Using blockchain as a pretext to "mine" an online pyramid scheme gang was busted for 1.4 billion yuan

Modern Express News (Reporters Liu Xiuming, Weng Zhijuan, and Cao Dewei) With the rapid development of the Internet, cybercrimes are increasing day by day, and new forms are emerging one after another. Recently, the Procuratorate of Runzhou District, Zhenjiang City, filed a public prosecution against a gang suspected of organizing and leading pyramid schemes. The gang used the name of blockchain to provide virtual currency "mining", and carried out online pyramid schemes by speculating on the appreciation of coins without mining machines. A large number of people were involved in the case, which affected many provinces and cities across the country, including Jiangsu, Guangdong, Shandong, and Chongqing, and the amount involved was as high as more than 1.4 billion yuan.

Develop online MLM platform

In May 2020, Li, knowing full well that online pyramid schemes were illegal, deliberately "studied" new pyramid scheme models and optimized and improved them. With the assistance of Yang, Liu and seven other people, he designed the "Twin New Covenant" online pyramid scheme platform, hired three technical teams to develop the "Twin New Covenant" version 1.0 and 2.0 software, and rented cloud services. In mid-August 2020, the platform App was officially launched.

In order to cooperate with the operation of the online pyramid scheme platform, Li and others also developed a G exchange and a K exchange, set up a "transaction tower", and traded the generated virtual digital currency mother coin and sub-coin in the two exchanges, fabricating strong technical strength to attract the public to join.

After the "Twin New Covenant" online pyramid scheme platform was launched, Li organized Yang, Liu, Pan and others to form a community. Through group promotion, Internet publicity, offline lectures and other forms, he introduced the platform's operating model, exaggerated the platform's strength, fabricated profit prospects, and continuously expanded the platform's influence.

More than 84,000 registered members in half a year

How does the "Twin New Covenant" online pyramid scheme deceive the public? It mainly uses blockchain to provide members with virtual digital currency value-added "mining", and conducts false propaganda in the name of not needing mining machines. As long as participants purchase 100 virtual digital currency mother coins, they can become members, and then purchase 10 mother coins to open the "superstring system" and generate their own unique "3S code", of which 4 mother coins are allocated to direct recommenders, and the remaining 6 mother coins are evenly distributed to the other 8 people in the upper level. Members who join the club enjoy the static income generated by the appreciation of currency speculation, and at the same time generate dynamic income by developing downline profits. As of the time of the incident, the platform had more than 84,000 registered members, 316 levels of development, and the amount involved was more than 1.4 billion yuan.

Version 1.0 and 2.0 of the "Twin New Covenant" do not have any actual business activities and do not generate any actual income at all. However, the funds absorbed through the platform need to pay for various expenses such as platform maintenance, daily expenses, salary payment, and renting office space. Li and others know that the collapse of the project is a matter of time. At the end of 2020, Li and others pushed up the prices of the parent and child coins in the two exchanges, absorbing more funds, and then staged a hacker attack on the platform, creating the illusion that the funds could not be withdrawn temporarily, delaying the collapse. However, as more and more members found that the funds could not be exchanged, the case broke out.

Due to the new modus operandi, the large amount of money involved, and the large number of people involved, the Runzhou District Procuratorate of Zhenjiang City intervened and put forward 18 investigation suggestions through 5 case consultations, guiding the public security organs to focus on the characteristics of blockchain decentralization and virtual currency transactions, focusing on server codes, platform data, etc., to find out the development level, investment operation and remuneration methods of pyramid schemes, and further clarify the amount of funds absorbed. At the same time, the prosecutors and lawyers in charge strengthened cooperation to jointly explain the law and policies, prompting 15 of the 17 suspects to voluntarily plead guilty and accept punishment, and 13 of them to voluntarily withdraw illegal gains totaling 447 million yuan.

Finally, the procuratorate considered sentencing standards, factual evidence, and expressions of remorse, and proposed sentencing recommendations for 17 suspects for the crime of organizing and leading pyramid schemes, with sentences ranging from two to six years in prison and fines ranging from 100,000 yuan to 1 million yuan.

Currently, the case is being heard in court.