Home Archive South Korean Police Bust $38 Million Bitcoin Ponzi Scam

South Korean Police Bust $38 Million Bitcoin Ponzi Scam

Joseph Young
Last Updated March 4, 2021 5:01 PM

Seven individuals in the South Korean province of Jeonbuk have been arrested for running a large-scale $38 million scam, alluring middle-aged investors into a ponzi scheme.

The group targeted new investors in the cryptocurrency market that had no underlying knowledge or understanding of bitcoin or other cryptocurrencies. It promised investors to pay out 180 percent in profit on a regular basis, if they invest using bitcoin.

Middle-Aged Investors Targeted, Over 3,900 Victims

Middle-aged investors ranging from 40 to 60-year-old investors were defrauded by the ponzi scheme and they were told that a small investment in bitcoin will lead to a profit of at least 200 percent in the short-term. However, the money investors provided were not invested in bitcoin, but rather the ponzi scheme the group had operated.

The group initiated the ponzi scheme by establishing a “bitcoin investment firm” in Gangnam, Seoul in January of 2016. It allured new investors in the space by assuring a profit margin that is not possible to guarantee, given that the price of bitcoin is moved by the market, not by a central entity or a central bank. Hence, any investor with basic fundamental knowledge of the decentralized structure and market of bitcoin would have been aware of the ponzi scheme that was being marketed to them.

However, because the group targeted beginner middle-aged investors with no experience and knowledge in cryptocurrencies, the group was able to profit nearly $38 million over a period of less than two years.

South Korean Police Shut Down Ponzi Scheme

Jeonbuk Iksan police department and cybersecurity agency arrested the seven men on numerous charges including money laundering and operating an “investment firm” without proper licensing from the South Korean financial authorities.

According to the Iksan police department, the scam group ended up convincing more than 3,900 investors to invest in its ponzi scheme, as it continued to coax new investors based on the strong performance of the bitcoin price throughout 2017, even though the ponzi scheme had no involvement with bitcoin.

The scam group was first approached by the Iksan police department when several investors claimed the group illegally obtained $4.1 million of the funds that were allocated to the investment firm to be invested in bitcoin. After an extensive investigation, the seven men were eventually arrested and the ponzi scheme was shut down.

During interrogation, Jang, the operator of the ponzi scheme, claimed that the group never intended to run a multi-million dollar scam at the beginning. The group established a bitcoin investment firm initially to assist investors in investing in the cryptocurrency market. But, over time, as the business grew, the group decided to abuse its clientbase by alluring investors into a scam.

Since the beginning of January, the South Korean central bank and financial authorities have increasingly cracked down on bitcoin and cryptocurrency-related ponzi schemes, scams, and fradulent operations. In July, the South Korean government officially regulated cryptocurrency startups as legitimate financial service providers and with such regulations in place, in the long-term, it will become more difficult for scam groups to promote ponzi schemes within the South Korean market.

Featured image from Shutterstock.