[Insight] PlusToken, China’s Biggest Scam Project, Finally Comes to An End
Tags: Scam, Bithumb, Project, Insight, China

“Defendant Chen Bo will be sentenced to 11 years in prison with a fine of CNY 6 million.”

“The Rest of the 14 defendants will be sentenced to at least 4 years and 10 months in prison with a fine at least CNY 600 thousand.”

At the second trial held on November 19, the court made their judgment for the principal offenders of Project PlusToken, the biggest pyramid scheme in China’s history. The court passed the judgment that had been made at the first trial held in September, so the dependents are about to receive heavy penalties. Thus the PlusToken affair, which inflicted damage more than KRW 4 trillion not only in China, but in entire world, comes to a conclusion.

PlusToken, An Unparalleled Pyramid Scheme Happened In China

As a cryptocurrency wallet project, PlusToken used not only their storage system, but also by investing cryptocurrencies to global exchanges through bots to expand their business. If users store their cryptocurrencies in PlusToken wallet, bots will make some benefits through a contract for difference and compensate the users with PlusToken. PlusToken have gathered users by guaranteeing 9~18% monthly benefits. The investment gathered through this were 310 thousand Bitcoin, 9.17 million Ethereum, 51 million EOS, etc., which worth around USD 3.9 billion. However, the problem was that the bot running the business was not making actual benefits through contracts for difference, but by paying monies deposited by new users to the existing investors. In other words, it was a very typical pyramid scheme.

Such scams will rot and fester, causing a disastrous situation eventually. And last June, PlusToken suddenly ceased the withdrawal by all users. The administrators used all of their excuses, claiming that the withdrawal will begin soon. However, the closed accounts are never to be opened again, and users have suffered heavy losses. But the key executives of PlusToken can be seen from nowhere.

The users started to protest to get their money back, and the Chinese police in the city of Yancheng launched a full-scale investigation of the case. As a result, they have arrested 27 key individuals who have escaped abroad in last July, and other 82 participants in this March, sweeping out all the suspects.

Chinese Authorities Have Seized and Confiscated the Money

According to the local media, the Chinese police have seized all the cryptocurrencies they possessed. The exact amount was 190 thousand Bitcoin, 830 thousand Ethereum, and 27.24 million EOS, etc. That means they have seized about half the amount PlusToken has gathered. It is said that the defendants have reduced their punishment by requesting a change of cryptocurrencies into cash to the cryptocurrency tech firm located in Beijing. The sentencing says that the seized monies will be confiscated to their national treasury. In fact, Jian Zhuoer, CEO of a cryptocurrency mining pool platform BTC.TOP, presumed on his Weibo that, “Most of Bitcoins seized during the period from the end of last year to the middle of the year seemed to be sold at the price range between USD 7,000 to USD 12,000.”If so, that means a considerable amount of money had already been confiscated. The local media also added that the authority is still tracking down the amount that has not been seized yet.

“Fortunately There Will Be No Consequences to the Market”

The flow of the money related to PlusToken is an issue that the cryptocurrency business is monitoring closely. Since the amount is quite large, it will cause heavy consequences to the market if they are about to be released at once. But fortunately, the amount that has been confiscated by the Chinese authority will not cause any significant impact to the market. That is because they have been sold in a large volume before the recent strong gains. That is to say a great relief for the market.

But the problem is the compensation for the victims. Unfortunately, since the money has been confiscated, there will be little possibility for the victims to receive any indemnity. According to the local law, the confiscated money will belong to the local finances. Though if the local government will use the money for relieving victims is uncertain.

However, since the pyramid scheme blurs the definition between the assailant and victim, the local industry forecasts that even if there will be some compensation, it will be only around 20% of the entire amount. Even if the government is willing to pay for the compensation, there is no technical basis to investigate all the damage the 2 million individuals have suffered, so the possibility of proper compensation is very scarce. Furthermore, since the Chinese government is retaining critical opinion towards the cryptocurrencies, it is unclear whether they will come forward for relieving victims willingly and actively. In the meantime, the Chinese government has emphasized that all investors should take responsibility by themselves for individual investment decisions.

In summary, the recent PlusToken affair leaves much to be desired in many ways. Of course, it is fortunate that the main culprits have all been arrested and brought to justice, but considering the victims left behind, it still remains in question whether the Chinese government’s decision to confiscate all the funds for their national treasury was wise or not. It comes to mind it would be good to have a standard for international cooperation or international compensation related to these kinds of a global-scale pyramid scheme. But for now, we can only hope that scams such as PlusToken never happen again.