The police in Shenzhen, China has arrested six suspects involved in an alleged $48 million (RMB 307 million) cryptocurrency scam that defrauded over 3,000 victims, it was reported.
According to the report, Shenzhen Puyin Blockchain Group attracted clients by allegedly raising a significant amount of money through the issue of a tea token supposedly backed by a rare and highly-valuable Pu’er tea, a variety of fermented tea that can only be found in Yunnan province.
The local police warned the public against the high risks of investing in blockchain technology:
"Do not be fooled by the hype of blockchain. High risks are usually behind the high returns promised by criminals.”
A well-fermented Pu’er tea can fetch up to $3,140 (RMB20,000 ), with Shenzhen Puyin telling its clients that each of their tea tokens corresponds to the value of its underlying assets. And as the value of the Pu’er tea rises, the value of the Puyin token gains accordingly, thus providing them with high returns on their investment.
The police added that the company launched a massive marketing campaign on social media channels, roadshows in expensive hotels, and initiated investment forums to gain market traction through publicity. In addition to the extensive media campaign, Shenzhen Puyin also convinced clients by telling that its parent company would bankroll an initial coin offering (ICO) and would soon roll out overseas.
The campaign reportedly paid off as the company was able to raise some $48.2 million through the sale of its token. The police also charged the suspects of manipulating the token price by buying its own tokens using the money they raised from the investors. The scheme resulted in the price of its token jumping from $0.07 to $1.57 in just a few months.
Blockchain is fertile ground for fraud
The exponential growth of cryptocurrency has transformed blockchain into a fertile ground in China.
Last month, the office of the Economic Investigation Department within the Xian Public Security Bureau arrested nine individuals on suspicion that they are running a pyramid scheme involving cryptocurrency. The police also seized nearly $13 million suspected to have been invested in the scam.
The police reported:
“After nine rounds of careful investigation and continuous operations in the early days, [the bureau] grasped the fact that criminal suspect Zheng had illegal interests and organized network platform administrators Zhang Mou and Li Mou, and marketing vice president Gou, to carry out criminal activities.”
A day later, the Monetary Authority of Macau (MAM) issued a public warning after it was found that a digital currency project was linked with former 14K gang boss “Broken Tooth” Wan Kuok-koi who also had ties with Cambridge Anaytica, which is behind the Facebook (NASDAQ:FB) data scandal.
This article appeared first on Cryptovest
