Chinese cryptocurrency scam ringleaders jailed in US$2.25 billion Ponzi scheme involving PlusToken platform
- Court in Yancheng, Jiangsu province, sentences those behind a multinational pyramid scheme to up to 11 years in prison
- Size of the PlusToken scam makes it one of the largest uncovered Ponzi schemes in China to have taken advantage of blockchain technology
A Chinese court has sentenced ringleaders of a multinational cryptocurrency-based pyramid scheme to up to 11 years in prison after they defrauded investors out of 14.8 billion yuan (US$2.25 billion) worth of cryptocurrencies, according to court documents from the eastern province of Jiangsu.
It was a classic example of a Ponzi scheme that generated returns for early investors by using money from later investors, while no real business was involved. Yet, the size of the PlusToken scam makes it one of the largest uncovered Ponzi schemes in China to have taken advantage of blockchain technology, using cryptocurrencies as a medium.
After PlusToken went bust in mid-2019, and Chinese authorities started chasing its ringleaders domestically and abroad, the price of bitcoin plunged almost 30 per cent from its highest price of the year, to about US$10,000 per coin. On Monday, bitcoin hit an all-time high of US$19,850.11, according to bitcoin price index CoinDesk.
Financial fraud has been rampant in China in recent years. According to the Supreme People’s Court in China, the number of new cases involving illegal fundraising heard by Chinese courts at all levels surged from nearly 6,000 in 2015 to more than 9,000 in 2018.
While the Chinese government has wiped out almost all peer-to-peer lending platforms – hotbeds for scams – and cracked down on cryptocurrency exchanges on the mainland since 2017, the nation’s financial regulators still reported close to 6,000 related criminal cases last year.
According to court documents, between 2018 and 2019, Chen and his underlings had been using social media and offline events to recruit members, who paid their membership fees using mainstream cryptocurrencies, including bitcoin, worth at least US$500. In return, PlusToken claimed that it offered investment returns of 6 to 18 per cent from its arbitrage business, which profited from price differences on cryptocurrencies between different markets.
Apart from returns on “arbitrage”, which turned out to be nonexistent, PlusToken also offered benefits based on investors’ different membership status levels and the number of new members they helped bring to the platform.
By the time PlusToken went bust at the end of June last year, it had close to 2.7 million members with more than 3,200 levels of investors. In total, they contributed approximately 14.8 billion yuan worth of eight types of cryptocurrencies, including more than 310,000 bitcoin – the most traded cryptocurrency. The total was based on the value of the highly volatile cryptocurrencies at the time.
In January 2019, Chen and his team fled to Cambodia to continue the PlusToken operations, and they hired local staff to pose as the platform’s “founders” to market it as an international project. Chen paid his staff with cryptocurrencies and also cashed out 127 million yuan to buy properties and luxury cars for himself and relatives, according to the court document.
Chinese police netted 27 suspects who were hiding in Cambodia, Vanuatu, Vietnam and Malaysia last year and arrested 82 other staff members working for PlusToken earlier this year.
The court in Yancheng, Jiangsu, sentenced Chen and 13 other ringleaders to between two and 11 years in jail, with fines ranging from 120,000 yuan to 6 million yuan. Another accomplice, Chen Tao, who helped transfer illegal gains, was sentenced to more than four years in jail. All confiscated cryptocurrencies were turned over to the state.
In October, the Yancheng court also handed down a ruling over a similar Ponzi scheme involving a platform called WoToken that defrauded investors out of 7.7 billion yuan, resulting in six people being sentenced to up to eight years in jail.
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