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  • Writer's pictureGlobal FTI Team

Chinese Police Arrest 8 Over Crypto Scam

Chinese authorities have apprehended eight individuals and frozen nearly 6 million yuan ($946,000) in virtual assets linked to a cryptocurrency scam, marking another step in Beijing's ongoing crackdown on digital currencies.

The public security bureau in Chizhou, a city in the eastern Anhui province, announced on WeChat that the fraud involved digital assets valued at 50 million yuan. Hundreds of investors were defrauded in the scheme, which allowed the perpetrators to transfer funds to an "anonymous pool" and launder them without the investors' consent.

In September of the previous year, China's top regulator banned cryptocurrency trading and mining in an effort to eliminate illegal cryptocurrency activities. This move caused a significant drop in bitcoin and other crypto prices and forced some miners out of the industry. Prior to May of the same year, China accounted for 70% of the world's mining capacity.

The Chizhou police began their investigation after an investor lost 590,000 yuan in cryptocurrency in June. The eight suspects, hailing from provinces such as Guangdong, Sichuan, and Hunan, were arrested in December. Authorities also seized luxury cars and villas worth tens of millions of yuan.

"Through thorough investigation and analysis, the police task force determined that this case was a typical instance of illegally obtaining virtual currency using blockchain technology," the Chizhou public security bureau stated in their Jan. 14 message.

Officials did not specify the project involved, but Chinese blockchain news site ChainCatcher suggested it was likely related to a Gainswap token project.

According to a report by Chainalysis, a blockchain analysis firm, crypto investors in China have lost over $2.8 billion in similar scams known as "rug pulls."

In these decentralized finance (DeFi) platform scams, fraudsters list a token on a decentralized exchange, attract investors hoping for price increases, and then withdraw all the liquidity, absconding with the funds.

Last year, "rug pulls" accounted for 37% of illicit crypto revenue in China, compared to just 1% in 2020, as noted in the Chainalysis report.

Chinese regulators are concerned that the decentralized nature of blockchain technology, which underpins cryptocurrencies, facilitates illegal transactions and capital flight.

In June, Chinese state television CCTV issued a warning to traders, emphasizing the high-risk nature of cryptocurrencies and highlighting how malicious actors can create fake tokens to deceive unsuspecting investors.

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