15 people sentenced, 14.8 billion digital currency pyramid scheme case sentenced! Nearly 2.7 million registered members, using blockchain to defraud, with 3293 levels

Source: China Securities

Author: Xie Zhongxiang

The "PlusToken" platform digital currency pyramid scheme case involving a scale of 14.8 billion has recently received a final verdict. The verdict disclosed many details of the case: PlusToken platform used blockchain as a concept to promote pyramid schemes, with 2.693 million registered member accounts and a maximum of 3,293 levels.

On November 26, the final judgment of this first major transnational online pyramid scheme case in China using digital currency as a trading medium was announced. The Intermediate People's Court of Yancheng City, Jiangsu Province (hereinafter referred to as "Yancheng Intermediate Court") determined that the first instance judgment of sentencing 15 persons involved in the case to fixed-term imprisonment ranging from 2 to 11 years was clear in facts and appropriate in conviction and sentencing. The final judgment rejected the appeal and upheld the original judgment.

A cryptocurrency industry insider told China Securities Journal that the collapse of this platform in 2019 had triggered a sharp fluctuation in the Bitcoin market. According to him, at the end of June 2019, Bitcoin had just reached its highest point of the year, which was $13,968 per unit. As soon as the PlusToken collapse news came out, the Bitcoin market plummeted and returned directly to around $10,000.

A pyramid scheme in the name of "blockchain" with 3,293 levels

The "PlusToken" platform started out under the banner of blockchain.

On November 26, the final judgment of the PlusToken platform pyramid scheme gang disclosed by the Yancheng Intermediate People's Court showed that in early 2018, Chen Bo planned to set up the PlusToken platform on the Internet with the concept of blockchain to carry out pyramid scheme activities. He successively hired Zheng Jing and Wang Renhu's team to develop, operate and maintain the APP and website, and the APP was launched in May of that year.

At the same time, Chen Bo, Ding Zanqing, Peng Yixuan, Gu Zhijiang and others established the PlusToken platform’s top marketing team - the Shengshi Alliance Community. They released promotional materials such as the introduction of the PlusToken platform, the bonus system, and the operating model through WeChat groups, the Internet, irregular meetings, concerts, and travel, and fabricated and exaggerated the platform’s strength and profit prospects for publicity and promotion.

Starting from May 2018, Chen Bo and Yuan Yuan successively recruited Liu Shuai, Chen Tao, He Sisi and other 7 people to work on the customer service and currency transfer of the PlusToken platform. In August of the same year, at the invitation of Ding Zanqing, Lu Wanlong joined the platform and was responsible for introducing and connecting with other blockchain event organizers and news media, promoting the platform and expanding its influence.

It is worth noting that the original judgment determined that the PlusToken platform did not have any actual business activities, but was spread in my country, South Korea, Japan and other countries through the Internet.

In the name of providing digital currency value-added services, the platform claims to have the "Smart Dog Moving Arbitrage" function (i.e., conducting arbitrage transactions on different exchanges at the same time to earn the price difference), but in fact it does not have this function. The platform requires participants to obtain a member account of the platform through online recommendations, pay a threshold fee of more than US$500 in digital currency, and activate the "Smart Dog" in order to obtain platform benefits.

In addition, members are organized into upper and lower levels according to the order of recommendation and development, and are divided into five levels: ordinary members, big investors, big shots, big gods, and creators, based on the number of downline members developed and the amount of investment funds. The platform has three main income methods, namely smart brick-moving income, link income, and executive income, to provide rebates, directly or indirectly based on the number of people developed and the amount of payments.

After forensic appraisal by a professional organization, from April 2018 to the end of June 2019, excluding accounts with duplicate identities, the platform recorded a total of 2.6935 million registered member accounts, 1.5949 million accounts that had undergone identity authentication, with the maximum level being 3,293.

A person working in the cryptocurrency industry told a reporter from Securities China that this model was popular in the cryptocurrency industry, especially in 2019, when various "MLM" and "capital" projects emerged. Then, various tokens were issued, and the market was pulled up through the "internal market" to induce retail investors to participate.

Transnational pursuit, 14.8 billion yuan in digital currency seized

In January 2019, in order to evade legal action, core team members Chen Bo and Yuan Yuan moved the platform’s customer service team and coin transfer team to Sihanoukville, Cambodia, and continued to conduct pyramid selling activities using the PlusToken platform.

According to a message released on the website of the Ministry of Public Security at the end of July this year, in early 2019, after the public security organs in Yancheng, Jiangsu Province discovered clues that Chen Bo and others were suspected of using virtual currency trading platforms to organize and lead pyramid schemes, they set up a special task force and reported the case to the Ministry of Public Security.

In June 2019, under the coordination and organization of the Ministry of Public Security, the police of the special task force went to Vanuatu, Cambodia, Vietnam, Malaysia and other countries and regions, and cooperated with the local police to successfully arrest 27 major criminal suspects hiding abroad. In March this year, the Ministry of Public Security deployed public security organs across the country to launch a cluster campaign and arrested all 82 core members suspected of pyramid schemes.

Upon investigation, it was found that in order to attract more people to participate, the criminal gang used the Internet to widely publicize the platform's joining methods, operating models, bonus systems, profit prospects, etc., and hired foreign personnel to impersonate the platform's founders in order to package and forge their so-called "international platform" and "foreign project" background.

The judgment of the Yancheng Intermediate People's Court shows that after an accounting firm appraised the electronic transaction bills used by the PlusToken platform to collect digital currency wallet addresses from members, as of June 27, 2019, the PlusToken platform had collected 314,200 bitcoins (BTC), 117,500 bitcoin cash (BCH), 96,000 dash (DASH), 11.06 billion dogecoins (DOGE), 1.8477 million litecoins (LTC), 9.174 million ether (ETH), 51.363 million EOS, and 928 million ripple coins (XRP) from members.

According to the Price Certification Center of the Yancheng Municipal Price Bureau, based on the lowest prices from May 1, 2018 to June 27, 2019, the above eight digital currencies are equivalent to approximately RMB 14.8 billion.

Moreover, after June 28, 2019, illegal digital currencies were still transferred into the platform’s wallet address, totaling 6,349 bitcoins, 1,864 bitcoin cash, 1,671.8 dash, 35.5648 million dogecoins, 23,300 litecoins, 82,900 ethereums, 1.109 million EOS, and 8.76 million ripple coins.

It is worth noting that in addition to using digital currency to pay for the promotion of related platforms and the expenses of other platform staff, the founder Chen Bo also cashed out digital currency, including selling digital currency to Fu and others to cash out RMB 145 million. Evidence has shown that RMB 127 million of the money was used by himself and his relatives and friends to buy real estate, Maserati and other consumption, and some of the stolen money has been returned.

In addition to the 14 people who were convicted of organizing and leading pyramid schemes, the original trial court determined that from June 27 to 28, 2019, Chen Tao, knowing that Chen Bo, the head of the PlusToken platform, was arrested by the public security organs and the relevant digital currencies were proceeds of crime, still actively conspired with Lu Jiaolong to transfer and hide the relevant digital currencies, equivalent to RMB 150 million, which is a particularly large amount. After Lu Wanlong was released on bail pending trial by the investigation agency, he exchanged 450 bitcoins and transferred and concealed them. In the end, 456 bitcoins, 573,200 grapefruit coins and 911 Ethereums could not be recovered.

In the end, the court sentenced Chen Bo, Ding Zanqing and 14 others to fixed-term imprisonment ranging from 2 to 11 years and fines ranging from 120,000 to 6 million yuan for organizing and leading pyramid selling activities. Chen Tao was convicted of concealing and hiding the proceeds of crime and sentenced to 4 years and 10 months in prison and a fine of 600,000 yuan. The seized digital currency was handled in accordance with the law, and the funds and proceeds were confiscated and turned over to the state treasury. The second instance held that the facts were clear and the sentencing was accurate, and rejected the appeal and upheld the original verdict.

Industry insiders: Chaos in the cryptocurrency world

A person who has been working in the cryptocurrency industry for many years told a reporter from Securities China that when the PlusToken platform was exposed, it caused a stir in the cryptocurrency industry. According to him, at the end of June 2019, Bitcoin just reached its highest point of the year, which was $13,968 per coin. As soon as the news of PlusToken's collapse came out, the Bitcoin market fell sharply and returned directly to around $10,000.

The above-mentioned cryptocurrency industry practitioner also introduced that there were many chaos in the cryptocurrency industry before. "For example, 'ICO', that is, the private issuance of tokens, was banned by the state on September 4, 2017, but this behavior still exists, using the issuance of tokens to 'cut leeks'. However, there have been no new users entering the market this year, and the remaining old users have been cut off, so they generally don't believe in ICO to get rich quickly."

"There were many platforms similar to PlusToken in 2019. The more famous one was called WoToken, which was also shut down for pyramid schemes. After the collapse of PlusToken, these similar Ponzi schemes basically collapsed, and many people lost money. During that period, various rights protection groups emerged." The cryptocurrency practitioner told China Securities Journal reporters.

It is worth mentioning that the China Securities Journal reporter learned from the Judgment Documents Network that the case involving pyramid schemes on the WoToken platform was also heard by the Yancheng Intermediate People's Court in Jiangsu. On October 19 this year, the Yancheng Intermediate People's Court tried the case involving the WoToken platform, which involved digital currencies up to 14.7 billion yuan. Gao Yudong, Li Qibing, Wang Xiaoying and six others were sentenced to fixed-term imprisonment ranging from 6 months to 8 years, and fined and confiscated illegal gains.