Chinese police arrest eight over ‘rug pull’ crypto scam
HONG KONG — Chinese police have arrested eight people and froze nearly 6 million yuan ($946,000) worth of virtual assets involved in a crypto scam — the latest move in Beijing’s crackdown on cryptocurrencies.
The man from the dating app Hinge checked all of Tho Vu’s boxes.He was a boyishly handsome architect from China, staying in Maryland on a long-term assignment. They had never met in person – he was still waiting to get his Covid-19 booster shot, he said – but they had texted back and forth for months, and she’d developed a serious crush. He called her his “little sweetheart, and told her that he was planning to take her to China to meet his family when the pandemic was over.
The public security bureau of Chizhou city in the eastern province of Anhui said on WeChat that the fraud involved digital assets worth 50 million yuan. Hundreds of investors lost money in the scheme that allowed the alleged criminals to transfer the liquidity to an “anonymous pool” and launder it without the consent of investors.
China’s top regulator banned crypto trading and mining in September last year in a bid to “root out illegal” cryptocurrency activity. The curb sent bitcoin and other crypto prices tumbling, pushing some miners out of the market. China had accounted for 70% of the world’s mining capacity before May last year.
The Chizhou police investigation began after an investor lost 590,000 yuan worth of crypto currency in June last year. The eight people — from various provinces including Guangdong, Sichuan and Hunan — were arrested in December, and luxury cars and villas worth tens of millions of yuan were seized.
“After the investigation and analysis by the police task force, it was found that this case was a typical case of illegally obtaining virtual currency by using blockchain technology,” the Chizhou public security bureau wrote in the Jan. 14 message.
Officials did not detail which project it was, but Chinese blockchain news site ChainCatcher said it was suspected to be a Gainswap token project.
Crypto investors in China have lost more than $2.8 billion in such scams that are known as “rug pulls,” according to a report by Chainalysis, a blockchain analysis firm.
Scams on decentralized finance, or DeFi, platforms often take shape in a token listed on a decentralized exchange. Investors pile money into the token in the hope its price will increase. Scammers then “pull” the liquidity from the exchange, pocketing the money.
“Rug pulls” accounted for 37% of illicit revenue last year China, compared to 1% in 2020, the Chainalysis report said.
Chinese regulators worry that the decentralized aspect of the blockchain — the technology that supports cryptocurrencies — facilitates illegal payments and capital outflow.
In a warning to Chinese traders, the country’s state television CCTV broadcasted a report in June highlighting the high-risk nature of cryptocurrencies and pointing out how malicious actors can create fake tokens to scam unsuspecting people.