In Person Filecoin Fraud in Hong Kong

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In June of 2021, a man in Hong Kong thought he bought some filecoin, however the people he bought it from were unknown individuals who later couldn't be found, and hadn't actually sold him any filecoin. It's unclear if the thieves were caught and it does not appear that any funds were returned.

This exchange or platform is based in Hong Kong, or the incident targeted people primarily in Hong Kong.

About The Investment Consultants

The "case involved [a] businessman [in Hong Kong] who ... met three ... investment consultants through a friend. He was [told he was] investing in Filecoin and promised considerable profits." The "30-year-old merchant" "was approached by two men and a woman in their 30s introducing themselves as investment consultants. They recommended investing in Filecoin on the basis it would deliver big returns".

"Between February and April, he deposited HK$124 million into the fraudsters' bank accounts in two installments."

The Reality

Purchasing investments from individuals is highly risky. The investment consultants were con artists and had no intent to invest the money he provided to them.

What Happened

The individual sent two separate payments before realizing that they had been defrauded.

Key Event Timeline - In Person Filecoin Fraud in Hong Kong

Date	Event	Description
February 2021	First Installment Paid	The victim reportedly handed over payment in two installments, with the first being in February 2021.
April 2021	Second Installment Paid	The victim reportedly handed over payment in two installments, with the second being in April 2021.
June 15th, 2021	Main Event	After the price of Filecoin starts to drop in the market, the victim reportedly contacted the perpetrators, however they were unable to be located.
May 11th, 2022 1:45:00 PM MDT	Crypto News Reference	Crypto News references the incident in a report about a different case where a 24-year-old man was arrested in Hong Kong for allegedly scamming a female trader out of HK$1.5 million (US$191,085). Hong Kong authorities warn citizens to exercise caution in financial transactions and use trustworthy platforms, emphasizing the prevalence of cryptocurrency-related crimes and money laundering in the region.

Technical Details

In this case, the victim is believed to have not actually taken possession of any Filecoin. Instead, he sent money based on the promise that it would be invested in Filecoin. In reality, the fraudsters most likely did not even invest the money.

Total Amount Lost

The total amount lost has been estimated at $15,900,000 USD.

Immediate Reactions

"In June, [the victim] tried to cash out after Filecoin's value dropped from US$168 (HK$1,310) to US$73, but the fraudsters disappeared." "Filecoin’s share price dropped from US$168 to US$73, prompting the victim in June to try and withdraw the cash. But the merchant could not contact the group and sought help from police."

"When the victim discovered that he could not withdraw his funds following a crash in the price of Filecoin and the so-called investors were nowhere to be found, he alerted authorities."

Ultimate Outcome

"“Citizens should think twice about whether the person asking them to make an investment is trustworthy, or whether meetup places for large transactions are safe,” Ip said.

The situation was mentioned in another article where a 24-year-old man was arrested in Hong Kong for allegedly scamming a female trader out of HK$1.5 million (US$191,085). The suspect lured the victim and her colleagues into a meeting room, where she transferred the funds to an e-wallet under the pretense of a cash exchange. The suspect then left, locking the victims in. Although no money has been recovered, the police seized some of the suspect's belongings from the fake shop used in the scam. Hong Kong authorities use the situation as an example to warn citizens to exercise caution in financial transactions and use trustworthy platforms, emphasizing the prevalence of cryptocurrency-related crimes and money laundering in the region.

Tong urged citizens to be cautious when engaging unknown persons for financial transactions and to use trustworthy platforms. In a separate incident occurring in June 2021, a man was cheated out of HK$124M  by two men and a woman promising enormous returns for an investment in a cryptocurrency called Filecoin. When the victim discovered that he could not withdraw his funds following a crash in the price of Filecoin and the so-called investors were nowhere to be found, he alerted authorities.

Total Amount Recovered

There do not appear to have been any funds recovered in this case.

Ongoing Developments

TBD - Is there still an investigation happening?

Individual Prevention Policies

The primary failure was that no actual cryptocurrency was delivered to the victim by the anonymous "investors".

Store the majority of funds offline. By offline, it means that the private key and/or seed phrase is exclusively held by you and not connected to any networked device. Examples of offline storage include paper wallets (seed phrase or key written down and deleted from all electronic media), hardware wallets, steel wallet devices, etc...

When performing an in-person exchange, the risk level can be minimized by reducing the amount transferred at one time, performing the transfer in a more secure location, conducting the transaction with more individuals present, and retaining more identifying information about the counterparty. Having a large amount of cash in one area and improperly secured allows for theft to occur. Be sure that you have physical visibility of any cash to be received prior to authorizing any irreversible payment. Alternatives with lower risk of physical theft such as debit or eTransfer should also be considered.

For the full list of how to protect your funds as an individual, check our Prevention Policies for Individuals guide.

Platform Prevention Policies

This case does not appear to have resulted in a loss to any platform. While there is limited involvement between this victim and any legitimate platform, further efforts can be made to better educate users through platform information and to establish an industry insurance fund.

Never take for granted the limited knowledge of users of your service and their tendency to skip past provided information. It is recommended to design a simple tutorial and quiz for new users which explains the basics of seed phrases, strong password generation, secure two-factor authentication, common fraud schemes, how ponzi schemes work, as well as other risks which are unique to the cryptocurrency space. This tutorial and quiz should ensure their understanding and be a standard part of the sign-up or download process which is difficult or impossible to skip.

Work with other industry platforms to set up a multi-signature wallet with private keys held separately by delegate signatories from seven prominent platforms and services within the industry. Establish requirements for contributions by all platforms and services, designed to be affordable for small platforms yet large enough to cover anticipated breach events. Any breach event can be brought forth by a member platform or a petition of 100 signatures for consideration by the delegate signatories. A vote of 4 or more delegate signatures is required to release any funds, which could partially or fully restore lost funds based on their assessment.

For the full list of how to protect your funds as a financial service, check our Prevention Policies for Platforms guide.

Regulatory Prevention Policies

This type of fraud could be solved with any sort of registry for the different platforms available.

Create a standard tutorial and quiz for all new cryptocurrency participants, which is required to be completed once per participant. This tutorial and quiz should cover the basics of proper seed phrase protection, strong password generation, secure two-factor authentication, common fraud schemes, how to detect and guard against phishing attacks, how ponzi schemes work, as well as other risks which are unique to the cryptocurrency space.

Set up a multi-signature wallet with private keys held separately by delegate signatories from seven prominent platforms and services within the industry. Establish requirements for contributions by all platforms and services within the country, designed to be affordable for small platforms yet large enough to cover anticipated breach events. Any breach event can be brought forth by a member platform or a petition of 100 signatures for consideration by the delegate signatories. A vote of 4 or more delegate signatures is required to release any funds, which could partially or fully restore lost funds based on their assessment.

For the full list of regulatory policies that can prevent loss, check our Prevention Policies for Regulators guide.