Authorities in China have reportedly made the arrest of more than ten suspects, all of whom are alleged to have involvement in a fake blockchain ‘pyramid scheme’ that has seen the theft of around $47 Million.
For those unfamiliar with the terminology, a ‘Pyramid Scheme’ is essentially a fraud programme that uses reward programmes for enrolling people into an unsustainable business model, offering a product with no worth or no real use. According to Action Fraud UK:
“A fraudster advertises a multi-level investment scheme that offers extraordinary profits for little or no risk. You’re required to pay a fee to enter the investment scheme. You’re then required to recruit friends or family members to enter the scheme. If you do this successfully, you’re paid out of their receipts. They are then told to recruit others to keep the chain going.”
“Your money is not actually invested in any product. Instead, it’s simply passed up the chain of investors. Because pyramid schemes are unauthorised and make no profits, you’re very unlikely to recover any lost investment. While the fraudster at the top will collect most of the profits, those who entered the scheme later end up losing out. Legitimate trading schemes rely on valuable goods and services, while illegal pyramid schemes focus simply on recruiting more and more investors.”
See more details, here- https://www.actionfraud.police.uk/fraud_protection/pyramid_schemes
According to China Money Network, an arrest has recently been made in Jinan, Shangdong province against a gang of people who have encouraged such a scheme, that has masqueraded as a legitimate blockchain company seeking investment. According to China Money Network:
“In 2017, the gang founded an e-commerce platform and developed members by asking new members to pay for membership rebate programs. From county agent to regional agent, the company established a five-tier hierarchical rebate model. A considerable number of the members are college students, according to police announcements.”
“In order to attract more people, the company highlighted some of the buzz terms coming from the central government including ‘Western Development’, ‘One Belt and One Road’ and ‘Poverty Alleviation’. It also claimed to be a ‘blockchain’ and ‘big data’ company with great growth potential.”
See more from China Money Network for yourself, here- https://www.chinamoneynetwork.com/2018/05/29/chinese-police-bust-47m-pyramid-scheme-masked-as-blockchain-project
All in all, the scheme had managed to scam more than 3,000 victims out of a share of over $47 Million. That equates to around $15,000.00 per victim, proving that this Is a very high scale scam indeed.
Whilst it is positive that these criminals have been caught, it is important to consider how this highlights some of the inherent risks that are live within the industry. Blockchain investments crop up every day, this is why it is imperative that you research the companies and inform yourself well before you decide to invest. If it sounds too good to be true, it probably is, be careful out there.