Cryptocurrency scam hits 13,000 people in 18 days

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Police in northwest China say they have cracked an 86-million-yuan (13 million US dollars) cryptocurrency scam, which took just 18 days to defraud 13,000 people across the country after promises of huge financial returns.

Police in Xi’an, northwestern Shaanxi Province, arrested nine people last Sunday in a case that rapidly spread across 31 provinces and regions in less than three weeks. The fraud underlines the huge demand for cryptocurrencies despite moves to close Bitcoin exchanges and ban initial coin offerings (ICOs), as well as the immense challenges faced by law enforcement in handling online fraud.

Starting March 28, investors were invited to buy Datang Coin (DBTC) at various promotional events up and down the country, according to local media Huashang News. In return for an initial investment of three million yuan (480,000 US dollars), DBTC buyers were told they could earn as much as 80,000 yuan (13,000 US dollars) per day from the cryptocurrency.

An image claiming to show the arrest of the suspects. /Huashang News Photo

The problem was that DBTC never existed. Huashang News reported that the fraudsters even paid 30,000 yuan for a foreign national to pretend to be the chairman of "Hong Kong Yongli Datang International Group," a fake company purportedly based in Hong Kong.

The scam was so "convincing" that even official China Daily reported on DBTC's launch ceremony on March 20, saying the company's chairman – a man named as Evgeny Subbotin – welcomed guests at an event in Xi’an.

Huashang News added that other promotional events were held in Ningbo, eastern Zhejiang Province, and even as far as in Pnom Penh, Cambodia.

Xi’an Public Security Bureau swooped in on the criminal gang last Sunday, freezing 42 bank accounts which contained as much as 86 million yuan in stolen funds.

In January this year, the Ministry of Public Security released a statement saying it would “concentrate on destroying the pyramid selling organizational system, severely punishing the members of the pyramid selling field."

Chinese authorities have warned the public on several occasions about the dangers and potential for fraud when investing in cryptocurrencies or ICOs. Bitcoin exchanges were forced to close last September, while ICOs were completely banned days after the National Internet Finance Association of China warned the online fundraising schemes represented “high risks.”