2 billion mining machine scam

This is a trap that may not look sophisticated on the outside, but is deeply familiar with the operating rules of Chinese civil society on the inside. The scam starts with the disposal of private debts and radiates outward based on a chain of acquaintances. The entire process combines the new concept of cryptocurrency mining as a gimmick, and many investors have invested huge amounts of money without realizing it.

Author | Zhang Jilong Editor | Anxin

"My parents and I were defrauded of more than 400,000 yuan," investor Wang Yue said on the phone. "I don't know what to do."

After confirming that the "mining machine" he bought had turned into a pile of scrap metal, Wang Yue's family fell into a sudden disaster and their lives fell into endless darkness.

Wang Yue is not the only victim. In Anhui, Henan, Sichuan, Jiangsu and other places, a large number of investors have also fallen into the pain of losing their wealth. According to some investors, in Hefei alone, 300 to 400 people were involved in the "mining machine" scam, involving an amount of over 100 million yuan.

As concepts such as Bitcoin and blockchain gradually become popular among the public, fraud incidents related to them are also increasing. The scams are becoming more complex and sophisticated, and more difficult to prevent.

Take the "mining machine" scam as an example. This is a trap that is not sophisticated on the outside, but is actually well versed in the operating rules of Chinese civil society. The scam starts with the disposal of private debts and radiates outward based on a chain of acquaintances. The entire process combines the new concept of cryptocurrency mining as a gimmick, and many investors have been defrauded of huge amounts of money without realizing it.

Faced with this type of new scam, not only do many investors not know how to deal with it, but there are also blank or lagging policies and regulations, which undoubtedly increases the complexity of the entire situation.

1

“Redefining the Internet Wealth Landscape”

On October 29, 2018, Sheraton Zhengzhou Hotel hosted an extraordinary grand meeting.

This conference has a very long and difficult to pronounce name - "2018 Central Plains Silicon Valley First (International) Innovation and Technology Festival and CAI Rich Ranking Launch Conference", and the organizer is called "Central Plains Silicon Valley Innovation and Technology Industrial Park".

Now, if we search using the name of this forum as a keyword, the results show that two widely-known names were mentioned prominently in many subsequent press releases - the first name is Hurun, the founder of the "Hurun Rich List", and the second name is "Semiconductor Institute of the Chinese Academy of Sciences".

In fact, all the participants knew that both Hurun and the "Semiconductor Institute of the Chinese Academy of Sciences" were just supporting roles in this conference. The real core of this conference was two other names that were completely unfamiliar to the outside world at the time: a virtual currency called CAI and a mining machine called "Snail Interstellar Server".

According to news reports at the time, Hurun himself attended the meeting and delivered a speech, "witnessing the launch of the research and development of the world's only storage application ecosystem CAI." In this regard, All Weather Technology contacted Hurun Report's public relations department for verification, but no response was received as of press time.

Media reports on Hurun's speech at the conference

At that time, a ceremony was held at the conference to unveil the chip R&D center of the Institute of Semiconductors of the Chinese Academy of Sciences to move into the Central Plains Silicon Valley.

How did this "Zhongyuan Silicon Valley Innovation Technology Industrial Park" come to the stage to invite Hurun and the Institute of Semiconductors of the Chinese Academy of Sciences? What are CAI and "Snail Interstellar Server"?

In fact, if you search the industrial and commercial information system with the keywords "Zhongyuan Silicon Valley" or "Zhongyuan Silicon Valley Innovation Technology Industrial Park", you will find that there is no such company or organization. According to investors, the real name of this so-called Zhongyuan Silicon Valley is Henan Lianxin Technology Co., Ltd. (hereinafter referred to as "Lianxin Company").

On the Internet, the information dimension about the virtual currency called CAI is also extremely single. This mysterious virtual currency first appeared on October 10, 2018, when many blockchain vertical media reported the news that CAI was launched on the Singapore AT Exchange.

Even among investors, almost no one knows what CAI coin is. Is CAI the abbreviation of the first letters of three English words or the Chinese pinyin? Who is the issuer of this coin? Is there a white paper? Many investors are confused.

At this conference, the prospects of the CAI coin, whose origin is unknown, were portrayed as extremely attractive. Many news reports of this conference called it "as the next outlet for the development of contemporary Internet technology, it will redefine the Internet wealth landscape." In order to stimulate the enthusiasm of participants, Zhongyuan Silicon Valley also signed a strategic cooperation agreement with Hurun Report, and the two parties launched the CAI Rich List.

As another focus of the conference, the "Snail Interstellar Server" mining machine was also launched. "The earlier users choose the Snail Interstellar Server as a city node, the more CAI they will get at a lower cost," an article on the Internet described the prospects of this mining machine, saying that "in the future, they will enjoy the huge dividends brought by the development of the entire ecosystem, and thus have the opportunity to become a member of the CAI Rich List."

An important highlight of this machine, which is claimed to be jointly developed by Zhongyuan Silicon Valley and Beijing IPFS Laboratory, is that it can mine two virtual currencies at the same time. "It is said that one machine can mine two tokens at the same time, IPFS and CAI," said a buyer of the mining machine. The mining machine company advertised that users can mine CAI before the launch of IPFS token Filecoin. After Filecoin is launched, users can dynamically switch according to the principle of maximizing profits, forming dual mining of CAI and Filecoin.

In the eyes of the above buyer, this kind of publicity is very tempting. Although no one has heard of CAI coin, Filecoin is a well-known mainstream virtual currency. "I definitely don't want to just mine this coin (CAI), but I still know a little about IPFS."

"Recover your investment in two months, 0 risk, and make money without doing anything," Wang Yue said. This is the slogan of the Snail Interstellar Server Miner.

A piece of promotional material provided to Wang Yue by a mining machine salesperson stated that the more mining machines investors purchased, the more coins each machine would mine every day. "One computing machine produces 47 CAI per day, 100 computing machines produce 70 CAI per day, and 1,000 computing machines produce 80 CAI per day."

The document gives investors a calculation: each mining machine is priced at 5,875 yuan, with a useful life of three to five years. Based on the value of each CAI coin at the time of 1.40 yuan, if you invest in 100 machines, the total investment is 587,500 yuan, and the monthly return is as high as 294,000 yuan. This means that investors can fully recover their investment in less than two months. "You can sell it at any time 24 hours a day, invest once, and benefit forever."

Wang Yue also found that the price of this CAI coin has been rising. After it was launched on an exchange called AT, the price of the coin rose by nearly 80% on the first day, from the initial 50 cents to 1.4 yuan, and then to about 2 yuan.

As the price of the currency rose, investors such as Wang Yue began to buy a large number of mining machines. Wang Yue said that he had bought 85 mining machines in succession. "At the beginning, I only bought 10 machines, and then as the price of the currency rose, I slowly added machines."

Based on the price of a mining machine at 5,875 yuan, Wang Yue invested nearly 500,000 yuan in total. But this amount of money is not worth mentioning compared with other investors. "I am one of the people who invested the least," Wang Yue said. There are many people who invested one or two million yuan. As far as she knows, "an aunt invested 76 million yuan."

For investors like Wang Yue, investing huge amounts of money was just a seed, and they hoped they could have a role in changing the wealth landscape, but those hopes have been dashed.

2

'The money is gone'

All dreams about wealth came to an abrupt end on February 14, 2019.

On this day, investors received two announcements from AT Exchange and Lianxin Company respectively. AT Exchange stated that due to the platform being attacked by hackers, a large amount of QD coins were lost and evaporated, and trading was suspended. The freezing period will be about 3 months. All trading wallet systems have been closed and withdrawals have been suspended.

Lianxin Company issued an announcement saying that on February 7, the company's senior management participated in a roadshow in Silicon Valley, the United States. In the future, all mining machines will be taken over by Silicon Valley, and all CAI servers will be involved in a new Silicon Valley project worth tens of billions of US dollars.

These two announcements send a strong signal to investors: as the only exchange for CAI coins, the suspension of trading by AT Exchange means that all coins cannot flow, while the announcement by Lianxin Company means that the company's senior management team is no longer in China but has moved to the United States.

"This means a collapse," said an investor, but most people find it hard to accept this reality. Because on January 31, before the suspension of trading, Hefei Xinkunbo Technology Co., Ltd. (hereinafter referred to as Xinkunbo Company), a branch of Zhongyuan Silicon Valley, issued a price adjustment notice, saying that it had received a notice from the headquarters that from February 11, the price of each mining machine would increase by 3,000 yuan, from 5,875 yuan to 8,875 yuan. In order to avoid price increases, many investors hoarded machines in large quantities.

However, Wang Yue believes that this matter had already been foreshadowed in January: On January 25, AT Exchange issued an announcement on the suspension of CAI coin trading, citing system maintenance and upgrades, and the reason for the inability to trade; the announcement stated that trading would resume after February 1, 2019. Around this time, the price of CAI coin has been falling, from around 2 yuan to 50 or 60 cents, "the lowest price fell to 7 cents", but even at this price, there was no trading.

By the end of February, even some of the most determined investors began to feel that the problem was not that simple. Not only could the AT Exchange's website and app not be opened, but the coin mining app could not be opened either.

"The executives of the mining machine sales company also began to disappear. They didn't answer the phone, didn't reply to messages, and could not be found." Wang Yue said that at the same time, a terrible rumor was circulating among investors: the boss of Lianxin Company had fled to the United States, and the executives of Xinkunbo Company finally divided the investors' money.

Wang Yue calculated that she lost about 400,000 yuan from the money she spent on the machine minus the money she made from selling the coins. She was lucky, as many people did not sell any coins. "The worst thing is that some people just received the machine, or even before they received it, CAI coins could no longer be traded."

No one can tell how many investors and funds were implicated by the collapse of CAI coin. According to an investor's estimate, there were as many as 300 to 400 people who bought mining machines in Hefei, Anhui alone.

According to a December 2018 sales statistics table of the Central Plains Silicon Valley Hefei Operation Center (Hefei Xinkunbo Technology Co., Ltd.) obtained by All Weather Technology, in December alone, the company sold 13,747 mining machines with sales of more than 73 million yuan. "The actual number of machines sold should be more, because many are not registered in this table." A former employee of the company revealed.

This may just be the tip of the iceberg. Wang Yue estimates that the stock of mining machines in Hefei alone should be around 30,000. However, Hefei is only an operating center of Zhongyuan Silicon Valley, and its real headquarters is in Zhengzhou. "There should be more victims there," Wang Yue believes. In addition, people in Hubei, Sichuan, Jiangsu and other places also bought mining machines.

In the industry, some people speculate that the funds involved in this mining machine may be around 2 billion. CAI did not redefine the Internet wealth structure, but it changed the fate of many people and families.

All Weather Technology learned that among investors, two groups suffered heavy losses.

The first is the middle-aged and elderly group. Many investors mentioned that one notable commonality among investors in mining machines is that they are older, mostly elderly people. One investor told All Weather Technology that he estimated the average age of the victims was over 50, "some in their 70s and 80s."

The reason why these elderly people suffered heavy losses is that, on the one hand, they all have accumulated a certain amount of wealth, or their family conditions are above the well-off level. Many people involved in the investment said that their families are in business, or they are using their savings of many years to invest.

Another group of people who suffered heavy losses are mining machine sales personnel represented by Li Yun (pseudonym). In fact, they are both sellers and investors of mining machines.

Li Yuan said that many salespeople not only sold mining machines, but also bought a lot of mining machines themselves. She only bought 30 mining machines, while many of her colleagues bought hundreds or even thousands of them. After the collapse of CAI coin, they not only lost all their money, but many even owed huge debts.

She said that many salespeople bought mining machines because of the "deception" of the company leaders. "Don't worry about promoting it. We are strong and this building is ours," the leaders said. They even encouraged employees to take out loans to buy mining machines. "If relatives and friends don't trust you, you can use your own house or car as collateral for them."

Under the instigation of the company, some salesmen actually mortgaged their houses and cars. A friend of mine mortgaged his house to raise more than 1 million yuan and bought more than 300 machines. Now that the currency market has collapsed, he has to pay the bank more than 40,000 yuan a month, and he is "desperate."

3

The mysterious "Friends" and "Debt Relief" modes

The irony is that for some elderly people who can’t even use smartphones properly, why would they participate in blockchain, a project that many young people don’t understand?

Li Quan believes that one of the main reasons why many elderly people get involved is because of introductions from relatives and friends.

Many investors said that they became friends with the executives of the mining machine sales company because of a business called "debt relief". They confirmed that the predecessor of Zhongyuan Silicon Valley Hefei Operation Center (Xinkunbo Company) was a debt relief company called "Anhui Guotai Zhonghe Small and Medium Enterprise Economic Information Consulting Co., Ltd." In November 2018, the company changed its name and stopped doing debt relief business, but switched to mining machine business. "Except for the name change, the leaders and the old employees are exactly the same."

According to investors, Anhui Guotai Zhonghe Small and Medium Enterprises Economic Information Consulting Co., Ltd. started its business around 2017 and has been engaged in debt resolution business for about two years, and has never encountered any problems before.

Li Quan's parents met Mr. Mei, a senior executive of the company, when they were trying to repay debts. At first, they tried to repay 30,000 yuan of debts with half belief and half doubt. After that, they developed a sense of trust in the company and successively repaid more debts.

In December 2018, under the introduction of "General Manager Mei", Li Yuan went to work at Xinkunbo Company, where her main job was to sell mining machines. A recruitment advertisement showed that the company was recruiting with a very high salary at the time, "If you work hard for a month, you can get more than 50,000 yuan in salary." She said that in addition to the basic salary, there is also a commission for the sale of mining machines, 6% for each unit below 50, 7% for 50 to 100 units, and 8% for more than 100 units.

At the beginning, Li Quan was full of gratitude towards "General Manager Mei" for such a job. At the same time, Li Quan noticed that many newly recruited sales people were introduced by acquaintances like himself, and many of these acquaintances were also senior executives or old employees of the original debt relief company.

It is understood that the so-called debt settlement is a method of handling private debts that has emerged in recent years. The specific method is very mysterious. Li Yuan explained, "For example, if someone owes you a debt of 100,000 yuan, but the other party cannot pay it back, you can take the IOU of 100,000 yuan to the debt settlement company, and you give the company another 100,000 yuan. The company will return part of the money every month, and you will get a total of 200,000 yuan a year. After deducting the 10% handling fee, it is 10,000 yuan, and you can get 190,000 yuan."

As for where the money of the debt settlement company comes from, few people know. A debt settler told All Weather Technology that she had asked the other party this question, but the other party just said, "Don't worry about it. The funds are definitely 100% safe."

All-Weather Technology has found that in recent years, "debt banks" whose business is to resolve debts have gradually emerged across the country. They conduct business in various areas plagued by debt disputes and claim that they can resolve debt problems for companies and individuals.

Bond banks usually claim that they use commercial actuarial models to build debt chains and realize debt circulation, helping companies and individuals who are in a debt deadlock to reduce or eliminate their debts. However, according to a person who is familiar with the bond bank model, this model actually has strong Ponzi scheme and pyramid selling characteristics.

Some media have also reported on so-called debt settlement frauds, where the debt settlers paid the money, but the debt settlement company disappeared after only a few months. On the Internet, the debt settlement model has caused great controversy. "The debt settlement model is a scam, similar to a Ponzi scheme," a lawyer said on Zhihu. "From a legal perspective, this kind of organization is illegal."

Based on the above situation, some people believe that the so-called Snail Interstellar Mining Machine is a scheme that has been set up for many years: using debt relief companies as tools to gain the trust of investors, and then using mining machines to carry out the final wave of steady and ruthless harvesting.

Some people also speculate that this mining machine scam may not have been designed in advance, but rather it is a debt-relief Ponzi scheme that has reached its final stage and is being used as a scapegoat when the bubble is about to burst.

4

Behind the Scenes

Looking back on the entire chain from mining machine manufacturers to sellers to hosted mines and exchanges, some investors said that this scam from beginning to end may have been carefully planned by a group of people headed by Huo Dong.

Who is Huo Dong? Qichacha shows that Huo Dong owns 18 companies, including Henan Antai Zhonghe Property Rights Transaction Consulting Group Co., Ltd., Henan Lianxiang Technology Co., Ltd. (hereinafter referred to as Lianxiang Company), etc.

According to the information, Huo Dong himself has an inseparable relationship with the debt relief business and mining machine business mentioned above.

Taking the debt relief business as an example, on the one hand, he served as the executive director of Anhui Guotai Zhonghe Small and Medium Enterprises Economic Information Consulting Co., Ltd., and on the other hand, Henan Antai Zhonghe Property Rights Transaction Consulting Group Co., Ltd., of which he served as chairman, was also suspected of being a debt relief company.

According to media reports, on November 19, 2017, Henan Antai Zhonghe Equity Transaction Consulting Group Co., Ltd. held a press conference to announce the official establishment of Henan Antai Group. At the press conference, Huo Dong, chairman of Antai Group, said, "While solving debt and credit problems, Antai combines real estate, automobiles, etc. to integrate resources, build a platform for optimizing non-performing assets and cultural industry value, help realize capital repatriation, and enable companies and individuals who have failed in investment to recover losses." On social media, there are also suspected employees of Antai Group who openly solicit debt relief business.

In the mining machine business, Lianxiang Company, of which Huo Dong is the legal representative, is the parent company of Lianxin Company and also the manufacturer of mining machines. Li Quan believes that many people believe that Lianxiang is the real headquarters of Zhongyuan Silicon Valley because the registered capital of Lianxin Company is only 5 million, while the registered capital of Lianxiang Company is 10 times that of the former, which is 50 million.

In addition, there is evidence that Huo Dong has a complicated relationship with AT Exchange.

According to the data, the shareholder of Singapore AT Digital Asset Exchange is a blockchain asset trading platform initiated by Singapore Anthay Foundation. According to the information displayed by Zhaopin.com, the so-called Singapore Anthay Foundation is also one of the shareholders of Bitmain (Shenzhen) Blockchain Co., Ltd. invested by Huo Dong. It can be seen that the so-called AT Exchange has a complicated relationship with Huo Dong and Lianxin.

In fact, according to Qichacha information, there are only two natural persons as shareholders of Bitmain (Shenzhen) Blockchain Co., Ltd. Huo Dong holds 80% of the shares, and another natural person shareholder Wang Zongjie holds 20% of the shares.

Interestingly, another shareholder of Bitmain (Shenzhen) Blockchain Co., Ltd. mentioned in Zhaopin.com, Sequoia Capital Hong Kong Holdings Group Co., Ltd., also has something fishy going on. The company's name is similar to the well-known investment institution Sequoia Capital, but a Sequoia Capital public relations person confirmed to All Weather Technology that Sequoia Capital has no relationship with this company.

This is not the only case where Huo Dong’s companies have used their fame to their advantage. It is worth noting that in addition to investing in Bitmain (Shenzhen) Blockchain Co., Ltd., Huo Dong also invested in a company called Henan Bitmain Blockchain Co., Ltd. Regarding these two companies whose names resemble branches of the famous mining machine giant Bitmain, insiders of Bitmain explicitly denied that the two parties had any relationship.

In addition to Sequoia Capital and Bitmain denying any relationship with the company invested by Huo Dong, All Weather Technology also contacted the Semiconductor Institute of the Chinese Academy of Sciences, which was mentioned in the previous press release and is located in Central China Silicon Valley.

A person from the Institute of Semiconductors of the Chinese Academy of Sciences told All Weather Technology that they had never cooperated with the company and denied that they had settled in Central China Silicon Valley. "Our institute is engaged in optoelectronics, not integrated circuits," he said. The Institute of Semiconductors of the Chinese Academy of Sciences has never conducted research on cryptocurrencies.

All-Weather Technology also discovered that in fact, at the end of December 2018, the Institute of Semiconductors of the Chinese Academy of Sciences posted a "Statement on the False Report that the Chip R&D Center of the Institute of Semiconductors of the Chinese Academy of Sciences will move into the Central Plains Silicon Valley" on its official website, which mentioned that it had never participated in any cooperation and construction projects of the "Central Plains Silicon Valley" in the name of the unit, nor had any official negotiations or cooperation intentions with the organization.

However, even though the Semiconductor Institute of the Chinese Academy of Sciences denied it, the sales pitch received by an investor showed that the Snail Interstellar Server was a product jointly developed by the Central Plains Silicon Valley Innovation Technology Industrial Park and the Semiconductor Institute of the Chinese Academy of Sciences in Beijing. In previous news reports, it was clearly stated that the mining machine was jointly developed by Central Plains Silicon Valley, Beijing IPFS Laboratory, etc.

Speaking of this mining machine, it is even more strange that some investors and sales staff told All Weather Technology that for a period of time, they found that this so-called mining machine did not need to be plugged in or connected to the Internet to mine automatically. Regarding this offline mining behavior, they suspected that "CAI coins were not mined at all, but were automatically allocated by the system, and this machine is useless."

The true value of the mining machine, which is priced at 5,875 yuan, is also in doubt. Wang Yue said that he asked some knowledgeable people to estimate the price of the machine and found that the mining machine is not worth much at all, "the price does not exceed 800 yuan." In addition, some people disassembled the machines and found that some of them were refurbished machines.

5

The new reaper

When investors' sorrow was not yet gone and many people were still struggling for how to get their money back, they found that they had welcomed new harvesters. Someone in the WeChat group started the so-called rights protection business again.

"Many people want to go to the Henan head office to seek an explanation or call the police, but they don't have the time or energy, so some victims have begun to call on everyone to raise money for travel expenses to solve the problem," said Li Quan. Their charging standards vary, some charge 5 yuan per machine, and some charge 2 yuan per machine.

In private, many people are dissatisfied with these charging practices. "Some people bought more than 10 machines, and they didn't lose much money. They charged 5 yuan per machine, and charged more than 100,000 yuan for 20,000 or 30,000 machines, and still made a lot of money."

Some people also think that it is hard to say whether paying money to protect their rights will be useful. "The boss has fled abroad. Can the money be got back?" They feel that there is little hope.

In addition to collecting rights protection fees, the mining machines in the hands of the victims have also become a hot commodity in the eyes of some people. In some investors' WeChat groups, many people are calling for the recycling of mining machines, with the price of each machine ranging from approximately 300 to 350 yuan.

An investor who has sold mining machines said that many people who bought mining machines are computer accessories merchants, and they bought mining machines because they have a 1TB hard drive and a 4G memory stick. On JD.com, the cheapest price of a new Western Digital 1TB hard drive is 279 yuan, and a 4G DDR3 memory stick costs more than 100 yuan.

In addition to selling accessories, some people buy mining machines for other purposes. Although these mining machines are useless in the hands of these investors, they are very popular on the Internet because of their low prices. There are many articles circulating on the Internet about using mining machines to transform into low-power NAS (Network Attached Storage).

On Taobao and Xianyu, there are also many people selling mining machines, and the sales volume seems to be quite large.

Wang Yue said that she has sold all 85 mining machines she had. She bought each machine for 5,875 yuan, but sold it for scrap in just two months, which made her feel distressed. But she felt that there was no better way. "I don't have any channels to sell it myself, and it's annoying to keep these things at home."

In addition, after the dream of CAI coin wealth was shattered, some new coins came to the door again, and some people encouraged them to mine new coins or buy new mining machines to mine coins. But without exception, if you want to mine, you either need to buy new mining machines or buy new coins, in short, you need a lot of investment.

“We are in a very difficult situation now, don’t tell me these things,” one investor said to a promoter who was promoting mining new coins in the investor group. “I will not participate in the future as long as I pay.”

(Wang Yue and Li Yun in this article are both pseudonyms)