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New Ponzi scheme promises crypto gold

Aug 31,2018
When a Korean ocean exploration company claimed to have found a sunken treasure ship in July, it offered investors cryptocurrency in exchange for a portion of the loot.

Except there was no shipwreck, and the company, Shinil Group, managed to walk away with over 9 billion won ($8.1 million) from duped investors, according to police.

Shinil’s shipwreck scam is one of the more high-profile schemes involving cryptocurrencies, also known as digital coins, but log onto Naver’s online community board, and there are hundreds of different groups proposing the same kind of investment opportunities that Shinil offered.

These ad-hoc sellers, often posing as reliable companies with extensive business connections, say they act as conduits to maximize returns in the cryptocurrency market. Many use a type of pyramid scheme in which they offer more coins for investors who invite a friend.

Yet the actual methods by which they generate their cryptocurrencies - or whether they possess the technology to do so - remains doubtful. A vast majority of them receive investors’ money through personal bank accounts of employees rather than digital wallets that provide more security and encryption, and almost none of them publicize white papers informing investors of their cryptocurrency technology, a common practice from credible sellers in the market.

At an investment seminar for one such company last Thursday in a plush office building in Yeouido, western Seoul, a man who called himself the firm’s general manager began explaining the merits of its cryptocurrency, which he said was due to be listed at the end of the month.

The manager claimed that his boss ran a smelting firm with gold from Papua New Guinea and had over 160 tons of it in Hong Kong. The coin they were offering could be used on e-commerce sites like Amazon or Alibaba, he said, and his company was preparing to buy a contractor that exclusively supplied butanol fuel to GS Caltex, a major Korean oil refiner.

But as in the Shinil case, the company’s claims were questionable. A spokesman for GS Caltex said he had never heard of the cryptocurrency firm, and the oil refiner had never bought butanol fuel from a contractor.

Another firm seeking financiers for its cryptocurrency claimed that its headquarters was in Dubai and asked investors to send money to personal bank accounts, but it did not immediately have cryptocurrencies at hand for them. A spokesman for the company said it would provide investors with coins as soon as it was listed.

According to the Financial Supervisory Service, there were 712 reports of illegal fund-raising last year, and 452 cases, over 60 percent, were related to cryptocurrencies. That is eight times more than in 2016, when only 53 cases were reported. But current laws make it difficult to prosecute companies that engage in such scams since sellers often do not explicitly promise a certain amount of returns.

“One can assume that any request for investments through personal bank accounts is a scam,” said Park Sung-joon, head of the blockchain research center at Dongguk University.

BY OH WON-SEOK [shim.kyuseok@joongang.co.kr]


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