MyCoin Exchange Bankruptcy

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MyCoin Homepage/Logo

The operation of a bitcoin ATM, efforts made to list on a stock exchange, and a grand performance in the ballroom of a fancy hotel gave legitimacy to the MyCoin exchange operation and their offer to set up bitcoin miners capable of earning 90 bitcoin (worth HK$1,000,000) for just HK$400,000. The scheme lasted for months with investors able to receive profits before ultimately collapsing as the price of bitcoin fell in February 2015.

About MyCoin

Hong Kong based MyCoin described itself as a "leading global Bitcoin trading platform and application service provider" and claimed to be the first global platform to offer integrated services for Bitcoin trading, e-commerce, mining, and leisure games. MyCoin advertised various services, including cloud mining, an online mall, a Bitcoin game center, and a professional Bitcoin trading center. Parent company Rich Might Investment Ltd. backed MyCoin's promise of an attractive 150% yield to investors who wanted to mine bitcoin. Clients who made a HK$400,000 investment were promised a return of HK$1,000,000 over a 4-month period, based on mining of 90 bitcoins.

The MyCoin platform emphasized innovation, security, stability, and user experience. The platform claimed to have 3,000 customers investing an average of HK$1 million each. With at least one large promotional event taking place in the grand ballroom of the Sheraton Macao Hotel in August of 2014, many high-end investors were attracted. Investors reportedly gathered to hear American investor and financial commentator Jim Rogers, eat free meals and be entertained by singers, dancers and glittering beauty queens.

The MyCoin website assures investors that it was offering a safe and viable investment opportunity. The platform emphasized innovation in its services, products, and technology, ensuring stability, security, and user experience. The website highlighted features such as SSL encryption, multi-factor authentication, cold storage wallets, and 24/7 data monitoring to safeguard users' assets. MyCoin promised free transactions, avoiding fees for deposits, withdrawals, and trading, thus maximizing users' profits. The platform provided contact details for inquiries, reinforcing its accessibility and transparency. The platform allowed investors to withdraw profits they had accumulated. One man, Bikash Gurung, invested around HK$600,000 (£50,625, $77,400) and successfully received a payment of HK$100,000.

Website: mycoin.hk.

The Reality

There were no bitcoins on the MyCoin platform. All investors were participating in an elaborate ponzi scheme which would inevitably collapse. One of the largest red flags in the scheme was the limited information provided on the bitcoin mine which was supposed to be responsible for generating the profits. The Bitcoin Association of Hong Kong's president, Leonhard Weese highlighted numerous red flags on the company's website (notably after the scheme had collapsed).

"I don't think they ever had a bitcoin mine, they never had the bitcoin mine that they advertised, the website for their bitcoin mine shows only very generic information about bitcoin. It doesn't show any information about what people would be interested in when they invest in a bitcoin mine - where is it? "What are the specifications? How large is it? Who is maintaining it? All these things, all these information are missing. So I very much doubt they ever had a bitcoin mine. They used the investments from new customers to pay out the returns from older customers,"

What Happened

The MyCoin platform collapsed with an estimated $387m USD of investor funds.

Key Event Timeline - MyCoin Exchange Bankruptcy

Date	Event	Description
August 2014	MyCoin Promotion	A MyCoin promotion runs in the grand ballroom of the Sheraton Macao Hotel.
September 12th, 2014 1:33:59 AM MDT	MyCoin Website Captured	The MyCoin website is captured normally.
December 17th, 2014 9:00:45 PM MST	Support Number Change	A capture of the website reveals that the support phone number has been changed and the platform apologizes for any inconvenience.
January 2015	Storefront Closure	A storefront of the MyCoin platform, located in Kowloon, closes.
February 9th, 2015	Date Of Collapse	The reported date of the platform collapsing. TBD: Need to locate article from South China Morning Post.
February 9th, 2015 6:03:06 AM MST	NewsBTC Article Published	NewsBTC reports that Hong Kong-based Bitcoin exchange MyCoin.hk has reportedly gone bankrupt, leading to the loss of $390 million worth of investors' funds. Approximately 3,000 MyCoin customers were promised double returns within a year, revealing a pyramid-structured Ponzi scheme. Victims, such as Lau, were coerced by higher tiers of the scheme to bring in more customers to retrieve their funds. Investors were asked to invest around $400,000 in a Bitcoin bond with promises of a HK$1 million return in four months and additional Bitcoin upon maturity. MyCoin organized events at luxury hotels to project legitimacy. After the scheme collapsed, deceived customers sought legal help from lawmaker Leung Yiu-chung and plan to submit statements to the Hong Kong police. Councilor Leung is set to discuss investor protection with Hong Kong's Monetary Authority.
February 10th, 2015 5:47:49 AM MST	NewsBTC Article Published	NewsBTC reports that, in response to recent fraud allegations against a Bitcoin investment company, the Hong Kong Central Bank, through the Hong Kong Monetary Authority (HKMA), issued a warning advising people to exercise caution when dealing with speculative investments like cryptocurrencies. The HKMA emphasized the potential for fraud or pyramid schemes associated with such investments, particularly given the highly speculative nature of Bitcoin. The cautionary statement followed a report about MyCoin, a Hong Kong Bitcoin exchange, allegedly defrauding investors of $US387 million. Some victims shared their experiences with a Legislative Council member, prompting further investigation by the police and discussions with HKMA. The incident raised questions about the future regulatory approach to Bitcoin businesses in Hong Kong, which had previously been considered a liberal environment for cryptocurrency experimentation.
February 11th, 2015 7:40:01 AM MST	International Business Times Article	The International Business Times reported that more than 25 individuals filed complaints with the police in Hong Kong, alleging a Bitcoin fraud scheme involving MyCoin.hk, which media estimates suggest could have defrauded investors of up to $387 million. One investor, Bikash Gurung, revealed that while he had initially invested HK$600,000, suspicions arose in December when MyCoin.hk separated the price of real Bitcoin, indicating fraudulent activity. MyCoin promised substantial returns within a short period, but the Bitcoin Association of Hong Kong's president, Leonhard Weese, highlighted numerous red flags on the company's website, suggesting it operated as a Ponzi scheme. With Bitcoin prices plummeting since late 2013, concerns over fraudulent schemes have heightened.
March 18th, 2015 4:00:00 PM MDT	Connected Individuals Arrested	Bloomberg reports that police in Hong Kong have arrested six people in connection with the events. The article describes the Sheraton Macao Hotel meeting in August last year, where over 2,000 individuals gathered, enticed by promises of a 150 percent return on their bitcoin investment, accompanied by the allure of Jim Rogers' endorsement and extravagant entertainment. The article mentions investments totaling at least HK$169 million ($21.8 million), and the storefront closure in January.
August 20th, 2015	Operator Arrest	On August 20, 2015, Taiwanese police arrested Lu Kuan-wei and Chen Yun-fei, the alleged masterminds behind the MyCoin Bitcoin exchange Ponzi scheme, for scamming investors out of $30.6 million USD. TBD - Read
August 28th, 2015 7:00:29 AM MDT	Bitcoinist Arrest Article	Bitcoinist reports on the arrest. The arrests followed complaints received by the Criminal Investigation Bureau in Taipei. MyCoin, posing as a Bitcoin exchange, lured investors with promises of oversized returns, resulting in losses across various Asian countries. The scheme involved events convincing investors to spend $49,600 USD for 90 bitcoins and an account with MyCoin's parent company, pledging daily returns for a total value of $337 USD. MyCoin's promise of a 150 percent yield attracted professionals and drew in around 3,000 people. After its shutdown in February 2015, the Hong Kong Monetary Authority warned against similar Ponzi schemes, emphasizing vigilance in investment activities. The arrests of the key suspects may provide relief and justice to the victims of the scam.

Technical Details

Like most ponzi schemes, a potentially profitable model was claimed, and in this case, the model was reportedly involved bitcoin mining. Investors believed that if they invested HK$400,000, bitcoin miners could be deployed to generate 90 bitcoins (worth HK$1,000,000) in profit for them.

Total Amount Lost

Different sources have reported slightly different amounts. Police initially declined to say how many complaints had been made, but said a statement would be issued.

Loss Estimates From Various Sources

Date	Provider	Estimate	Notes
February 9th, 2015	NewsBTC	390,000,000
February 10th, 2015	NewsBTC	387,000,000
February 11th, 2015	IBTimes	387,000,000
March 18th, 2015	Bloomberg	21,800,000	States as "at least".
August 28th, 2015	Bitcoinist	30,600,000
Unknown	Comparitech	386,900,000
Unknown	Kyle Gibson	8,000,000	Description says $387m.

The total amount lost has been estimated at $387,000,000 USD.

Immediate Reactions

More than 90 people complained to police after discovering that they were unable to contact the company with their money.

"On Monday, Chinese news website SCMP had published a report about a Hong Kong Bitcoin exchange MyCoin that reportedly swept away its investors’ $US387 million (equivalent to $HK3 billion). The report thoroughly noted the prima facie accounts of victims, describing how MyCoin tricked them into investing an average sum of $400,000 by promising attractive returns, but later disappeared into thin air; along with their money."

Ultimate Outcome

Police arrested 6 individuals in connection with the fraud.

The incident was included in Kyle Gibson's list, BitcoinExchangeGuide, and Comparitech.

Total Amount Recovered

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

Ongoing Developments

What parts of this case are still remaining to be concluded?

Individual Prevention Policies

When using any third party custodial platform (such as for trading), it is important to verify that the platform has a full backing of all assets, and that assets have been secured in a proper multi-signature wallet held by several trusted and trained individuals. If this can't be validated, then users should avoid using that platform. Unfortunately, most centralized platforms today still do not provide the level of transparency and third party validation which would be necessary to ensure that assets have been kept secure and properly backed. Therefore, the most effective strategy at present remains to learn proper self custody practices and avoid using any third party custodial platforms whenever possible.

Any time that you are promised any profit or benefit in exchange for an initial payment, smart contract approval, or deposit, pay special care as to whether the entity making that offer is trustworthy, actually who they say they are, and has the means to fulfill what they're promising. There are no magic algorithms providing guaranteed returns from trading or mining. Trading on average will lose money. Mining is expensive and complex. No one is going to immediately send back more than you sent them. NFT projects will rarely announce a surprise mint in only a single location. Are you fully prepared for the event your money is kept and nothing is delivered in return?

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

Platform Prevention Policies

All aspects of any platform should undergo a regular validation/inspection by experts. This validation should include a security audit of any smart contracts, reporting any risks to the backing (of any customer assets, ensuring treasuries or minting functions are properly secured under the control of a multi-signature wallet, and finding any inadequacies in the level of training or integrity of the team. The recommended interval is twice prior to launch or significant system upgrade, once after 3 months, and every 6 months thereafter. It is recommended that the third party performing the inspection not be repeated within a 14 month period.

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

Regulatory Prevention Policies

While we can look back and see this as a Ponzi scheme, the key issues at the time include a lack of knowing who’s behind the operation, lack of any sort of registration, and no visibility into the financial status of the exchange. An environment where these are not standard practice can enable such schemes to flourish.

All platforms should undergo published security and risk assessments by independent third parties. Two assessments are required at founding or major upgrade, one after 3 months, and one every 6 months thereafter. The third parties must not repeat within the past 14 months. A risk assessment needs to include what assets back customer deposits and the risk of default from any third parties being lent to. The security assessment must include ensuring a proper multi-signature wallet, and that all signatories are properly trained. Assessments must be performed on social media, databases, and DNS security.

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