Chinese Authorities Crackdown on Filecoin Miner Ponzi Scheme; Seize $62M

Chinese authorities have seized crypto assets to the tune of 400 million Yuan, or roughly $62.5 million, after a crackdown on a Filecoin miner Ponzi Scheme. The scheme is associated with a Shanghai-based Filecoin miner IPFSUnion.

Details Of The Crackdown

The Chinese authorities carried out 31 arrests in the city of Xuzhou, alleging that they have been running Ponzi schemes in association with IPFSUnion. As part of the crackdown, the local authorities also seized several crypto assets, including FIL and USDT.

The crackdown was part of a multi-city operation, with local police arresting individuals suspected to be part of the scheme in several cities, including Wuhan, Shenzhen, and Shanghai. However, the authorities have not yet disclosed if the arrested individuals are IPFSUnion employees or distributors.

IPFSUnion Assisting Authorities

IPFSUnion released a statement on Friday addressing its customers and partners. The statement said that those arrested in the case had procured equipment through illegal proceeds, and it is assisting the authorities in every way possible with the investigation. The firm has also reduced the number of miners in their data centers and will be able to resume full storage power once the investigation has concluded.

IPFSUnion is one of the biggest Filecoin mining firms with effective storage power while also selling miners and computing power to users directly or through distributors. It has gotten investment from the Fuzhou government in China’s Jiangxi province. It has also secured investment from crypto venture firm Fenbushi Capital.

Rampant Ponzi schemes

Ponzi schemes on Filecoin miners have been quite prevalent in China. They came into prominence in 2018, when Protocol Labs had raised $200 million a year prior in an initial coin offering. However, before Protocol Lab debuted the testnet and mainnet in 2020, the network underwent several significant changes in terms of design, equipment, and software specifications for mining FIL, which is the native currency on the network.

Taking advantage of the gap in misinformation, several Chinese companies and brokers sold fake or subpar Filecoin mining equipment to investors in China, promising significant returns. The problem had gotten so magnified that Protocol Labs was forced to release a statement in 2018 warning investors that it was not associated with any sale of mining equipment. Several media reports in 2019 stated that one such manufacturer scammed people out of $300 million.

Disclaimer: This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.