Shanghai police bust $16 million crypto pyramid scheme

TL;DR Breakdown

• Shanghai police have busted a $16 million cryptocurrency pyramid scheme.
• The scheme was operated by a group of online scammers.
• The scammers lured people in with the promise of high returns on their investment.

Shanghai police captured more than ten individuals regarding a $16 million fraudulent business model that utilized cryptographic forms of money, the first in the city.

The Shanghai police department had directed an analysis of the case for around six months. According to a WeChat post from the police department, the investigation covered various regions of Shanghai where police officers and detectives searched for the criminal organization.

The criminal organization members developed the website in June 2020. The platform servers were installed overseas and controlled by one of the criminals named Mou. The online page pulled in clients through participation rewards and the guarantee of ongoing pay, the police said.

The platform accepted mainly fiat currencies in the exchange of crypto tokens. The criminal organization managed to pull around $16 million through a sophisticated pyramid scheme that targeted vulnerable individuals.

The operations of the pyramid scheme

The founders of the pyramid scheme established five teams to scale their criminal organization. The teams operated in technology, lecturing, promotion, customer service, and cash withdrawal reviews. 

The expansion of the criminal organization team was a move to lure more people into the pyramid scheme and an attempt to cover any sketchy signs. In addition to that, the fake platform promised technological advancement using blockchain and cryptocurrency technologies. The scammers promoted the non-existent technology as an innovation in the global blockchain space and have said that the platform is a ‘unicorn.’

The scam managed to have around 60,000 accounts spread across 72 different hierarchies. The account users were lured into the platform by promising high returns, fixed income, and other offline profiting methods. The account users had to purchase valuable cryptocurrencies like Bitcoin and Ethereum, then exchange them for the platform token to gain membership entry. In reality, the account users were purchasing tokens with no real value or utility.

Is this the first crackdown in Shanghai, China?

It’s not the first time Chinese police have cracked down on cryptocurrency-related scams. In January, the police department of Hunan province arrested two men who were running a Ponzi scheme that promised investors great monthly returns.

The crackdown on cryptocurrency scams is increasing as China prepares to launch its own CBDC (central bank digital currency). The Chinese central bank has been developing the CBDC currency for several years.