In a recent trial at the People’s Court in Minhang District, Shanghai, a case involving digital collectibles surfaced, shedding light on a deceptive fundraising scheme. Unaware bidders, lured into impulsive investments, found themselves unwitting participants in a pyramid scheme. Investigations revealed that the platform in question absorbed over 1.34 million yuan from thousands of users, resulting in a total loss of more than 410,000 yuan for the victims.
The saga began in June 2022 when Zhang and Liu established the “Tonggu Platform,” packaging low-cost or freely downloadable images as digital collectibles using blockchain technology for sale. Using channels such as WeChat public accounts and groups, they promoted these digital collectibles, falsely guaranteeing regular repurchases at twice the price, platform dividends, and exclusive membership rights like priority land acquisition in the metaverse.
The platform introduced peculiar rules—buying specific digital collectibles could synthesise rarer, high-tier ones, while box purchases could accrue points for ranking and rewards. Zhang even facilitated a secondary market for users to trade, creating an illusion of a bustling, appreciating market.
Zhang and Liu profited significantly. To evade responsibility and promised returns, Zhang discontinued server payments, shut down the Tonggu Platform, rendering users unable to withdraw funds or view digital collectibles.
The Minhang District People’s Court concluded that Zhang and Liu engaged in illegal fundraising for personal gain through fraudulent means, amassing a substantial amount of money, constituting a collective fraud offence. The court sentenced both individuals to imprisonment and imposed fines.
Lu Jin, a judge at the Criminal Trial Division of the Minhang District Court, highlighted the criteria for identifying illegal fundraising, emphasising the determination of the “intent for illegal possession.” Jin stated that this case involved illicit fundraising, misappropriating and evading obligations, rather than using the funds primarily for operational activities, which denotes illegal possession.
With ever-evolving methods of illegal fundraising, Song Zhaoyuan, an assistant judge at the Criminal Trial Division of the Minhang District Court, urged caution among the public.
New illegal fundraising models and tactics are increasingly perplexing and deceptive. Zhaoyuan advised individuals to exercise rational investment awareness, bearing in mind the adage “Investment involves risks; be cautious.” She cautioned against various scams masquerading as technological innovations or green industries, urging heightened awareness of the perils of illegal fundraising and advocating for increased vigilance.
She recommended verifying a company’s legality and fundraising qualifications through official websites before investing and advised evaluating potential investments against bank loan interest rates and typical financial product returns to avoid falling prey to lucrative yet deceptive projects.
While the “Tonggu Platform” case is unique in its specific details, other similar instances of illegal fundraising using digital collectibles have emerged, highlighting a concerning trend. Here are a few examples:
This case involved a decentralised platform promising high returns through the recruitment of new members. However, investigators determined it to be a Ponzi scheme, ultimately leading to the platform’s founders facing criminal charges.
This platform facilitated the creation of initial coin offerings (ICOs), some of which turned out to be fraudulent. The Securities and Exchange Commission (SEC) charged the platform owners for failing to register as securities dealers and brokers.
This case involved a digital currency marketed as an investment opportunity. However, the SEC determined it was an unregistered security and a Ponzi scheme, leading to charges against the founders.
These cases demonstrate the deceptive nature of some digital collectibles offered as investment opportunities. They highlight the importance of investor vigilance and the need for regulatory action.
Common Features of Deceptive Digital Collectible Schemes:
- Exaggerated returns: Promising unrealistic or guaranteed high returns is a common tactic used to lure unsuspecting investors.
- Limited transparency: Lack of information about the underlying technology, team, or financial projections should raise red flags.
- Urgency and pressure: Creating a sense of urgency and limited availability can pressure individuals into making impulsive decisions.
- Emphasis on exclusivity: Claiming exclusive benefits or membership rights can be used to attract investors seeking perceived social status.
Protecting Yourself from Deceptive Schemes:
- Conduct thorough research: Before investing in any digital collectible, research the company, team, technology, and market conditions.
- Beware of unrealistic promises: Be wary of any platform or individual promising guaranteed returns, especially if they seem too good to be true.
- Avoid pressure tactics: Don’t feel pressured to invest quickly. Take your time to understand the risks and consult with financial advisors if needed.
- Stay informed: Keep up-to-date with news and regulatory developments regarding digital collectibles and illegal fundraising schemes.
- Report suspicious activity: If you suspect a digital collectible scheme might be fraudulent, report it to the relevant authorities.
By following these tips and exercising caution, investors can help protect themselves from falling prey to deceptive digital collectible schemes.