So far, the investigation of Juicy Fields’ operations as uncovered by Lars Olofsson’s international team, has focussed on the non-crypto aspects of the fraud. However, the platform was clearly built by people who apparently used and creatively misapplied such ideas and business models to deliberately defraud people and evade detection by regulators
As the investigation against the firm Juicy Fields continues, there is a clear and emerging pattern to much of the design if not cash flow of the company. Namely, there are multiple signs that those who designed the internal workings of the company, if not its public offers were well versed in the world of cryptocurrency – if not some of its worst practices. See the recent fall of FTX.
Here is one of the biggest apparent differences so far between FTX and Juicy Fields. Currently, the founder of the former, Sam Bankman-Fried, has been arrested even though he has apologized for the way the company was run. In the Juicy Fields case, there are many similar patterns, except for one thing. The disorganization and diversion created by the company was deliberate.
Some of the similarities between Juicy Fields’ crypto association are easy to understand – and others require a bit more background to comprehend.
First Steps First
Here is the simplest way to understand how cryptocurrency was connected to the Juicy Fields scam. Users could transfer money to the platform either by wire transfer from their own bank accounts, or via crypto wallets to “invest” in supposed “plants” and subsequently saw transfers back into their wallets when these plants were then “sold.”
The fact that there does not appear to have ever been cannabis plant cultivation by Juicy Fields itself and no evidence of delivered plants or biomass by any contracted cultivator, much less European sales of the same, means that all of this was a front for a Ponzi scheme (if not worse). This unfortunately is a model that many crypto firms have adopted (and are currently exploding under their own weight as well as greater regulatory scrutiny).
However, the connections between the now-defunct firm to this part of the world of fintech and digital finance do not stop here. Indeed, the design of the platform, the language used to describe it, and the way the entire fraud was deliberately engineered to function is very similar to the mainstream crypto industry far beyond cannabis. The fact that this has always been true has belied the trajectory of funds if not hype piling up about the crypto sector, proving yet again, several time-worn clichés. Starting with what goes up (especially with no concrete way of estimating or allocating value) must come down.
The fact, as Lars Olofsson has now revealed, “According to our analysis of our clients’ transactions, twice as much was transferred to Juicy Fields in crypto as in fiat currency,” is just another disturbing sign that those involved in setting up the scam were deliberately constructing a complex web, by design, to fool not only investors but regulators. Not to mention created, in the process, a supposedly “legal” framework if not deceptive path to operations that allowed the company to do what it did.
According to Olofsson, there is another, final reason for encouraging investors in such scams to use cryptocurrency. Investors who use crypto are far less likely to report that they have been a victim of crime to the police. The scammers know this, which is part of their strategy in getting away with the crime. It also makes any investigation by the authorities that much more difficult. This too is part of the risk analysis of the criminals. In short, crimes involving the theft of crypto like this are more or less considered “risk-free” by the perps.”
The fact that so many of these regulatory structures appear to have been constructed by the brains behind the operation, or those they hired to implement the same to create a kind of “alternative” legality reality which was then fanned by a slick publicity campaign that promoted what was never more than a company created by taking full advantage of multiple dubious loopholes and partly executed contracts means that this was also a deliberately thought out path to avoid the laws and regulations that do exist in both the cannabis and financial industry.
The fact that so much of the crypto world is unregulated beyond this, and the cannabis world is still dealing with far from homogeneous regulations, even within Europe, made this the perfect place to begin to construct a framework that the company claimed proved it was legit.
Here is a brief overview of some of these aspects in the building case
Juicy Fields Was Built Deliberately to Frustrate Regulators by Using Crypto
There are many indications that the legal infrastructure and internal logic of the company was deliberately designed to operate in the shadows of regulatory oversight created by the world of cryptocurrency.
The first indication is that the company called itself a “crowd-financed” operation (more on that below). Between this, however, and the fact that the company directed investors to send their money into an offshore banking infrastructure meant that they could show books to German (or other national regulators) that would never be balanced by a third party – starting with the registration of their “products” as securities once they had raised beyond a certain annual limit.
It also appears that the company deliberately moved offices to keep not only one step of the law, but also to be able to say that they were a “European” entity (and thus entitled to be governed under an expanded crowd-financed limit as of January 2022), but also that they set up offices in Switzerland to be able to rely on Swiss legal interpretation of cryptocurrency – namely that it is not “money” and therefore could not be regulated under regular crowd financing regulations.
The fact that such logic was complete baloney was why the regulatory authorities in multiple European countries began issuing alarms this spring and summer. Of course, by then, it was already too late.
Why European Crowd Financing Regulation Matters
Here is one of the bigger issues of the case, beyond crypto. Juicy Fields, until its demise, described itself as a “crowd growing” aka crowd financed platform. Whatever the creative terms used by the company, however, this model has already been regulated, no matter what the asset or legal tender is being used. Namely, until the beginning of 2022, a firm could only raise up to 2.5 million euros per year. If they crossed this border, they would then have to register as a “security” – in other words, a regulated financial contract.
The fact that they never did register for the same, even at the beginning of the year when the legal limit allowed for crowd-financed companies rose to five million euros annually, is yet another sign that this was never intended to actually happen – no matter that the new CEO who took the reigns of the company in the few short months before its demise paid a quarter million euro down payment on a final amount of 1 million euros, due the day after Cannabis Week in Berlin 2022 concluded.
The “Juicy Fields” Platform Was Built to Be an “Exchange”
As those who held their crypto wealth in the FTX exchange platform are now learning to their dismay, their “hot wallets” connected to the same were inherently controlled not by them, but by the exchange. To fully protect one’s crypto assets, many experienced investors have a separate, usually offline “cold” wallet to which they transfer funds they are not actively trading.
The investors who lost their assets when Juicy Fields froze their funds lost both what they had “re-invested” in the platform, but also whatever remained unused in their crypto wallets associated with the platform.
The Juicy platform was built the same way. Investors would transfer either fiat or crypto into their accounts and then select what was essentially a “future” or “forwards” option to invest in. There were four options. The cheapest option, an investment of 50 euros for one “plant” was, in financial terms, a “bet” that the plant would be harvested and sold for a certain amount of money.
In this model, the plant actually “secured” the investment (or was supposed to).
The fact that there does not appear to have been any plant cultivation and very little distribution, certainly of the legal kind, and none in Europe, means in effect that these “options” were issued with nothing of value to “secure” them.
This too is a model seen all too frequently in the world of crypto – even stablecoins. In the latter case, these assets are supposedly backed by either fiat currency (to ensure that there is always a 1:1 valuation between a real world and a digital asset), or another kind of tangible property, usually with a contract involved. For example, a stablecoin based on a house deed would be volatile, but only to the extent that the housing market in that region would also be.
Regardless, even stable coins have inherent risks. They can be described as a kind of digital game slot token that can be bought with fiat, and when the gambling is over, transferred back. However, in between, there is the loss associated with gambling at such slots, not to mention the value of the underlying fiat (and where the account is stored) that also impacts the risk profile of such transactions.
Caveat emptor, certainly.
Were There Other Plans?
There also seem to have been plans to expand the entire idea – namely to issue coins specific to the Juicy Fields platform. The Juicy Fields’ version of the Cannabis Coin, in other words, ostensibly secured in value by the worth of the plants under cultivation and or cultivation or failing that, sales contracts.
The fact that there were no plants, of course, is one problem with this plan. However, even if the company was planning to securitize the downstream supposed value of what they were selling, this entire asset would have depended on the final sales contract for its final value. As there were no plants, the value of the same would have always been zero.