Law enforcement officials have arrested five men in connection to a multi-million dollar Bitcoin fraud. The men allegedly defrauded victims to the tune of $722 million between April 2014 and December 2019 through a website called BitClub Network.
Federal prosecutors are referring to the case as a "modern, high-tech Ponzi scheme" that has shaken the cryptocurrency industry to its very core. FBI officers spearheaded the investigation and found that the gang was employing an array of complex tactics to mislead victims into believing they were joining a get-rich-quick club.
High-Tech Ponzi Scheme
The arrested men allegedly ran the website, which billed itself as one of the "Top 10 crypto currency mining operations in the world," and solicited money from investors under the pretext of purchasing mining equipment that generate bitcoin via a process called hashing and then sharing the profits equally.
Investors could purchase into pools for $500, $1,000 or $2,000 or all three at once for a contract of 1,000 days, during which the website claimed it would credit the investor their share of the profit as they mined the cryptocurrency. Investors were encouraged both to purchase shares of the mining pool, and receive "rewards" for bringing on new investors.
"Those arrested today are accused of deploying elaborate tactics to lure thousands of victims with promises of large returns on their investments in a bitcoin mining pool, an advanced method of profiting on cryptocurrency," said Paul Delacourt, the assistant director in charge of the FBI's Los Angeles Field Office. "The defendants allegedly made hundreds of millions of dollars by continuing to recruit new investors over several years while spending victims' money lavishly."
The arrested men displayed false and misleading information such as "bitcoin mining earnings" in a bid to tempt investors into joining the pool in exchange for money.
As per the WIRED, months after the website went live, one of the arrested men wrote about the need to "fake it for the first 30 days while we get doing," while instructing a co-conspirator to do some "magic" on the revenue figures They allegedly decided to manipulate the numbers by factoring in inconsistencies in order to make them appear real.
However, they became more daring with their falsification as one day one of the arrested men suggested a co-conspirator to hike the daily mining earnings by as much as 60 percent.
Victims took to social media
Last year, a large number of posts about the BitClub Network started showing up on Facebook, prompting a Medium post by a Zambian man detailing all the tell-tale signs that the BitClub was a sham. The post revealed that despite BitClub's claims of radical transparency, the location of the purported mining rigs appeared to be a mystery, and the individuals behind the company were hard to identify.