Argentina Freezes $3.5M USDT Linked to Rainbowex Ponzi Scheme: Report

Argentine authorities have taken decisive action against Rainbowex, an alleged Ponzi scheme that defrauded thousands of investors, primarily in Buenos Aires’ San Pedro region. A judicial order compelled Tether, the issuer of USDT, to freeze approximately $3.5 million in cryptocurrency linked to the platform on December 24.

The investigation into Rainbowex has led to multiple raids, arrests, and international warrants.

Rainbowex Ponzi Scheme Busted: How $3.5M USDT Was Frozen Following Multiple Arrests and Raids

According to the source close to the case, the legal action to freeze Rainbowex’s digital assets follows months of intensive investigation and enforcement operations.

Argentine law enforcement agencies conducted over 15 raids nationwide, targeting locations associated with Rainbowex and its operators.

As a result, four individuals, including Luis Pardo, Maximiliano Braga, Facundo Villalba, Mariano Diez, and Andrés Desanzo, were apprehended.

An additional arrest warrant was issued for Alexis Pan, who remains at large.

The authorities’ efforts also extended beyond Argentina, as the Buenos Aires Justice Department coordinated with Interpol to issue red notices for two Malaysian nationals believed to be key figures behind the scheme.

The raids yielded important evidence of the scheme’s operations, including the seizure of 30 million pesos (worth approximately $1.48M) in cash, distributed across various currencies such as dollars, yuan, and euros.

This crypto seizure is yet one of the biggest this year.

Investigations revealed that Rainbowex posed as a legitimate crypto investment platform, promising substantial returns.

However, investors began reporting issues when they attempted to withdraw their funds, which ultimately exposed the platform as a fraudulent closed-loop system disconnected from public blockchains.

The Role of Tether and the Controversy of USDT Blacklisting

It was noted that Tether’s ability to blacklist wallets implicated in illicit activities helped largely in the asset freeze process.

Following a court order, Tether disabled transactions for the wallet holding Rainbowex’s USDT, which effectively froze all the funds.

Rodrigo Mansilla, a blockchain expert, explained that the blacklisting process renders any transaction—whether sending or receiving USDT—impossible once a wallet is flagged.

This functionality, embedded in the USDT smart contract, checks the wallet’s status before permitting transactions.

If the address is blacklisted, the contract sets a boolean value to “false,” blocking any movement of assets.

While this mechanism is lauded as a critical tool for law enforcement, it has sparked debate over the decentralization of stablecoins.

“This centralized blocking capability calls into question the supposed decentralization of USDT, even when stored on a decentralized blockchain,” Mansilla expressed.

Mansilla pointed out that although USDT operates on decentralized blockchains, Tether’s ability to control it centrally contradicts the core principles of decentralization.

Maximiliano Firtman, a computer specialist, shared a similar sentiment on the blacklisting process, noting that Tether’s ability to freeze assets indefinitely raises concerns about the potential for permanent loss of funds.

However, Firtman also indicated that Tether could mint new tokens to replace the frozen USDT and transfer them to a wallet designated by the judiciary, potentially mitigating the impact on victims.

The collaboration between public authorities and the private sector was instrumental in advancing the investigation.

Lemon exchange, alongside blockchain analysis firms Chainalysis and Qlue, provided technical expertise and access to critical data.

Judicial sources also confirmed that these companies shared extensive database information, which enabled authorities to track Rainbowex’s financial movements and build a robust case.

An earlier report in October revealed that up to 20,000 people had reportedly invested in a fraudulent USDT-themed crypto scheme from RainbowEx. The scheme was promoted by actors and an enigmatic figure called “La China.”

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