China’s People’s Court of Pingnan County recently conducted a public hearing to adjudicate a high-profile pyramid scheme related to one of the leading projects on Filecoin.
The case involves five defendants accused of organizing and executing a sprawling pyramid-selling operation through their company, Shenzhen Space-Time Cloud Company.
A Filecoin-Based Pyramid Scheme
The alleged scheme pilfered millions of dollars, leaving numerous participants in financial ruin.
In June 2018, defendants Lai Mouhang and Lai Moujun established Space-Time Cloud Company. Other defendants, Hu and Liang, joined the company in the ensuing months.
The prosecution maintains that Lai Mouhang escalated the company’s operations in September 2019 using the ipfs.cn domain name to vigorously market and promote the investment prospects in distributed storage technology and Filecoin’s economic model.
Filecoin’s model includes a block reward system, where miners that validate new blocks are rewarded with Filecoin tokens, FIL. According to the prosecution, Lai Mouhang and his cohorts devised a scheme that mirrored this economic model.
They developed the filpool.io platform to promote joint mining under the guise of selling storage servers to mine FIL. This platform, also linked to the Space-Time Cloud Company, was a primary vehicle in the defendants’ alleged fraudulent activities.
Filecoin is currently trading for just $4.04 per coin. However, it briefly saw an all-time high of nearly $200 in April 2021, shortly after its launch.
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The Scheme Raked in Nearly $100 Million
The prosecution claims that the defendants exploited their platform to exaggerate the profit potential of their distributed storage technology. They allegedly induced participants to buy into the scheme by promising high returns.
For instance, by purchasing at least 8 terabytes of cloud computing power, participants could attain a bronze membership or higher, allowing them to recruit others into the scheme. The larger the investment and recruitment of others, the higher the supposed returns — a classic sign of a pyramid scheme.
The prosecution also laid out the sheer scale of the operation, with 57,122 members registered on the filpool.io platform and 143 partners on the bpool.io platform, the latter being another development of Space-Time Cloud Company.
Altogether, these platforms amassed nearly RMB 607 million (~$83 million) plus RMB 62 million ($~8.5 million) in various cryptocurrencies.
The prosecution argues the defendants used these platforms to lure participants with high returns and used deception to defraud property. They have allegedly disrupted economic and social order on a massive scale, actions which, the prosecution asserts, violate criminal law.
This case is still under investigation and could have implications far beyond China’s borders.
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Source: https://beincrypto.com/china-filecoin-projects-sued-00-million-pyramid-scheme/