China Focus: Police crack online pyramid scheme involving 5,800 people

Chinese police have dismantled a pyramid scheme involving more than 5,800 victims from 28 provinces and millions of yuan, said the Ministry of Public Security on Friday.

"Wantong Qiji," which became "Global Unity," was run by World Capital Market Inc (WCM). It claimed to sell third-party cloud computing services, according to the ministry statement.

The company promised investors returns of 60 percent to 80 percent in 100 days.

According to Xie, a businessman from south China's Guangdong Province, he was asked to pay 1,999 U.S. dollars for company membership and would be rewarded with at least 32 digital assets, each worth one dollar, every day. He was told he could cash half of them in and spend the rest on the company's shopping website.

From March 2013 when the scheme started to August 2014, about 5,000 people like Xie invested. With the increase in membership and more "assets" being cashed in, the company shifted to other strategies, such as increasing cashing fees and making excuses like upgrading servers to delay payment. It also encouraged investors to trade their digital assets among themselves.

In 2015, the company set up a string of new companies and persuaded investors to convert their digital asset to shares in the new companies. Eventually, most investors did not receive any return and many lost their original investment.

The scheme was run from Beijing by a small ring led by WCM president surnamed Xu. They posed as high-profile investment bankers and venture capitalists. To impress investors, they organized trips for them to Hong Kong and Dubai.

Last June and August, police received alerts from the People's Bank of China and the Guangdong branch of China Securities Regulatory Commission that the company and its owners were not qualified to conduct public financing, which led to the criminal investigation.

Despite a slick public profile, the company did not invest any money from investors in any projects, nor could the capital it held have sustained the stated returns, the ministry statement said.

Xu is now in custody.

China has seen a fast increase of illegal financing, from 2,000 cases a few years ago to 10,000 cases last year. In the first quarter of this year, police opened investigations into about 2,300 cases, including online peer-to-peer broker Ezubao, which cheated about 900,000 investors out of more than 50 billion yuan (7.6 billion U.S. dollars).

The Internet has made such schemes harder to detect and easier to operate, the ministry said. An increasing number of cases involve foreign suspects and websites or servers registered abroad.

Police will launch special operations against these new types of illegal financing and work to close loopholes in the legal system, said Liu Lujun, a senior officer with the ministry. Endi