Summary of China’s digital currency crime cases: high amounts, many victims, and cross-province and cross-national crimes

Source: China Blockchain News (ID: ChinaBlockchainNews)

Author | Li Feng Editor | Yin Yue

In recent years, with the popularity of blockchain and digital currency, crimes committed in the name of the two have become the "hardest hit areas" of mass economic crimes.

Financial fraud is known as the king of fraud in 2019, and fraud in the field of digital currency accounts for a certain proportion. The latest official description is: "Traditional investment fraud using foreign exchange and gold as gimmicks is evolving into a 'blockchain scam', taking advantage of the popularity of blockchain, putting old wine in new bottles, and defrauding victims."

"Chain News" sorted out the criminal cases in the field of digital currency disclosed by domestic public security, procuratorial and judicial organs in the past two years and found that they are "better" than traditional financial fraud in terms of crimes, persons involved, and amounts involved.

Various charges, varying sentences

According to public reports, since 2019, the digital currency-related cases that have been publicly tried and sentenced include crimes such as organizing and leading pyramid schemes, illegally absorbing public deposits, fraud, extortion, illegal business operations, and illegal control of computer information systems.

Depending on the conviction, the length of the sentence varies, from a few months to more than ten years. Relatively speaking, the sentence for fraud is longer.

In September 2020, the Lianyuan City Court of Hunan Province held an open trial of the "Renren International" telecommunications network fraud case. Yan Qi and 38 other defendants were sentenced to fixed-term imprisonment ranging from one year and six months to ten years and six months.

In November 2019, the Jiujiang District Court of Wuhu City, Anhui Province, publicly sentenced the defendant Li Bing and 41 others in a fraud case. The defendant used a telecommunications network fraud platform to defraud the victim's property by fabricating facts and concealing the truth for the purpose of illegal possession. Li Bing was sentenced to 13 years in prison and fined 1 million yuan. The remaining 40 defendants were sentenced to fixed-term imprisonment ranging from 10 months to 12 years and 6 months and fined.

There are more than 100 people involved in the case and more than 2 million victims.

Digital currencies are often developed in a "pyramid scheme" model, relying on the rise of digital currencies to deceive users and expand the market by developing downlines, involving many people. In the cases that have been disclosed, there are often more than 100 people involved, and the number of victims has even exceeded 2 million.

In October 2019, the police in Shangcheng District of Hangzhou City cracked a criminal gang that deceived others into speculating in Bitcoin and arrested more than 200 people involved in the gang.

In March 2019, the Zhengzhou police opened an investigation into the "Henan Lianxin Technology Co., Ltd. suspected of fundraising fraud case." Gao, a suspect in the fraud gang, established Henan Lianxin Technology Co., Ltd., AT Exchange and other companies, and assembled the purchased hard drives, motherboards, and chassis into so-called "mining machines" with labels, and lied to customers: Investing in "mining machines" can get high returns through mining, exchange, and trading. But when customers bought their "mining machines" at a high price, the company froze the digital currencies exchanged by customers on the grounds that the trading platform was hacked, and prevented customers from withdrawing cash through back-end operations, illegally occupying customer funds. The funds involved in the case amounted to 1.36 billion yuan, and more than 7,000 people were victims.

The "Plus Token" platform, which was rated as one of the top ten typical cases of the public security organs' "Fox Hunting Operation" in 2019 and is known as the "largest Ponzi scheme in the cryptocurrency circle", involves more than 2.9 million members.

Amount involved: tens of millions, up to hundreds of billions

According to the 2019 Internet Fraud Trends Research Report, digital currency fraud caused the highest per capita loss of 134,522 yuan in terms of the per capita loss caused by various types of financial fraud. In the past two years, the amount of money involved in digital currency cases ranged from tens of millions to hundreds of millions, and tens of billions were also common.

In July 2019, the Chengdu Public Security Bureau in Sichuan successfully cracked down on a large-scale online fraud gang and arrested 200 criminal suspects. The gang was involved in more than 900 online fraud cases across the country, with funds involved exceeding 10 million yuan.

Also in July 2019, the Pengzhou police in Sichuan uncovered a major fraud case in which the gang was involved in more than 5,000 similar cases across the country, with funds involved reaching 100 million yuan.

The amount involved in the "Plus Token" online pyramid scheme case was as high as more than 40 billion yuan.

From pyramid schemes to mining

In the field of digital currency, in addition to "big currencies" such as Bitcoin and Ethereum, the endless emergence of various "MLM coins" and "air coins" provide space for criminals.

In July 2019, the Zhifu District Court of Yantai City, Shandong Province, publicly tried a case of organizing and leading a pyramid scheme. The defendant, Wang Mougang, began to issue virtual digital currency "Alliance Tickets" in the name of Lianmeng Tianxia Company in November 2016, and advertised that the "Alliance Tickets" had high collection value and appreciation potential. In January 2017, Lianmeng Tianxia Company officially issued "Alliance Tickets" at a price of 1 yuan per coin, and advertised that the price would only rise and not fall, and artificially manipulated the price to raise it.

In July 2019, the Jinxi County Court of Jiangxi Province tried the case of the defendant Zeng Mou selling the "World Union Assets" virtual digital currency and sentenced the defendant Zeng Mou to five years in prison for the crime of illegal business operation and a fine of 150,000 yuan.

Mining, as the upstream of the digital currency industry, is also a field favored by criminals.

In mid-2019, police in Zhenjiang, Jiangsu and Suizhong, Liaoning cracked cases of stealing electricity to mine Bitcoin. The Zhenjiang police cracked nearly 4,000 "mining" devices involved in the theft of electricity, with a case value of nearly 20 million yuan. The Suizhong County Public Security Bureau in Liaoning Province cracked a case involving 408 Bitcoin "mining" machines and more than 100 spare "mining" machines, stealing more than 900,000 yuan worth of electricity in 85 days. Almost at the same time, the Wenzhou Intermediate People's Court in Zhejiang Province made a second-instance ruling on a major malicious "mining" case. The defendants Zhou and Xiong installed GPU "mining" programs in other people's computer information systems, controlled other people's computer GPUs to "mine" to obtain digital currency SC coins. The criminal gang illegally controlled more than 3,200 computer information systems and made illegal profits of more than 670,000 yuan.

Cross-region, cross-province, and cross-border operations are also common

Blockchain is a distributed ledger that emphasizes decentralization and collaboration through consensus among multiple parties. Crimes in the blockchain field also exhibit the same characteristics.

In July 2019, the Zhifu District Court of Yantai City, Shandong Province, publicly tried the case of the defendant Wang Mougang organizing and leading pyramid selling activities. "Lianmeng Tianxia Network Technology Co., Ltd." has developed a total of approximately 76,000 members, and the members have reached the third level or above, involving many provinces such as Shandong, Guangdong, and Inner Mongolia.

On July 3, 2020, the Court of Economic and Technological Development Zone of Yancheng City, Jiangsu Province, held a public hearing on the "Plus Token" online pyramid scheme case. Within this pyramid scheme gang, the technical group, marketing group, and customer service group are relatively independent and scattered in many regions of the country. In early 2019, Chen and three others gradually transferred the personnel of the three groups to different countries abroad. After the incident, Chen and 27 other major criminal suspects fled abroad one after another. From July to August 2019, the Jiangsu police went to Vanuatu, Cambodia and other countries to assist and cooperate with the local police in the arrest, and all the 27 fugitives were captured and escorted back to China.

In June 2020, the Suzhou Public Security Bureau of Jiangsu Province, together with the Zhangjiagang police, cracked a major cross-border illegal third-party payment platform case. Guangdong, Guangxi, Sichuan, and Zhejiang carried out simultaneous crackdown operations and arrested 72 people involved in the case.

In September 2019, Anhui Suixi police cracked down on a cross-border telecommunications fraud gang and arrested nine suspects. The gang set up bases in Manila, Philippines and China, using fake Bitcoin and other trading platforms to commit fraud.

Good at "packaging" and has many varieties

There are many kinds of scams in the name of "blockchain", "digital currency", etc.

In 2018, Shenzhen police investigated the "Liang Bisi" pyramid scheme gang, which lured victims to invest in the name of blockchain. The "Liang Bisi" pyramid scheme members set up a virtual platform and claimed that "only by paying money can you have the corresponding mining qualifications", "only by charging money can you get mining tools", "only by charging money can you improve your level", etc., to lure victims into investing.

In October 2019, Hunan Qubu Network Technology Co., Ltd. developed the "You can make money by walking" Qubu APP. It was formally investigated by the relevant departments of Changsha City because of suspected illegal activities such as pyramid schemes, illegal fundraising, and financial fraud. After downloading the "Qubu" APP and walking a few thousand steps a day, you can get varying amounts of "Qubu Candy". This kind of "candy" is a kind of virtual currency on the platform, which can be used to exchange for goods and directly withdraw cash. Industry insiders said that Qubu's model is "sports mining". To pull people in, many new people need to come in to support the pyramid structure. The more people are required at the bottom, and only when new people come in, the people above will benefit.

In December 2019, the police in Hefei, Anhui Province, uncovered an illegal pyramid scheme called "magic water". The suspects claimed that their "SSG Life Energy Water" could cure all diseases. When users purchased the product, they were promised high cash back, but not directly in cash, but in virtual currency called "Jinyuan" issued by the company. In this way, "SSG Life Energy Water" became a cover, and the expectation of virtual currency appreciation stimulated users to buy products at high prices. At the same time, in order to have someone take over the virtual currency in hand and to attract more people to get more rewards, users who purchased the product will continue to develop downlines.

Crimes committed by technicians are becoming more and more frequent

Blockchain technology is highly professional and difficult for the general public to understand, so it is easy to be tricked. Technicians are close at hand, and with their own technological advantages, some are turning into criminals.

In 2018, Li, a programmer at a live streaming platform in Taicang City, Jiangsu Province, made extra money by "swiping coins" and illegally arbitrage 400,000 yuan.

In June 2020, Pan, a technician at a Beijing company, used the Internet to extort Bitcoin, causing the company to suffer economic losses of more than 200,000 yuan. The Haidian District Court of Beijing sentenced Pan to three years in prison and a fine of 5,000 yuan for the crime of extortion.

In October 2020, the Nantong police in Jiangsu Province successfully cracked a major case of creating and using ransomware to carry out cyber extortion, which was supervised by the Ministry of Public Security. As of the time of the incident, Ju, as the creator of multiple Bitcoin ransomware viruses, had implanted ransomware viruses into more than 400 websites and computer systems. The victims involved enterprises, medical care, finance and other industries. He had successfully committed more than 100 crimes and illegally obtained Bitcoins worth more than 5 million yuan.

According to reports from People's Daily and CCTV, blockchain technology has been a hot concept in the past two years. However, behind the popularity of blockchain technology, another fraud "feast" is surging undercurrent. Experts and the media called on all functional departments to work together to establish a complete governance system to combat "blockchain" fraud as soon as possible.