$250 000 000 USD

JUNE 2018

SOUTH KOREA

MININGMAX

DESCRIPTION OF EVENTS

"Mining Max [was] a cryptocurrency mining company headquartered in Las Vegas."

 

"About 18,000 investors from over 54 countries turned to the Mining Max platform to help them capitalize on the crypto industry. The benefits they promised didn’t just stop at Bitcoin though. According to the International Business Times, their high-performing mining farm in Seoul mined cryptocurrencies from different blockchains, supposedly giving these investors the option of putting their money on currencies that would offer higher returns."

 

"About 14,000 investors are from South Korea. A total of 2,600 is from the US, 600 are from China and the rest are from Japan and other countries."

 

"The company actually worked like a pyramid scheme, requiring people to pay to become an affiliate and rewarding them for getting others to sign up." "Using the same hook as previous successful schemes, MiningMax promised investors a guaranteed daily return on their investment. The site required minimum deposits of $3,200 and rewarded investors who recommended others with a $200 referral commission."

 

"Stay Safe Online did a review article in June this year that not only detailed their tiered ROI structure but also raised the question of whether or not Mining Max was a scam."

 

"Even after such high profile Ponzi schemes by the likes of Bernie Madoff and Jan Lewan were brought to justice, pyramid and Ponzi schemes remain a widely utilized form of fraud in the world. Sadly, this now includes cryptocurrency as well. MiningMax, just for one example, was a South Korean Ponzi scheme active from 2016 through most of 2017. The website promised too-good-to-be true investment opportunities and, in true pyramid scheme fashion, offered a referral bonus as well."

 

"This month, a $200 mln cryptocurrency-inspired Ponzi scheme was unraveled by the local law enforcement. 14 individuals of MiningMax, a cloud mining Ponzi scheme, were arrested by South Korean police with several charges, including economic crime and fraud."

 

"Even though they promised these high returns based on their mining activities, the platform’s money was actually made through a pyramid scheme. Users would have to pay to become members and then were compensated for recruiting new business."

 

"The cracks began to show when their mining endeavors failed to make enough money to pay their lower-level investors. According to Yonhap News Agency, those higher up on the food chain were paid with funds obtained through the scam, in addition to certain expensive items."

 

"By December 2017, the website was exposed and 14 people were arrested. The exact amount stolen by these fraudsters is unknown." "A total of 21 suspects were charged with fraud and violating South Korea’s law on door-to-door sales. Three other people with ties to the company, including Korean singer Park Jung-Woon, were charged with embezzlement but were not held." "Seven others, including company chairman Daniel Park, the vice chairman, and some top investors, are on the run and have been put on an Interpol wanted list."

 

"Another seven co-conspirators, including Mining Max chairman, Daniel Park, its vice chairman and high-level investors have gone into hiding, but have been placed on one of Interpol’s wanted lists." "The suspects, which include the company’s chairman and vice chairman, as well as a Korean singer popular in the 1990s, are accused of embezzling about $250 million from 18,000 investors in 54 countries, including the United States, South Korea, China and Japan, Yonhap News Agency reported."

 

"According to Yonhap, investors were scammed out of approximately $250 million, of which $80 million was spent on mining hardware. About $110 million is probably sitting in offshore accounts somewhere, while the remaining money was used to pay high-level investors, and of course, to line the pockets of the platform’s management team."

 

"Of all the suspects, 21 were indicted by the Incheon District Prosecutors’ Office on charges of fraud and for violating the country’s law on door-to-door sales. Mining Max has a cryptocurrency mining farm in Seoul, and promises investors profits from its high-tech mining facility. Since the company was mining currency from different blockchains, it purportedly gave investors the option to choose to mine the currency that offered them the best returns."

 

"Even though the MiningMax scheme was shut down, the Internet is full of websites which use technical terms and guaranteed returns in order to dupe investors. Sites such as Bitcoin Code and Bitcoin Revolution share many similarities with proven Ponzi schemes, but oftentimes these sites are not investigated since victims are embarrassed to report their poor judgement."

MiningMax purported to offer an investment service that would mine using investors funds. The company, in fact, spent only a small amount ($80m) on mining equipment, and the rest was distributed to the leadership. When the company failed to pay out on their promised returns, authorities got involved and arrested the team. It is unclear if investors stand to receive any of their funds back.

HOW COULD THIS HAVE BEEN PREVENTED?

Having funds held in the hands of a single individual, with out a multi-sig, and no training/registration for key holders, led to a situation where investors funds could be taken and used in unexpected ways. By having a system of registration for crypto firms, authorities can ensure that all platforms are operating as specified.

 

Check Our Framework For Safe Secure Exchange Platforms

Sources And Further Reading

 For questions or enquiries, email info@quadrigainitiative.com.

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