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A large-scale digital currency scam in China involved over 47,000 people and 4.6 bln RMB.
On January 2017, Hainan City Police Department addressed the public on the issue of a huge scam purported by a company called ‘HaiNan KuaYaOu Private Limited.’
The company operated a web-based business dealing digital currency named ‘Asian-European Currency.’
Suspect, Xu, registered the company at Hainan City Commerce Department. In the registration, the company stated that its main business involves dealing virtual currency online.
Under the guise of a legally registered company, it conducted a get-rich-quick scheme operated in the form of a multilayer marketing program which promised investors high returns.
The process of trading the fraudulent currency involved joining an ‘Inner Circle’ where new traders were introduced by ‘dealers.’
New trading members were required to purchase at least 10,000 RMB worth of the digital currency. Upon purchase, the amount was frozen for 250 days after which it can be traded and cashed at the ‘Outer Circle.’
The currency was set to increase its value every 10 days in the ‘Inner Circle.’ The ‘Outer Circle’ served as a platform for trading the currency, where its value was increased drastically to attract more traders.
In the inner circle of the multi-level marketing arrangement, the money that was used to purchase the fraudulent currency was transferred to the provincial ‘dealers’ accounts, which in turn was transferred to the personal accounts of the top leveled members of the company.
The company had organized many seminars and forums in luxurious hotels across China to convince the public to invest.
It falsely claimed that it belongs to the State-owned Assets Supervision and Administration Commission of the State Council (SASAC).
Besides, marketing was also done through Chinese social media. A strong purported background, high investment return and strong marketing strategy were the strong factors for the scam to be wildly successful.
On April 24, 2017, police have taken legal action against the representatives and CEO of the company, Xia JianRong and Liu Lang among others. They were facing the charge of leading an MLM business (MLM is illegal in China).
On May 12, 2017, arrests were made simultaneously at six provinces namely Hainan, Beijing, Jiangsu, Guangdong, Sichuan and Hubei. 53 bank accounts related to the case were frozen. As of Aug. 6, 2017, 37 suspects were arrested.
While the investigation is still on-going, it has revealed that from the 4.6 bln RMB involved in the scam, approximately one bln was disbursed as incentives, 2.7 bln was cashed by members, 0.3 bln is illegally possessed by Liu and Xia while 1.3 bln is frozen by the government.
The remaining amount is still being searched for.
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