Glittery MyCoin Ends in Arrests, Burning Chinese Investors

Hong Kong's Bitcoin
A man walks out of a shop displaying a bitcoin sign during the opening ceremony of the first bitcoin retail shop in Hong Kong on Feb. 28, 2014. Photographer: Philippe Lopez/AFP/Getty Images

An investment in bitcoin promising a 150 percent yield. That’s what was being offered to more than 2,000 people last August in the grand ballroom of the Sheraton Macao Hotel, where they gathered to hear investor Jim Rogers, eat free meals and be entertained by singers, dancers and glittering beauty queens.

It was too good to be true. Hong Kong police arrested six people in connection with an alleged scheme to defraud investors of at least HK$169 million ($21.8 million). All are still awaiting formal charges. Police said more than 90 people have complained after discovering they can’t contact the company that took their cash, Hong Kong-based Rich Might Investment Ltd. and its trading platform MyCoin.hk. Multiple attempts over five weeks to reach any company representatives by e-mail and phone were unsuccessful. Its storefront in Kowloon closed in January.

MyCoin attracted an estimated 3,000 people from Hong Kong and across the China border in Shenzhen, and similar MyCoin conventions or promotional dinners held elsewhere in China, Thailand, South Korea, the Philippines and Taiwan may have drawn hundreds more, according to interviews with eight investors and posts by more than 100 mainland Chinese on a WeChat group, similar to WhatsApp. Most of MyCoin’s investors live in China and haven’t contacted police, they said.

“People around the world are trying to get money out of the Chinese,” said Hu Xingdou, an economics professor at the School of Humanities and Social Sciences at Beijing Institute of Technology. “Mainland Chinese are very vulnerable to these kinds of schemes.”

Huge Outflows

About $324 billion flowed out of China last year, in contrast with 2013’s net inflows of $56 billion, as Chinese sought in part to flee a declining yuan and make investments abroad, according to estimates by Wang Tao, chief China economist at UBS Group AG in Hong Kong. Money from China has driven up housing prices in Sydney, Vancouver and elsewhere.

In Portugal, Chinese rushing to buy real estate have been burned by middlemen, some charging a quarter of the sale price as commission. Also this year, Chinese investors complained they lost a total $1.2 billion when a Geneva-based foreign-exchange investment firm said it was taken over by hackers that lured money from 20,000 people, China’s state broadcaster CCTV reported in February.

Circumventing Controls

More than 80 percent of the world’s bitcoin transactions are now carried out in Chinese yuan, up from less than 10 percent at the beginning of 2013, according to a report from Goldman Sachs Group Inc. Bitcoin is more widely accepted outside China than by Chinese merchants after the People’s Bank of China imposed restrictions last year. One possible explanation: bitcoin transactions may enable citizens to circumvent China’s $50,000-a-year limit on moving money out of the country.

Investors in MyCoin paid a minimum HK$400,000 and were promised HK$1 million a year later, as long as the bitcoins’ value remained the same or appreciated, according to documents given to Bloomberg News by investors.

According to Hong Kong’s Companies Registry, William Dennis Atwood, whose address was listed as in Marina del Rey, California, was the sole director of Rich Might Investment and resigned Nov. 10, transferring 7,000 shares of Rich Might to a company called Fascinating Horizon Overseas Ltd. the same day. No value for the shares was given.

Fascinating Horizon’s address is listed in the Registry as in the British Virgin Islands. That address is a branch of a Hong Kong-based corporate-services company, SBC International, which helps individuals set up companies. An e-mail response from SBC said it couldn’t provide any information about the case or how to reach Atwood or other representatives of Rich Might, MyCoin or Fascinating Horizon due to client confidentiality.

Massage Parlor

Additional attempts to contact Atwood were unsuccessful. U.S. phone directories don’t show Atwood as being listed at his California address or elsewhere in the Los Angeles area. The rental office of the apartment building said in a reply e-mail that nobody by that name lived there and declined to provide further information.

Wong Lok Yan was appointed as director of Rich Might Investment upon Atwood’s departure and resigned Jan. 28, Registry documents show. Wong’s address listed in the Companies Registry is a massage parlor in the Wan Chai district. A woman who opened the door said there was no one by that name. Hong Kong police would neither confirm nor deny they were looking for Atwood or Wong, nor say whether they were among those arrested.

The six people arrested in Hong Kong in connection with the case, who were not identified, have been released on police bail without yet being charged in court, according to a police spokeswoman, who didn’t give her name due to policy. They must report back to police in April, she said.

Around China

MyCoin’s Chinese buyers live in Guangzhou, Xian, Shanxi and Hebei, as well as Shenzhen, the investors said. Shenzhen police didn’t respond to calls, an e-mail and a fax seeking information. A few Chinese investors said on WeChat that they had called their local police, while no collective action has been taken.

“The Chinese investors don’t know what they could do to get their money back,” Beijing Institute of Technology’s Hu said. “They may think the police are not going to help, and they don’t want to pay lawyers because the case is uncertain.”

Wendy Lin, a 55-year-old Shenzhen housewife, said she first heard about MyCoin from a friend. They traveled several times to Hong Kong, to a Chinese restaurant in Kowloon, for promotional campaigns for the virtual currency and also attended the confab in Macau, a one-hour ferry ride from Hong Kong. They filed a police complaint in Hong Kong.

‘Total Chaos’

“My family is in total chaos now,” said Lin, who said she invested about 900,000 yuan ($144,400) along with her daughter and younger sister. “They invited famous people to their events. How would I have thought the whole thing was a scam?”

Rogers confirmed that he accepted the MyCoin speaking engagement through an agent and said he had no knowledge of the alleged scam when he accepted. He has never invested in bitcoin or MyCoin, he said.

“I was there to speak about investing in the world,” said Rogers, contacted by phone in Singapore. “I explained whenever anybody asked that I did not know much about bitcoin or MyCoin, but I was there to learn.”

The MyCoin venture, started in early 2014, promoted itself through professionals such as insurance brokers, real estate agents and paralegals, said Nancy Lau, a representative of a group of 30 of the MyCoin investors in Hong Kong who have banded together to push to get their money back.

“MyCoin has a very complicated structure,” she said. “We aren’t sure who exactly the masterminds are. The sales representatives said they were victims, too.”

Free Trips

People typically put in HK$400,000 for 90 bitcoins and were to have accumulated 0.64 bitcoins per day for 12 months, Lau said. Their gains were promised to multiply if they introduced more people.

Investors were given free trips to MyCoin roadshows, said Jeff Peng, 30, who does importing and exporting in Taiwan. MyCoin provided him accommodation in Thailand, Macau and the Philippines last year with the expectation that he would help recruiting efforts, he said. Mercedes-Benz cars were given to good performers at the events, and lucky draws awarded prizes such as Samsung tablets, said Peng. He invested almost NT$3 million ($95,100) and hasn’t made a police complaint because he doesn’t believe it would get his money back.

“I did suspect at some point last year that it could have been a scam, but I didn’t realize it could be over in less than a year,” he said. “Now I don’t even know whether they hold any bitcoins for real.”

Growing Suspicious

Lin said she first grew suspicious of MyCoin in November when the firm said it was planning a backdoor listing in Hong Kong. Also known as a reverse takeover, it’s when a closely held company gains listing status by taking control of a publicly listed entity.

“I was like, ‘Oh no, this must be bad,’” Lin said, noting that she had heard of fraudsters using this tactic to convince investors to leave their money parked as equity in the future listing and declining to return it.

Starting in December, a few weeks after Atwood’s resignation, MyCoin started changing bitcoin’s valuations rather than follow the market value, according to Lau. Prices quoted by MyCoin dropped to HK$20 in January, when the market price was HK$1,700, she said. MyCoin investors were prohibited from redeeming their bitcoins, even when they accepted the lower price, she said.

The value of the virtual currency plunged 58 percent last year after reaching a record $1,100 in 2013. It’s currently valued at $281.

Investors such as Lin just want to get their money back.

“They paid for almost everything, and they said they are registered in Hong Kong,” said Lin. “So I trusted them.”

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