(ATF) A Chinese man has been convicted of illegally obtaining more than $4 billion in cryptocurrencies through a Ponzi scheme that promised returns of up to 19% each month.
A court in the eastern province of Jiangsu sentenced organisers of the multinational PlusToken cryptocurrency-based fraud to up to 11 years in prison and ordered confiscation of proceeds, which comprised cryptocurrencies worth about $4.2 billion.
The ruling by the Jiangsu Yancheng Intermediate People's Court listed bitcoin and bitcoin cash, ethereum, Ripple's XRP, litecoin, EOS, dash, tether and dogecoin among the haul.
PlusToken, a platform set up by Chen Bo in early 2018, touted “digital currency wealth management” as its core service. Running on the domain “www.plToken.io” and an app, it claimed to offer an artificial intelligence-driven crypto arbitrage trading feature that could generate returns for investors automatically.
Investors were required to deposit at least $500 worth of digital assets for membership and were assured high investment returns based on the number of members they recruited and their investment amounts, according to the ruling published in late November.
Chen, also known as Chen Zihan, is a resident of the city of Changsha in Hunan province, and received only some high school education, according to the court documents.
More than 2 million people participated in the scheme, according to statistics from a third-party audit. The court ruled that the platform was a well-disguised Ponzi scheme that generated returns for early investors by using money from later investors, while no real business was involved.
The size of the scam makes it one of the largest Ponzi schemes in crypto history. It expanded beyond China’s borders to recruit members in South Korea and Japan, and moved its operations team to Sihanoukville, Cambodia.
In June 2019, six accused ringleaders of were arrested in the Pacific island nation of Vanuatu.
To lure investors, the organisation forged an “international background” by hiring foreigners to impersonate the co-founders of the platform and spent generously to host promotional conferences overseas that each had over 1,000 attendees, a statement from the Ministry of Public Security said in July.
The plustokenwallet.com website, which is still accessible today, shows a photo of its “co-founder”, “Mr. Leo”, speaking at a technology conference at the World Blockchain Forum in South Korea’s Jeju Island in 2018. Another marketing blog post of PlusToken has described him as “an AlphaGo intelligent algorithm researcher” and “formerly the chief strategy officer of the European digital currency payment exchange”.
The website promised monthly revenues of 6-19% and bonuses for recruiting new members.
The court has convicted 15 people, including Chen, in relation to the PlusToken scam. Most have received prison sentences of between two and 11 years and fines ranging from $100,000 to $1 million.
Another statement by China's Ministry of Public Security in July said that the police arrested all 27 organisers as well as 82 core members, many of whom had fled to other countries such as Vanuatu, Cambodia, Vietnam and Malaysia.
After the platform was raided by the police in June 2019 and the key leaders arrested, digital assets continued to flow in. The police were able to seize 194,800 bitcoin, worth about $3.7 billion at current prices, as well as stocks of ethereum, adding up to a total of about $4.2 billion.
The confiscated cryptocurrencies are now the property of the state treasury and “will be processed pursuant to laws,” said the court ruling, which also said Chen planned to convert the cryptocurrencies into cash through Beijing-based Chaindigg.
The court ruling came as a disappointment to many investors who had wished to get their money back after the funds withdrawal function of the PlusToken wallet ceased to work in June 2019.
One investor left a comment last month on Douyin, the Chinese equivalent of TikTok, and asked whether he could get back the 10,000 yuan ($1,500) he invested in PlusToken. One investor interviewed by China Economic Weekly last year said he opened 27 accounts and invested more than 2 million yuan ($304,800) in PlusToken.
Lucky to evade charges
The participants of a Ponzi scheme are not considered “victims” according to Chinese law, Huo Yina, a lawyer told local media. They were lucky not to have been charged as well, Huo added.
Some users of the Zhihu.com Q&A forum said their family members who invested in the scam were recently invited to a new WeChat group that claimed PlusToken would return with ties to the official digital currency in development by the People’s Bank of China.
Several other crypto Ponzi scheme cases have been reported recently. Information on a court-affiliated website shows four people who operated a similar scheme under a platform called WoToken were sentenced in October by the same court in Yancheng.
Organisers led by Gao Yudong obtained more than $1 billion from the scam, it said, adding that local authorities seized about $68 million in cash as well as an apartment and two luxury cars.
In December last year, the US Department of Justice arrested three individuals in a crypto Ponzi scheme that had bilked $722 million from investors since 2014. The operators of BitClub Network, a purported mining pool operation, fooled investors by posting imaginary returns while not actually mining any bitcoin.