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May 16, 2016

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Police dismantle huge pyramid scheme

POLICE have dismantled a pyramid scheme involving more than 5,800 victims from 28 provinces and millions of yuan, according to the Ministry of Public Security.

Wantong Qiji, which became Global Unity, was run by World Capital Market Inc and claimed to sell third-party cloud computing services, according to a ministry statement.

The company promised investors returns of 60 to 80 percent in 100 days.

Xie, a businessman from south China’s Guangdong Province, said he was asked to pay US$1,999 for company membership and would be rewarded with at least 32 digital assets, each worth a dollar, every day. He was told he could cash half of them in and spend the rest on the company’s shopping website.

Between March 2013, when the scheme started, to August 2014, about 5,000 people invested. With the increase in membership and more “assets” being cashed in, the company shifted to other strategies, such as increasing fees and making excuses to delay payment. It also encouraged investors to trade digital assets among themselves.

In 2015, the company set up a string of new companies and persuaded investors to convert their digital assets to shares in the new companies. Eventually, most investors did not receive any return and many lost their original investment.

The scheme was run from Beijing by a small group led by WCM’s president, surnamed Xu. They posed as high-profile investment bankers and venture capitalists and, to impress investors, organized trips for them to Hong Kong and Dubai.

Last June and August, police received alerts from the People’s Bank of China and the Guangdong branch of China Securities Regulatory Commission that the company and its owners were not qualified to conduct public financing, and a criminal investigation began.

The ministry said the company did not invest any money from investors in any projects, nor could the capital it held have sustained the stated returns.

Xu is now in custody.

China has seen a rapid increase in illegal financing, from 2,000 cases a few years ago to 10,000 cases last year. In the first quarter of this year, police opened investigations into about 2,300 cases, including online peer-to-peer broker Ezubao, which cheated about 900,000 investors out of more than 50 billion yuan.

The Internet has made such schemes harder to detect and easier to operate, the ministry said. An increasing number involve foreign suspects and websites or servers registered abroad. A spokesman said police would be launching special operations into such schemes.


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