Bitcoin Scammers Held by Chinese Authorities

Chinese authorities have detained three individuals in connection with the demise of bitcoin trading platform GBL.

AccessTimeIconDec 4, 2013 at 7:05 p.m. UTC
Updated Sep 10, 2021 at 12:02 p.m. UTC
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Chinese authorities have detained three individuals in connection with the demise of bitcoin trading platform GBL.

At one point, GBL was the fourth biggest exchange in mainland China, however, in late October it vanished overnight, along with an estimated $4.1m invested by thousands of unsuspecting users.

It didn't take long for Chinese investigators to catch up with the fraudsters and their alleged ringleader, Liu, a 29-year-old man who was arrested in Zheijang Province.

Two other suspects were detained in November. One is a 24-year-old who was apparently responsible for GBL’s daily operations. The other is a 33-year-old named Huang, who took care of the financial aspects of the business, reports NZ Week.

It remains unclear how much money was traded on GBL's platform. Local press puts the figure at ¥25m (or close to $4.1m).

The first sign that GBL was not what it appeared came on 26th October, when users could not access their accounts and the platform appeared defunct. The team behind the site vanished without a trace and all attempts to reach them proved futile.

The address listed on GBL's website was fake. By the time the users realised what had happened, it was far too late.

To add to the confusion, a message was posted on the site, implying that it had been taken down by hackers. However, users soon realised they were dealing with a scam rather than a security breach and notified the authorities.

There were telltale signs that the exchange was not a legitimate operation, even before it closed its doors. The platform went live on 27th May, claiming to be based in Hong Kong. In hindsight, we know that the address was fake, with the site's server located in Beijing rather than Hong Kong.

Furthermore, GBL tried to register in Hong Kong back in June, but it was never issued a license for financial services.

Due to the unregulated nature of the currency, authorities did not get involved earlier, as they had no legal grounds to start an investigation. This is true not only of China, but the rest of the world too.

The investors must also shoulder some of the blame. A few simple checks should have been enough to keep them from doing business with GBL. China already has several bitcoin trading platforms; the largest is BTC China, which trades an estimated 100,000 BTC each day.

So why would investors flock to GBL?

It appears GBL didn't have to do much to lure investors. Bitcoin trading in China is attracting plenty of new people hoping to cash in on the cryptocurrency's recent price surge. Many of these newcomers have little to no experience of dealing with bitcoin, which makes them vulnerable.

There are some cultural differences to consider, too. The average Chinese citizen is a lot more likely to save cash than a westerner and frugality is considered a virtue in traditional circles. It's easy to see why bitcoin is attracting a different demographic in China, compared to the US or Europe.

Arrest image via Shutterstock

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