Dutch Authorities Crack Down on ZKasino Crypto Scam

2024-05-16, 01:19

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## [TL; DR]
Dutch authorities arrested a key suspect in the ZKasino cryptocurrency scam and recovered assets worth about $12 Million.

Binance exchange assisted Dutch authorities to arrest the perpetrator of the ZKasino crypto investment scam.

APE Terminal and AIT cancelled Zkas Initial DEX Offering (IDO).
## Introduction 
The crypto sector is at a point where it is getting much support from governments when malicious actors swindle their citizens’ digital assets. Such a development makes much sense considering that people around the world have adopted cryptocurrencies at a larger scale than before. Recently, the Dutch authorities’ successful crackdown of the ZKasino rug pull shows how national law enforcement organizations are willing to protect cryptocurrency investors.

This article analyzes how the Dutch authorities tracked the perpetrators of the ZKasino crypto scam and assesses the actions that other crypto projects took following the rug pull.

## Dutch Authorities Crack Down on ZKasino Crypto Scam
On 29 April the Dutch law enforcement authorities apprehend a suspected mastermind of the ZKasino cryptocurrency rug pull where many investors lost cryptocurrencies worth more than $33 million. Netherlands’ Fiscal Information and Investigation Service (FIOD) arrested a 26-year-old man in connection of ZKasino scam. Meanwhile the Dutch authorities have not divulged the identity of the crypto theft mastermind.

So far, the authorities have kept the suspect under a 14-day detection period to facilitate the investigation. As part of the crypto scam investigation, the authorities searched the suspect’s residential place and confiscated various assets, including cryptocurrencies, luxury cars, and real estate, all valued at around €11.4 million ($12.25 million).

Read also: [The Five Most Common Crypto Crimes](https://www.gate.io/learn/articles/the-five-most-common-crypto-crimes/2794 "The Five Most Common Crypto Crimes")

The authorities are working hard to identify and arrest other suspects in order to recover more assets. They aim to refund the victims of the <a href="/zh-tw/price/ethereum-eth" target="_blank" class="blog_inner_link">Ethereum</a> blockchain scam and punish the perpetrators for their crime. The authorities are likely to charge the scammers with “fraud, embezzlement and money laundering.”

The ZKasino, a blockchain-based gambling protocol, came under scrutiny for lack of transparency in its operations. In the beginning, the platform promised to give the investors a return on their investment within a 30-day period. However, it failed to abide by that promise as it did not offer the said profit to the investors. To make matters worse, the platform’s smart contract did not show any intention to return investment funds to the owners which raised suspicion within its community.

At its launch ZKasino, presented itself as a transparent blockchain gambling platform thereby attracting investment from more than 10 000 people. However, community members became suspicious when the platform moved all 10,515 ETH from the protocol to the Lido staking protocol. The user concern heightened when there was change on ZKasino website wording.The statement that said the ETH will be returned was removed.

In addition, the situation deteriorated further when in a March X post ZKasino said that it had closed a Series A investment round which had the backing of several firms including, Trading Axe, Pentoshi, 0xSisyphus, MEXC, a crypto exchange and Big Brain Holdings, a venture firm, among others. However, some of the cited firms like Big Brain Holdings later clarified that it had not invested in ZKasino.
## What Triggered the ZKasino?
The signs of the cryptocurrency platform fraud emerged in March when ZigZag, a decentralized P2P order book exchange, accused ZKasino of several malpractices. For example, the exchange alleged that the network developers diverted funds that were intended for the development of the project for personal use.

[ZigZag](https://twitter.com/ZigZagExchange/status/1771536853272855006 "ZigZag") said, “The initial money to build ZKasino was stolen from the ZigZag Treasury. The ZKasino founders are 3/5 signers on the ZigZag multisig so they were able to use the funds to fund their own activities. They would claim they were taking money out to pay devs for building the ZigZag frontend, then use parts of the money to build out ZKasino.”

Also, ZKasino failed to pay its contractors and developers. ZigZag confirmed that development on its [X profile where it added](https://twitter.com/ZigZagExchange/status/1771536853272855006 "X profile where it added"), “Multiple people have approached me in the past week with allegations that the ZKasino team owes them money or defrauded them in some way.”

It continued, “Multiple former employees and contractors have contacted me to let me know they have unpaid invoices and weren't paid for work they did. I contacted one of the investors on the raise to inform them that the revenue was fake and they told me they didn't actually participate in the raise, so it's likely the raise and valuation are fake.”

It is important to note that the ZKasino founders were the ones that conducted some fundraising activities for ZigZag. As a result, the raised capital was deposited into multisig wallets where the founders were signatories. Due to their number, they were able to withdraw funds without ZigZag members’ approval. Therefore, the ZKasino members stole over $1 million from ZigZag.

However, in the early days the ZKasino team rubbished the allegations as baseless. Posting on its X profile [it said](https://twitter.com/ZKasino_io/status/1781670189118976450 "it said"), “A lot of FUD going around. The ZKasino network will still go live, it has been delayed due to exchange listings.”
## Binance’s Financial Crime Compliance and Investigations Team Secured Millions in Cryptocurrencies
Binance Exchange helped Dutch authorities in its investigations on the ZKasino crypto investment scam which led to the recovery of assets worth more than 11 4 million Euros.  Commenting on its [X Profile page, Binance said](https://twitter.com/binance/status/1786425994439504053 "X Profile page, Binance said"), “Binance is proud to have supported Dutch authorities in the investigation of a gambling exit scam. Our Investigations team’s help lead the recovery of millions of euros.”

It is not the first time that Binance has helped law enforcement agencies in tackling cryptocurrency platform fraud. For instance, in 2023 Binance assisted the Thai law enforcement team in its crypto fraud crackdown. The crypto exchange worked with the Cyber Crime Investigation Bureau of the Royal Thai Police to identify and dismantle a syndicate of crypto criminals that perpetrated various types of crypto scams including pig butchery which affected thousands of people in Thailand.

The 2023 Thai crypto fraud crackdown led to the arrest of five key members of a criminal group and the recovery of assets worth approximately Thai baht (THB) 10 billion (about $277 million). As a result, the Thai government promised to compensate more than 3,200 victims. 
## Vitalik Buterin Criticizes ZKasino for Misusing Zero-Knowledge Proofs
Vitalik Buterin, the Ethereum co-founder recently criticized ZKasino for the misuse of the term "Zero-knowledge” proof. However, he highlighted that the ZKasino incident demonstrates that the term “Zero-Knowledge (ZK)” has gained much traction to the extent of attracting fraudulent actors to abuse it.

In a [Warpcast post Buterin said](https://warpcast.com/vitalik.eth/0x62da99ee "Warpcast post Buterin said"), “There is nothing "ZK" about ZKasino except that it lives on zkSync, correct? I guess we have to adapt; even "ZK" is now a mainstream-enough buzzword that full-on scammers are adopting it.”

Nonetheless, some analysts have also pointed out that ZKasino did not even exist on zkSync as it was based on Arbitrum blockchain, meaning that the team only used the term to gain prominence.

Posting on [X Cygaar, a crypto commentator, highlighted the issue](http://https://twitter.com/0xcygaar/status/1782043339744809044 "X Cygaar, a crypto commentator, highlighted the issue"): “The funniest part of the ZKasino drama is that the chain they released has no ZK tech in it at all (nor does it use EigenDA).It's an Arbitrum Nitro chain that took 2 minutes to deploy. They put ZERO effort into scamming everyone.” However, Buterin’s message is that crypto projects should desist from the fraudulent misuse of key technology terms like zero-knowledge (ZK) proofs.

Related news: [FBI Issues Alert on Unregistered Crypto Services Amid Fraud Concerns](https://www.gate.io/blog_detail/4108/fbi-allert-unregistered-crypto-services-fraud "FBI Issues Alert on Unregistered Crypto Services Amid Fraud Concerns")

## MEXC Exchange and Ape Terminal Take Protective Measures against ZKasino Controversy
Several blockchain firms distanced themselves from that blockchain gambling platform after the recent developments that include the arrest of a key suspect in the case of ZKasino’s digital currency embezzlement. For example, MEXC, a crypto exchange that participated in the ZKasino Series A funding round, severed its relationship with it. In addition, it cancelled the listing of ZKAS token, the gambling protocol’s native cryptocurrency.

The main reason for MEXC’s action was to offer crypto investment protection to its users and to prevent cases of cryptocurrency money laundering. Based on its track record, ZKasino had the potential to carry out fraudulent activities which could jeopardize the security of MEXC’s digital assets. Also, a close relationship with ZKasino might force some law enforcement authorities to investigate it for similar  crimes.

Posting on its website, [MEXC said](https://www.mexc.com/support/articles/17827791515425#:~:text=Considering%20opinions%20from%20the%20community,of%20the%20ZKAS%20Kickstarter%20event. "MEXC said"), “Considering opinions from the community, MEXC will cancel the listing of ZKAS. This decision was made to safeguard the rights and interests of our valued users. Furthermore, there is no requirement to return any received USDT airdrops for all participants of the ZKAS Kickstarter event.” It is clear that MEXC also wants to maintain crypto exchange compliance to legal provisions of various countries.

In a related development, AIT Launchpad and Ape Terminal, the two token launchpads that had listed ZKAS, cancelled the Initial DEX Offering (IDO). Also, the two platforms promised to refund the investors. [APE Terminal said](https://twitter.com/apeterminal/status/1781836764958830658 "APE Terminal said"), “Due to the recent events with ZKasino, the IDO has been canceled. All participants will receive their funds back. If you opted into the sale, you can claim your stablecoins. User security is our priority. This event highlights that Ape Terminal IDOs are the most secure means of gaining access to early-stage tokens.”

In [a statement, AIT declared](https://twitter.com/0x_nl/status/1781936923910807691 "a statement, AIT declared"): “We confirm that AIT Launchpad is going to refund 100% of funds to all participants of @ZKasino_io IDO due to unforeseen risks. At AIT Protocol, safeguarding user funds reigns as our topmost priority, and we steadfastly uphold this commitment. In forthcoming IDOs, our users enjoy insurance provided by the AIT team's own funds, ensuring coverage for any potential risks. Rest assured, your funds are SAFU with us. Claim portal will open soon.”

Important to know: [Avoiding Crypto Scams: 5 Red Flags to Watch Out For](https://www.gate.io/blog_detail/2594/avoiding-crypto-scams-5-red-flags-to-watch-out-for "Avoiding Crypto Scams: 5 Red Flags to Watch Out For")
## Conclusion
Dutch law enforcement authorities arrested the key suspect in the ZKasino blockchain gambling crypto scam and recovered over $11 million worth of assets. As a result of ZKasino criminal activities several crypto firms like AIT, MEXC and APE Terminal terminated their relationships with it. In the meantime, the investigations on the crypto scam continues in the Netherlands.

<div class="blog-details-info">
<div>Author:** Mashell C.**, Gate.io Researcher
<div class="info-tips">\*This article represents only the views of the researcher and does not constitute any investment suggestions.
<div>\*Gate.io reserves all rights to this article. Reposting of the article will be permitted provided Gate.io is referenced. In all cases, legal action will be taken due to copyright infringement.
</div>

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