With the popularity of the anti-fraud movie "All In," let's take a look at common cryptocurrency investment scam traps

Written by: Liu Honglin, Founder and Director of Shanghai Mankun Law Firm

The recently released movie "All In" has sparked discussions about the lead actors' "sexy dealers, dealing online" and "cutting necks to pray." This film exposes the insider story of the entire industry chain of overseas online scams. Riding on the popularity of "All In," today we will talk about the common scam traps behind virtual currency investments. The distance from investor to victim is often just one step away.

The Mankun team has received numerous consultations from victims of virtual currency scams, with reasons for being scammed being quite varied. However, after handling many cases, we found that the scammers' tactics are actually quite common. Old wine in new bottles, same tricks with different packaging.

01 The Scam Journey of Huayinghui

Currently, Huayinghui has been investigated by police in multiple regions. For example, in July this year, the Yushui Branch of the Public Security Bureau of Xinyu City issued a notice regarding the registration of investment victims in the Xinyu area of the Huayinghui investment platform, mentioning that they are investigating the fraud case related to the Huayinghui investment platform in Xinyu. The notice from the Linquan County Public Security Bureau mentioned that they are investigating cases involving Cheng, Wang Hong, and Zhang Zhen suspected of organizing and leading pyramid schemes, with some participants still not reporting to the police. To clarify all criminal facts, accurately combat crime, and protect the people's interests, according to relevant legal provisions, victims can go to register.

Among the consultations received by the Mankun team from Huayinghui victims, the vast majority are middle-aged individuals, with very few young people, who are often inquiring on behalf of their family members. These victims neither understand blockchain technology nor know what virtual currency really is.

When asked how they learned about Huayinghui, most said they were introduced by friends, attended offline meetings, and listened to teachers' lectures. They received gifts like USB drives and notebooks just for attending, and better gifts for registering accounts, plus there were lucky draws on-site, "several people even won cars." When asked why they invested so much money, they mostly said that after quickly earning returns in the early stages, under the repeated brainwashing of the instructors and group friends, they invested more and more to catch up with the platform's recharge activities that promised substantial benefits.

Among these investors, there is still a group that remains "unrepentant": due to the small amount of withdrawals currently in some areas, they believe it is just a temporary cash flow issue. However, they have recently seen too much gossip online and are a bit worried, so they sought legal advice. When we informed them that they were likely scammed and should report to the police as soon as possible, they still claimed, "Friends around me are still doing it, and they all say it's fine."

Here, the Mankun team specifically reminds that the Huayinghui scheme is actually about inducing new members to invest, thereby maintaining the false prosperity of the scam project, using packaging like "blockchain, digital quantitative industry" to achieve the purpose of illegally obtaining benefits. If you have already participated in the Huayinghui project, please report to the local police as soon as possible and provide relevant remittance documents, chat records, and other evidence to assist the police in their investigation.

02 Virtual Currency "Pig Butchering"

As virtual currency becomes increasingly popular, criminals are also keeping up with the trend. The "tea-leaf pig butchering" tactic is no longer effective, so they have turned to new concepts in virtual currency.

According to a judgment publicly released in June this year by the Hong'an County Court in Hubei Province (Case No.: (2023) E 1122 Criminal Initial 88), this criminal gang set up a fake investment and financial management platform, using VPNs to chat on foreign social media, impersonating unmarried young women from India, Singapore, and other places, specifically targeting Indian men (why specifically scamming Indians) to engage in relationships.

After gaining the other party's trust, they recommended gold investment products, enticing the other party to purchase and transfer funds (Indian Rupees) to the fake trading platform. Once on the platform, the funds were actually transferred to a virtual currency wallet address controlled by the criminal gang through intermediaries. Ultimately, they manipulated the platform to claim the funds deposited by the other party under the guise of losses.

03 Virtual Currency Scam Groups

Similar to the industry chain in "All In," there have also been virtual currency scam groups in China that are large in number, have strict organizational discipline, and clear division of labor among members. This group defrauded victims of a massive amount of money in just nine months, with the police confirming over 6 million yuan.

The scam tactics of this criminal group are meticulous and comprehensive, strictly following the four steps of "finding targets, building trust, inducing investment, and defrauding property," with members at different levels receiving commissions based on the net deposit amounts.

Finding Targets

Using multiple mobile phones to register and package WeChat accounts, according to company requirements, disguising WeChat accounts as investors with certain economic strength, and regularly posting content to maintain the authenticity of the WeChat accounts.

Through a network system designed by the criminal group, they sought clients with economic strength and an interest in stock investments, then added them as WeChat friends, using scripted dialogue to chat with victims, building rapport to gain their initial trust.

Building Trust

After establishing trust, they would pull victims into stock trading WeChat groups, where each victim had a unique ID, and each ID had its own independent WeChat group.

In the WeChat group, members of the criminal group impersonated "instructors," "instructor assistants," "account managers," and investors, interacting and chatting within the group.

The impersonated instructors were responsible for explaining and analyzing stocks, guiding victims to invest; the impersonated assistants mainly brought people into the group, chatted with clients, and sent information about the instructors' live broadcasts; the impersonated investors mainly coordinated with instructors and assistants, creating an atmosphere and praising the instructors, using scripted dialogue to build rapport with victims.

For victims interested in investing, they would be brought into live broadcasts, where instructors would further guide them in buying and selling stocks, maintaining engagement and deepening trust in the instructors.

Inducing Investment

After about a month of instruction in the live broadcast, team members used WeChat accounts to cooperate in the live broadcast, forwarding scripts, liking, and sending flowers to praise the instructors, making victims trust the instructors more. The instructors would then introduce virtual currency products, promoting the value and appreciation potential of virtual currencies, claiming they could lead investors to achieve wealth transformation.

For victims interested in purchasing virtual currency, account managers would send links and invitation codes for the virtual currency platform, guiding clients to download, register, open accounts, deposit funds, and purchase virtual currency, with client funds entering personal accounts controlled by the platform.

Defrauding Property

After victims deposited funds, the virtual currency would continuously rise in the early stages, allowing withdrawals and giving victims small profits. However, the instructors in the live broadcast would claim that virtual currency would keep rising due to various roadshows, while assistants would pull victims into different levels of WeChat groups based on their investment amounts, encouraging them to continue increasing their investments.

Once the investment amounts reached a certain target, the criminal group would manipulate the virtual currency to plummet, creating the appearance of losses for clients, thereby achieving the goal of defrauding victims of their property.

In this way, after one round of "harvesting" virtual currency products, the criminal group would change WeChat nicknames, live broadcast names, instructor aliases, virtual currency names, and associated platforms to carry out the next round of scam activities. Round after round, this cycle continues endlessly.

04 Conclusion

China maintains a conservative attitude towards virtual currency trading. The notice issued in 2021 regarding "further prevention and handling of risks from virtual currency trading speculation" clearly states that virtual currency does not have the same legal status as legal tender; activities related to virtual currency are considered illegal financial activities; and losses incurred from investing in virtual currency and related derivatives are to be borne by the investors themselves.

However, China does not go easy on criminal offenses related to virtual currency, as searching for "virtual currency" as a keyword on the China Judgments Online reveals that there have been criminal judgments related to virtual currency cases across the country in the past two years.

Therefore, when investing in blockchain projects, it is essential to first understand the project's issuance methods, trading methods, market conditions, price fluctuations, and other mechanisms, and not to be lured by small profits into blind investments. If you encounter virtual currency scams similar to those mentioned above, you should quickly gather evidence, organize key evidence materials, and assist the police to alleviate the pressure of case investigations and improve investigation efficiency.