China’s Official Press Agency: 107 Altcoins Under Investigation for Financial Crimes

This week China’s official press agency Xinhua news reported that nationwide public security authorities have cracked down on 107 forms of knock-off altcoins in 2017. These coins claim themselves fintech products, but are large-scale Ponzi schemes in disguise, according to the authorities.

“Zero Risk, High Returns”

As bitcoin price rallies hard, a growing number of “Fintech” altcoins join the race in the cryptocurrency industry. Zhao Shouguo, an economics professor at Northwest University in Xi’an, believes that the government’s ruling on ICOs this September has proved to be another case of “people get what they want”.

The ban on ICOs and closure of exchanges for mainstream virtual currencies created a market vacuum and gave rise to various knock-off cryptocurrencies. Scheme suspects would tell investors that mainstream cryptocurrencies are losing traction because of the ban and it’s their time to shine.

Xinhua news journalists searched the keyword “coin” on social media tools like Wechat and QQ (a popular communication tool of Tencent), only to find multiple closed altcoin groups like “HBB Environmental Protection Coin”, “Radar Coin(VBC)”, “Red Shell Coin(RSS)”. Group moderators would show newcomers snapshots of their high returns to induce them to invest. “Enroll five participants, you can get 600 yuan (90 USD), even a beggar can do this job,” a group moderator promises.

Huang Zhen, a law professor at Central University of Finance and Economics, explained that more schemes are emerging because it’s cheap and easy to duplicate an altcoin.

47,000 Participants and 613 Million USD in a Year

Police in Haikou, capital of Hainan Province busted a pyramid scheme called “Asia-Euro Coin”. Within a year, more than 47,000 people had been recruited to trade the fake virtual currency, with some 613 million U.S. dollars involved. The suspect surnamed Liu told investors that he is a cryptocurrency expert who has resources all over the world. And he would hold events at fancy restaurants to brainwash participants.

With the spread of mobile banking and social media platforms, ponzi schemes could quickly pull-in more investors. “As the perpetrators are often located in different parts of China and orchestrate the scams via computers and mobile phones, it’s quite difficult to detain all at once and secure the evidence,” said Ren Jian, a police officer in Haikou.