A Seoul government investigative unit has reportedly used artificial intelligence software to break up an alleged $19 million cryptocurrency-focussed pyramid scam that was based in the capital’s upmarket Gangnam district.
According to the Joong Ang Daily, the Seoul Special Judicial Police Bureau for Public Safety this week arrested the alleged ring leaders of the illegal “M-Coin” cryptocurrency exchange and members-only shopping website.
The Bureau, a civil service unit formed in 2010 to investigate counterfeiting but now empowered with digital forensics in order that it can also pursue online crime, claims M-coin recruited members for annual fees of between $300 and $900.
While promising discounts on hotels, entertainment and lifestyle products and shopping, M-coin also offered supposedly ever-increasing bonuses to members as they recruited more and more new people to the network.
This, says Special Judicial Police, combined with the fact that the M-Coin token is unlisted and thus effectively worthless, made it a Ponzi, or fraudulent pyramid scheme.
The Seoul Special Judicial Police said M-Coin started in May 2018 and, after six months, had more than 200 sales offices and had earned around $19 million from both membership fees and cryptocurrency sales.
Most people signing up to the scheme, chief investigator Hong Nam-ki told Joong Ang Daily, “were elderly people in their 60s and 70s.”
Hong also told Joong Ang Daily that once M-Coin realized it was being investigated, it started moving its cash flow and membership records around different locations. At one stage it is alleged that M-Coin’s accounts were kept on a computer that was hidden in the trunk of an employee’s car.
Investigator Hong says that after the Bureau received a tipoff it used software called “Artificial Intelligence Investigator” to pick up the case.
“Through keywords such as Ponzi, loan and recruiting members, we were able to teach the AI patterns of Ponzi schemes,” Hong told Joong Ang Daily. “The program can also identify advertisement patterns and identified the enterprise in question.”
Although the investigative methods may be new, the alleged scam is an old one and, even in the relatively young world of crypto, it has cropped up numerous times
As reported in Asia Times in March, American prosecutors arrested two people alleged to be behind the global OneCoin crypto-based multi-level marketing network that, it is claimed, has turned over in excess of $4 billion.
Konstantin Ignatov was arrested at Los Angeles International Airport “on a wire fraud conspiracy charge stemming from his role as the leader of an international pyramid scheme that involved the marketing of a fraudulent cryptocurrency called OneCoin”, said Geoffrey S Berman, US Attorney for the southern district of New York. Ignatov’s sister Ruja, the alleged founder and head of OneCoin, was charged in absentia with wire fraud, securities fraud and money laundering. Ruja has not been seen since October 2017.
Described by a US Internal Revenue Service agent as “an old scam with a virtual twist”, the OneCoin operation was similar in focus and method to M-Coin.
Last April Vietnamese police closed down another such crypto-based operation in Ho Chi Minh City that reportedly had turned over $660.
Another crypto-based network marketing operation, DasCoin, has been described as being “effectively the same” as OneCoin because it uses very similar sales methods and, indeed, has many of the same sales agents.
DasCoin was served a cease and desist notice by the North American financial regulator NASAA last year as part of “Operation Crypto Sweep” that set out to stop the “persistent exploitation” by so-called “crypto fraudsters”. DasCoin, which describes itself as “the currency of trust”, apparently still continues to trade.
Global regulators and investigators are increasingly joining forces to combat crypto fraud. As has been seen in Seoul this week, they are doing this using increasingly sophisticated means. However that does not necessarily mean that bigger crypto pyramid schemes are quite dead just yet.