Police use AI to track down cryptocurrency Ponzi scheme swindlers

The perpetrators allegedly scammed $18.7 million from the elderly and retirees.
Written by Charlie Osborne, Contributing Writer

The alleged criminals behind a Bitcoin Ponzi scheme which fleeced victims out of over 21.2 billion won ($18.7 million) have been arrested with assistance from artificial intelligence systems.

Approximately 56,000 people were swindled, with a particular focus on the elderly and retirees, as reported by the Korea Joongang Daily on Monday.

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The scam was uncovered with the help of an AI algorithm which was taught the 'language' of Ponzi schemes in order to hunt them down. These could include phrases related to recruitment and referral bonuses, risk factors, and statements related to guaranteed incomes.

A section chief from the Seoul Special Judicial Police Bureau for Public Safety, Hong Nam-ki, told the publication that "the program can also identify advertisement patterns and identified the enterprise in question, which [was caught] with evidence provided by an unnamed informant."

Called M-Coin, the Ponzi scheme included a members-only shopping website and cryptocurrency exchange for unlisted M-Coin tokens. Members would need to pay a fee of 330,000 won ($290) annually for standard packages or 990,000 won ($870) for premium membership. Those that signed up for 10 years or more were also promised discounts on leisure activities and special events.

The M-Coin scammers also promised free cryptocurrency and recruitment bonuses ranging from 60,000 to 120,000 won.

Members could also buy M.Coin outright for 100 to 500 won each and these coins were promised to be a surefire investment which would rise in value to 200 to 600 won in the future.

In total, over 200 offices were launched to run the Ponzi scheme, in which every manager was rewarded financially for recruiting additional "investors."

After the Ponzi scheme came on the police radar, law enforcement staked out one of the scam's meetings. A membership presentation was attended mainly by those in their 60's and 70's.

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Despite the operator's efforts to stay under the radar -- such as by hiding computers in employee vehicles and hosting servers in other countries -- the chief executive officers' time ran out.

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The police bureau has arrested the scheme's two CEOs, identified under the surnames Lee and Bae, alongside 10 other members connected to M.Coin recruitment over 2018.  

Time and time again, Initial Coin Offerings (ICOs) have been the core modus operandi for cryptocurrency-related scams. However, with so many of these events now on the radar as potential scams and lawmakers taking a serious interest in their regulation, it seems that Ponzi schemes have become an alternative.

The use of machine learning and AI algorithms to learn the language of Ponzi schemes is an interesting concept and has borne fruit in this case. It could be interesting to see if the same could be applied to ICOs in the future. 

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