In an article released Thursday, the Chinese Ministry of Public Security, which oversees the country's police force, said ten people suspected of carrying out a fraudulent regime were arrested during an operation in the city of Wenzhou.
This is the first case in China of a scam implemented using blockchain smart contracts to generate fake cryptocurrencies, the ministry said. The police seized sums of bitcoin, ether and tether for a total value of over 100 million yuan ($ 15 million). They also seized two cars, a Ferrari and a McLaren, as well as luxury villas owned by the suspects.
The dynamics of the scam
The case was first reported to the police by a victim, known as Li, in April. Li had joined a group on the Telegram messaging platform called "Huobi Global Arbitrage HT Chinese Community".
The group had advertised a blockchain smart contract that was said to be able to generate Huobi (HT) tokens, the same cryptocurrency as the Huobi exchange, creating an arbitrage opportunity with a yield of 8%, the victim explained.
"In a nutshell, you send an ETH unit to a given address and you get 60 HT that can be sold to get the difference," Li told police. Based on the HT and ETH quotes at the time of the scam, an alleged $ 13 profit could be obtained for each unit of ETH sent.
However, after Li sent 10 ETH to the address provided by the administrator of the Telegram group, he received 600 fake HTs that could not be deposited for sale. At this time, there is no evidence that the Huobi exchange had an involvement in the scam.
The investigation showed that the main minds, Chen, Yu and Xu spent the proceeds of the scam on luxuries and extravagances with villas, sports cars and discos.
The new crypto sector crimes targeted by the Chinese police
Police acknowledged that this is a new type of crime in China, but did not specify how exactly they located the suspects or whether they used blockchain analysis to track the transactions involved in the case.
In recent months, Chinese police forces have gained more experience in tracking down crypto transactions potentially contaminated by illegal activities, such as online gambling, money laundering or financial fraud. Recently, some over-the-counter Chinese traders have had their bank accounts frozen due to fiat and crypto transactions contaminated in this way. Some traders have been detained by the police in the past few weeks for carrying out the investigation.
Ferrari is an Italian car manufacturer that has successfully conquered the Chinese market in recent years. The percentage growth in Ferrari sales in China almost doubled that recorded in the rest of Asia and the Pacific, in 2019. At the time of this writing, the Ferrari shares they are priced at 156,65 euros on the Milan stock exchange and have a risk value of 4,854%.
