Written by: Liu Honglin, Founder and Director of Shanghai Mankiw LLP
In the recently released movie "All or Nothing", the main actors' "sexy dealer, dealing cards online" and "wiping their necks to pray to Buddha" have been hotly discussed. This movie reveals the inside story of the entire industry chain of overseas online fraud. Taking advantage of the popularity of "All or Nothing", today we will talk about the common fraud traps behind virtual currency investment. From investors to victims, there is often only one step away.
Mankiw’s team has received a large number of inquiries from victims of virtual currency scams. The reasons for the scams are varied, but after dealing with many cases, they found that the scammers’ tactics are actually the same old ones. New wine in old bottles, the medicine remains the same.
01 How Huayinghui was deceived
At present, Huayinghui has been investigated by the police in many places. For example, in July this year, the Yushui Branch of the Xinyu Public Security Bureau issued a notice on the registration of investors who suffered losses in the Huayinghui investment platform in Xinyu area. The notice mentioned that the Huayinghui investment platform in Xinyu area fraud case was being investigated; the notice issued by the Linquan County Public Security Bureau mentioned that the Linquan County Public Security Bureau was investigating Cheng Mou, Wang Mouhong, and Zhang Mouzhen for suspected organization and leadership of pyramid selling activities, and some pyramid selling participants still did not report to the public security organs. In order to find out all the facts of the crime, accurately combat crime, and protect the vital interests of the people, according to relevant laws and regulations. Victims can go to register.
Most of the inquiries from victims of the Huaying Club received by Mankiw's team were from middle-aged people, and a few young people were asking on behalf of their families. These victims neither understood blockchain technology nor knew what virtual currency was.
When asked how they knew about Huaying Club, most of them said that they were introduced by friends, and went to offline meetings and listened to teachers' lectures. As long as they went, they would receive gifts such as USB flash drives and notebooks. If they registered an account, they would receive better gifts. There was also a lottery on site, and "several people won cars." When asked why they invested so much money, they basically said that after testing the waters in the early stage and quickly making profits, they were brainwashed by the lecturers and group members day after day, and in order to catch up with the platform recharge activities that can get large benefits, they invested more and more.
Among these investors, there are still some who are "obstinate": since the withdrawal volume in some areas is very small, but the withdrawals are still normal, they think it is just a temporary cash flow problem. However, they have seen too many rumors online recently and are a little worried, so they consulted a lawyer. When we told them that they were most likely deceived and to report to the police as soon as possible, they still said "friends around are still doing it, and they all said it's okay."
Here, Mankiw's team reminds that the trick of Huayinghui is actually to induce new members to invest, thereby maintaining a fraudulent project of false prosperity, and to achieve the purpose of illegally obtaining profits through packaging such as "blockchain and digital quantitative industry". If you have participated in the Huayinghui project, please report it to the local police as soon as possible and provide evidence such as remittance receipts and chat records so that the police can investigate.
02 Virtual currency "pig killing"
As virtual currencies became more and more popular, criminals followed suit. When the "tea-killing-pigs scam" trick didn't work, they started to play with the new concept of virtual currencies.
According to a verdict published in Hong'an County, Hubei Province in June this year (case number: (2023) E 1122 Criminal First Instance No. 88), this criminal gang set up a fake investment and financial management platform, climbed over the firewall and used external online dating chat software to impersonate unmarried young women from India, Singapore and other places, and specifically selected Indian men (why they specifically defrauded Indians) and interacted with them as boyfriend and girlfriend.
After gaining the trust of the other party, they recommended gold financial products to the other party, lured the other party to buy and transfer the recharged currency (Indian rupees) to the fake trading platform. After entering the platform, the currency was actually transferred to the virtual currency wallet address controlled by the criminal gang through an intermediary. Finally, they manipulated the platform and took the recharged currency of the other party for themselves in the name of loss.
03 Virtual currency fraud group
Similar to the Myanmar-based industry chain in All or Nothing, there was also a virtual currency fraud group in China with a large number of personnel, strict organizational discipline, and clear division of labor among members. In just 9 months, this group defrauded a huge amount of money from the victims, and the police alone found out that there was more than 6 million yuan.
The criminal group's fraud routine is rigorous and comprehensive, strictly following the four-step process of "finding targets, building trust, inducing investment, and defrauding property". Members at all levels receive commissions based on different proportions of the net deposit amount.
Finding a Target
Use multiple mobile phones to register and package WeChat accounts. That is, according to the company's requirements, disguise the WeChat account in hand as a false identity investor with certain financial strength, and regularly send materials to the circle of friends to maintain the authenticity of the WeChat account.
Through the network system designed by the criminal group itself, they look for customers with financial strength and intention to invest in stocks, and then add them as WeChat friends. After that, they use speech templates to chat with the victims, cultivate feelings and gain their initial trust.
establish trust
After establishing trust, the victims were pulled into a stock exchange WeChat group. Each victim had a number, and each number had an independent WeChat group.
In the WeChat group, members of the criminal group pretended to be "lecturers", "lecturer assistants", "account opening managers" and investors, communicating and chatting in the group.
The fake lecturers are responsible for explaining, analyzing stocks, and guiding the victims to invest in stocks; the fake assistants are mainly responsible for inviting people to join the group, chatting with customers, and sending information about the lecturer's live broadcast room; the fake investors are mainly responsible for cooperating with the lecturers and assistants, creating an atmosphere, praising the lecturers, and using speech templates to cultivate feelings with the victims.
For victims who are interested in investing, they are pulled into the live broadcast room, where the instructor will further guide them in buying and selling stocks and maintain stickiness, allowing the victims to build deep trust in the instructor.
Inducing investment
After about a month of lectures in the live broadcast room, the team members used WeChat accounts to cooperate with each other in the live broadcast room, forwarding words, liking, and sending flowers to flatter the lecturer, making the victims trust the lecturer more. The lecturer launched virtual currency products at the right time and advocated the value and appreciation space of virtual currency, claiming that he could lead investors to achieve wealth fission.
For victims who intend to purchase virtual currency, the account opening manager will send the platform link and invitation code of the virtual currency, and guide the customers to download, register, open an account, apply for, deposit and purchase virtual currency. The customer funds will enter the personal account controlled by the platform.
Defrauding property
After the victim deposits money, the virtual currency will continue to rise in value in the early stage and can be withdrawn, allowing the victim to make a small profit. However, the lecturer in the live broadcast room will claim that the virtual currency will continue to rise, citing reasons such as roadshows in various countries. At the same time, the assistant will pull the victim into WeChat groups of different levels according to the amount of virtual currency invested by the victim, so that the customer will continue to increase his investment.
When the victim's investment amount reaches a certain target, the criminal group will manipulate the virtual currency to plummet, creating the appearance that the customer is losing money, in order to achieve the purpose of defrauding the victim of their property.
In this way, after a round of virtual currency products are "harvested", the criminal group will change the WeChat nickname, live broadcast room name, lecturer pseudonym, virtual digital currency name, affiliated platform and other means to carry out the next round of fraud activities. Round after round, it goes on and on.
04 Conclusion
my country has a conservative attitude towards virtual currency transactions. The Notice on Further Preventing and Dealing with the Risks of Virtual Currency Trading Speculation issued in 2021 clearly states that virtual currency does not have the same legal status as legal currency; virtual currency-related business activities are illegal financial activities; and losses caused by investing in virtual currency and related derivatives are borne by the investor.
However, my country will never show any leniency in its crackdown on criminal offenses related to virtual currency. If we search the China Judgments Online website using virtual currency as a keyword, we can see that in the past two years, there have been criminal verdicts on virtual currency-related cases all over the country.
Therefore, when investing in blockchain projects, you must first understand the project's issuance method, transaction method, market conditions, price fluctuations and other mechanisms, and must not be tempted by small profits and blindly enter the market. If you encounter a virtual currency scam similar to the above, you should collect evidence as soon as possible and sort out key evidence materials to assist the police, reduce the pressure of case investigation, and improve investigation efficiency.
