, 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 nonfungible tokens, or NFTs, such as a “purple box,” which cost $10,000. Large returns were once again promised.

In his videos, de Hek treats all of these and other twists in the Hyper plot with a light touch, one befitting a farce. That’s especially true when the topic is Mr. H, a figure who now appears on HyperNation videos as some kind of spokesperson, 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 a variety of slick studio settings. It’s like getting lectured about utopia from a character in “Squid Game.”

Who is actually running HyperNation is a mystery that de Hek continues to plumb. In September, a man with a British accent named Keith Williams announced in a Zoom call of HyperNation elite — an insider sent de Hek a link to the recording — that he had been named “by corporate” as the global head of sales. He didn’t identify anyone in corporate, and de Hek has theorized that Williams is now in charge.

“Keith Williams has put his neck on the chopping block,” de Hek said in an interview. “Regulators will be looking for him.”

Williams could not be reached for comment through his LinkedIn page, Facebook account or phone numbers in online databases associated with him. He did not respond to emails sent to Future in Safe Hands, a personal coaching company where he is a director, according to Companies House, the British government’s business registrar. One recent evening, a woman at a residence that Companies House listed as Williams’ address, in a London suburb, said he was not home and offered to pass along a reporter’s business card.

In a recent HyperNation video, Williams described de Hek as a guy in a cheap suit looking to pay the rent through a YouTube audience.

De Hek’s suit is cheap, he says. But with a mere 2,500 subscribers, his YouTube audience remains tiny, and so far his labors on that platform have yielded a total of $1,200, after taxes, which works out to pennies per hour.

Without that drop-shipping business, he’d struggle. This doesn’t 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,” de Hek said, with a smile. “My saving grace is that I live in New Zealand. I’m a long way from everyone.”

This article originally appeared in The New York Times.

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