Fraudulent Cryptocurrency Scheme Overview
From May to August 2023, a group led by an individual named Li initiated a fraudulent scheme disguised as a cryptocurrency project. This operation employed an elaborate hierarchical structure that relied on invitation-based rewards. Utilizing both online and offline promotional activities, they recruited participants through social media platforms, encouraging potential investors to engage in various activities such as purchasing cryptocurrency, staking assets, and participating in NFT auctions. In return, these participants were promised rebates based on their ability to recruit new members.
Growth and Legal Review
By October 2023, this organization had grown to include multiple levels of participants and had successfully amassed over 20 million RMB. The Shishi City Procuratorate in Fujian Province reviewed the operations of this group and concluded that despite utilizing contemporary digital concepts like cryptocurrencies and NFTs for branding, their business model conformed to the legal definition of operating a pyramid scheme under Chinese law. The key indicators of illegal activities included:
- The imposition of a “threshold fee” to join, derived from investments in cryptocurrency and virtual assets.
- The establishment of a hierarchical structure that rewarded higher-ups based on the recruitment and performance of their subordinates.
- A pronounced absence of legitimate business operations or sustainable income sources, instead relying on contributions from new members to fund returns to earlier investors, illustrating clear fraudulent intent.
Manipulation and Legal Consequences
Additionally, the group allegedly manipulated underlying system parameters to generate a misleading impression of profitability, enticing participants into a continuous cycle of investment and recruitment.
As a result of these activities, the Shishi City Procuratorate filed public charges in June 2024 against members of this fraudulent organization. The initial court ruling in December 2024 resulted in prison sentences ranging from three to six and a half years for the four defendants, alongside fines and a seizure of their illicit earnings. Following their appeal, the second-instance court upheld the original sentence in July 2025, confirming the convictions for orchestrating and leading a pyramid scheme disguised as a legitimate business venture.
(Source: Net of Justice)
