Ten Arrested in Shanghai Over $16M Crypto Pyramid Scheme
Over ten people have been arrested in Shanghai, China for their involvement in a pyramid scheme operated using cryptocurrencies. The arrest was the end product of an investigation carried out by the Shanghai Public Security Bureau and the Yangpu Public Security Bureau. According to reports, the total loss accumulated by victims of the scheme topped $16 million.
Local reports identified a criminal suspect named Mou as the initiator of the illegal venture. Activities surrounding the scheme were said to have begun in 2020, with Mou establishing a blockchain technology company with the claims of providing cryptocurrency services to its customers. It was primarily an investment company with the promise of mouth-watering returns.
Typical of pyramid schemes, Mou’s blockchain technology company distributed different kinds of promotion awards and marketing incentives. This was a tool that is used to scale and expand, with existing users encouraged to refer new users while earning more rewards. Altogether, it is estimated that the company gathered about 60,000 members at a certain point.
After detecting some suspicious activities in the company, the Shanghai police swung into action. A thorough investigation was initiated, and after six months discoveries were made, establishing the illegality of the company. It was discovered that Mou’s blockchain company sold tokens to its customers, however, the tokens had no market value and were illegal. This warranted the authorities to escalate the investigation process. The Ministry of Public Security was asked to carry out a nationwide “cloud operation” against the suspected firm.
The result of the escalated investigation is the arrest of ten people by the police, all of whom are connected to the criminal entity. Also in the process of investigation, it was discovered that the company had drained over 100 million yuan, equivalent to $15.7 million from its victims. The bulk of the funds was accumulated from the victims by asking them to exchange their fiat currencies for the platform tokens to gain membership.
Membership rewards also encouraged the unsuspecting victims to keep referring more people into the program, all of whom were being compensated with the platform’s token. The price of the token was manipulated internally, raising the hopes of the victims, while in the actual sense, the tokens had no market value.
All 60,000 members of the platform were categorized in a structure by hierarchy. A 72 level membership relationship was created, with members encouraged to participate actively to rise in status. A higher level of membership would imply increased rewards in the fraudulent token.
Also discovered as part of the company’s modus operandi was the hosting of both online and offline lectures. During these lectures, the primary goal was to promote the importance of their technology.
This arrest and its associated discoveries show that cryptocurrency activities are still ongoing in China, albeit under secret conditions. This is despite all the efforts so far by the government to eliminate such activities and clean up the system. In the wake of this development, the government has seized the opportunity to once again raise awareness. The public has been advised on the risk implications of such schemes and admonished to stay away from them to avoid losing their funds.
The Shanghai Public Security Economic Investigation Department also promised to continue to crack down on economic crimes that endanger the legitimate rights and interests of citizens, and effectively protect the legitimate rights and interests of consumers.