Three Individuals Sentenced for Leading a Virtual Currency Ponzi Scheme

A recent court case in Zhongxiang City, Hubei Province, saw three individuals, Chen, Ding, and Fu, convicted of organizing and leading a pyramid scheme. They were sentenced to three years in prison, suspended for five years, and fined 350,000 yuan. The ruling has since come into effect.

Police investigations revealed that the trio established a pyramid scheme centered around a self-developed virtual currency, aiming to profit from its circulation. They collaborated on a promotion model, reward system, and profit distribution mechanism, and contracted a software design company, represented by Lu (subject to separate legal proceedings), to develop a mobile app for their virtual currency.

The app went live in February 2022. On February 19th, Chen and his associates organized a launch event and encouraged friends and acquaintances to join their virtual currency project. They then formed a pyramid scheme organization called "XX Community," claiming it was an investment opportunity in their virtual currency. To maximize their reach, they utilized online platforms and conducted offline training sessions across the country, recruiting members into "XX Community" and enticing them to invest in their virtual currency to become members and further recruit others.

The prosecution explained that Chen, Ding, and Fu rewarded their members with commissions based on the number of recruits and the amount of money invested by their recruits, establishing a hierarchical structure within their organization. Through aggressive marketing over several months, their organization expanded rapidly. For easier management, they divided the organization into five zones and sixteen teams, with each zone and team assigned a leader. The zones held daily online meetings to encourage members to meet their performance targets.

By the time the scheme was uncovered, the app had over 10,000 registered accounts, with a 17-tier hierarchy, and involved a total of over 57 million yuan.

"The virtual currency had no real value, and the project lacked any genuine business activity. It relied entirely on recruiting new members to sustain its operation. The upper tiers profited from the money invested by their recruits. The scheme was bound to collapse if the influx of new members and their investment dried up," explained the prosecutor.

Ding, Fu, and Chen directly or indirectly recruited over 41 members, forming a pyramid scheme organization as defined by criminal law. On January 11, 2023, the three were apprehended by police. They confessed to their crimes and voluntarily returned 22.59 million yuan of their illicit earnings. On December 22, 2023, the case was handed over to the Zhongxiang City People's Procuratorate for prosecution.

The prosecutor concluded that Chen, Ding, and Fu's actions were clear and evidenced by substantial proof. Their conduct violated Article 224-1 of the Criminal Code of the People's Republic of China, constituting the crime of organizing and leading pyramid schemes. The court subsequently reached the aforementioned verdict.