Photo/Shetuwang

Jan. 9 (NBD) -- The Shaoyang Intermediate People's Court in China's Hunan Province has announced the verdict on a blockchain-inspired pyramid scheme which scammed approximately 2 billion yuan (292 million U.S. dollars) from 341,100 people.

Suspects in connection with the scam were sentenced to prison and fined, and mobile phones, laptops, promotion materials and other tools for criminal purposes were confiscated.

The pyramid scheme, notoriously known as the cancer of economy, is now invading sectors other than the traditional economic domains. With blockchain taking off in recent years, some pyramid scheme organizations put on new covers of blockchain.

Under the disguise of blockchain, a technology which ordinary people know little about, these organizations use high returns as bait and invite so-called "successful people" as spokespersons to create an illusion of success and prosperity. All these come down to the multi-layered marketing (MLM) schemes.

Through setting up online trading platforms for virtual assets such as "Yayuan" which is claimed to be a virtual reality cryptocurrency and "cultural and tourism assets", the above-mentioned suspects garnered nearly 2 billion yuan (292 million U.S. dollars) and developed a membership of 341,110 people from May 2015 to February 2018.

Like any other MLM scheme, the "Yayuan" scam promised the investors handsome returns when they take in new investors, and investors needed to buy into different member levels.

What fuels the fast expansion of the not-special scam lies in its blockchain camouflage. The scammers marketed their project by borrowing buzzwords such as “high technology", "national strategy", "BRICS project" and "whopping returns" in their messages. The scammers also use complicated technicality to confuse, brainwash and eventually convince victims.

Photo/Shetuwang

At some online forum, a relative of a "Yayuan" victim sobbed about the harm the pyramid scheme did to her family. "My mom has been brainwashed. She believed in the swindlers, no matter how hard I am trying to talk her out of it. I feel helpless."

"My mom worked as a civil servant, and is supposed to enjoy her retirement and help me take care of my children occasionally. On the contrary, she is listening to the scammers and fantasizing about buying villas and hiring nannies. She's lost all her savings and borrowed a large amount of bank loans. Every day, I pray that she can change her mind. We don't mind paying for the mistakes she made. We just don't want her to hold on to her misguided course," the daughter complained.

In response to her complaint, some professional wrote, "most of the victims of today's scams are middle-aged and elderly people who are vulnerable to sweet words of scammers and the 'pennies from the heaven' fantasy."

Sun Zhiyong, senior partner at Beijing Tiantai Law Firm and guest professor at China University of Political Science and Law, said to NBD that as virtual currency is a new concept and a new thing which can attract public attention, it's easily borrowed by pyramid schemes to deceive others.

Sun also warned people against pyramid schemes leveraging virtual currency in that such schemes are more misleading, as the value of virtual currencies and tokens is hard to determine and regulations vary greatly from country to country.

Over the past several years, the number of pyramid scheme cases related to virtual currency in China is exploding. Combing through the website of China Judgments Online, NBD noticed that the number for 2018 is 166, taking up around 5 percent in the year's total number of MLM scheme cases. The virtual currency-disguised scams emerged in 2014 with 5 cases, and the number climbed to 10 in 2015, 46 in 2016 and 94 in 2017, with an average annual growth rate of more than 100 percent.

Email: gaohan@nbd.com.cn