One of the largest stories in the Bitcoin universe in February was the bitcoin exchange that wasn't. The MyCoin pyramid…
One of the largest stories in the Bitcoin universe in February was the bitcoin exchange that wasn't. The MyCoin pyramid scheme in Hong Kong defrauded a small number of very high rollers; people who were investing millions of US Dollars each. This created a reported cache of almost $400 million before the computer bandits made their getaway. Now, it seems that some headway has been made in the investigation, and the arrests are starting to come in. And some adjustments to the actual level of theft have also been made.
The arrest made by authorities include a group of five mid-level hustlers, scattered throughout the region, with one even apprehended on a boat. These females handled the face-to-face fraud and fundraising, which had many sectors of society involved, including bankers and realtors. The South China Morning Post reports:
“One of the women was picked up when officers boarded a casino ship anchored off North Point yesterday morning. Police caught the other four at their homes in Yuen Long, Tin Shui Wai, Wong Tai Sin and North Point.”
There is also news on the amount of the initial heist. It now appears it was not anywhere near the reported $386 million. It seems that this number was also part of the scam, as this is what MyCoin said they held in assets themselves. According to Hong Kong’s Commercial Crime Bureau, after speaking with almost one hundred of the defrauded, the real amount lost is closer to $8 million. So this is not an economic catastrophe anywhere near the level of Mt. Gox, in 2013.
The problem with that is some individual investors have claimed that they have lost millions. The losses may be in Hong Kong Dollars, which is a very different amount in US Dollars.
“I shouldn’t have been greedy. I was told by my real estate agent that the profit would be over HK$2 million after one year,” another investor, 81-year old Mrs. Chan said. She said she recovered only HK$1.2 million on her HK$3 million investment in seven different MyCoin contracts.
MyCoin wasn’t selling its backers on trading accounts, but rather offered a form of equity investment it described as “Bitcoin contracts.” The marks were promised a 100% return within four months. Bonuses offered included Mercedes-Benz automobiles and cash prizes for successfully recruiting new participants, leading some to mortgage their homes to source funds. The victims were prohibited from divesting themselves unless they brought in new investors to replace themselves.
The leadership of MyCoin has yet to be found, but finding the underlings should yield some better leads, with the ability to offer plea deals to these criminals to get the masterminds. With the popularity of Bitcoin taking off worldwide, this is not the first, or last, of these scams.
When putting your Bitcoins, which are basically electronic cash, into a third-party's hands, you are handing over full control of them, like handing someone a $20 bill. Act accordingly. Bitcoins held within the Block Chain have proven safe. Held by another person or entity, not so much.
Can the Bitcoin community regulate exchanges and third-party accounts itself? Does it need government oversight for this? Share above and comment below.
Last modified (UTC): March 8, 2015 1:21 PM