Shanghai Police Bust $16M Crypto Pyramid Scheme

Police in Shanghai arrested more than 10 people in connection with an approximately $16 million pyramid scheme that involved cryptocurrencies, the first such case to be solved in the city.

The Shanghai police bureau had conducted an investigation for over six months across different provinces to track down the criminal ring, according to a post on the bureau's official WeChat account.

The suspected criminals set up an online platform in June 2020 that attracted users through membership rewards and the promise of static income, the police said.

Users were asked to exchange their fiat currency for platform tokens to gain membership, but the tokens had no market value and their price was actually controlled by the platform. This combined with the numerous membership rewards and
levels encouraged users to keep referring new accounts, the police said.
During the platform's life, 60,000 member accounts were created across 72 levels of hierarchical relationships and membership status, and the scheme involved more than RMB 100 million, the post said.

Among other marketing tricks, the scammers said their platform was a "unicorn" in global blockchain applications and they even organized online and offline lectures to promote the importance of their technology, state-owned Shanghai newspaper The Paper reported.

Despite a crackdown on the industry, crypto scams are still prevalent in China. The Supreme Court formally criminalized illegal fundraising through digital assets in February.