Chinese Police Bust 300 Million RMB Purported Pyramid Scheme
Of late, the scams in the name of blockchain has drawn extensive media coverage. Notwithstanding, investors are still fleeced to the tune of millions with the bait of high returns. In April 2018, a pyramid selling gang were arrested for running an 300 RMB Ponzi scheme in China’s Jinan city.
More than 10 suspects involved in this Ponzi scheme were arrested. All of them were employees of a Henan-based company called Lehuiyi. The registered business scope of this e-commerce company includes online trade agency, online business consulting service, internet information consulting service and sales which is absolutely different from their actual business.
The shell company also built an online platform in 2017, which is nominally selling goods but actually developing their members. They used a fraudulent investment operation where the operators were provided high rates of return to attract members via internet.
Leyihui’s operators promoted old members to pay the ‘agency fees’ and develop more new members via their e-commerce peer-to-peer online platforms. The promoters also established a five-tier hierarchy modeled after a rebate system. All the members are graded in 5 levels (the regional agent, provincial-level agent, city-level agent, county-level agent and ordinary member) depends on their ‘performance’. Investors were informed that they would see appropriate returns in shares and dividends of the the purported blockchain P2P company.
Sun, the main operator of Leyihui, used the new political terms includes ‘Western Development’, ‘One Belt and One Road’ and ‘Poverty Alleviation’ in their online pyramid scheme operations. In order to attract more members, Sun also added advanced Fintech terms, such as cryptocurrency, blockchain, and big data in their promotion.
Hundreds of thousands of people from over 30 different provinces in China participated in this pyramid selling scheme. A portion of the victims participating in the scheme are college students, according to police announcements.
The financial fraud using the name of blockchain surprisingly attracts that small investors which reflects people’s enthusiasm on blockchain and cryptocurrency.