If You Invest 100 Million, 260 Million Cash Appears on My Phone... Falling for New Technology Again [After the Ponzi Scam]

②Intelligent Illegal Multi-Level Marketing
Profits Recorded on Smartphone Apps
Victims Deceived... Speculative Psychology Also Stimulated

The methods of illegal multi-level marketing crimes have recently become one step more sophisticated. Previously, investors were paid commissions for bringing in other sellers and the profit structure was promoted through business briefings, but now IT technology has been integrated. Investors were captivated by a single smartphone displaying the profits without needing to explain the complex profit structure.

Middle-aged and older adults who suspected fraud softened their doubts due to new technologies such as blockchain and mobile payments. Recruiters actively incorporated the latest IT technologies into their scams, resulting in numerous victims.

Profit rates increasing right before their eyes... Deceived by new payment combinations

Mobile payment applications (apps) are a representative method used by recruiters to deceive middle-aged and older victims. Since the mid-2010s, many similar deposit-taking companies have introduced their own mobile payment systems to differentiate themselves from traditional multi-level marketing business models.

Recruiters induced victims to charge money into the payment apps on the condition that profits would be paid out. The invested amount displayed as numbers on the mobile app grew like a snowball as daily interest paid by the company was added. Investors who witnessed unrealistic profit rates through the app began to deposit more funds. The payment app became a kind of bait that stimulated the victims’ speculative psychology.

Mobile payment app of Agricultural Cooperative Corporation H (left photo) and 'AdoPay,' an in-house mobile payment app developed by Ado International (right photo). You can intuitively check how much the investment has grown.
[Photo by Lee Ji-eun]

Afterwards, the companies imposed restrictions so that victims could not withdraw their investments all at once. In the case of Ado International, a similar deposit-taking company that caused damage worth around 400 billion KRW, investors had to wait 40 days to withdraw their invested funds with daily interest of 2.5%.

Recently, the agricultural cooperative corporation H, which victims have reported to the police on suspicion of fraud, also used a similar method. H promised to pay investors so-called 'data value' and returned 2.6 times the invested amount in virtual assets. For example, if one invested 100 million KRW, they would receive 260 million KRW back. The increased investment amount, multiplied by 2.6, was deposited into H’s self-developed payment app in the form of 'digital assets.' These digital assets were then converted into 'shopping cash,' usable at affiliated stores at an 80:20 ratio, and 'happy cash,' which could be withdrawn as cash.

However, investors could not withdraw this happy cash all at once. There was a limit on the number of withdrawals per month, and the company set lower withdrawal limits for larger investment amounts. These payment apps became unresponsive from the moment the CEO was arrested or fraud suspicions surfaced. Even when investors pressed the withdrawal button multiple times, no cash was deposited. Victims are still anxiously holding on to the now hollowed-out apps without deleting them.

Once investors gather... Stimulating speculative psychology with virtual currency

From the point when a certain number of investors gathered, these companies also presented virtual currency as a new business model. They stimulated speculative desires by promising a so-called 'listing jackpot,' claiming that huge profits could be made if the virtual currency was listed on exchanges.

In fact, some companies issued virtual currencies. H listed their virtual currency on three exchanges, one of which has since closed. Ado International also listed EML coins on three exchanges and announced plans for additional listings on major exchanges.

However, after Ado International’s CEO Lee was indicted and H became embroiled in fraud allegations, victims now believe that the virtual currencies issued by these companies have effectively lost their investment value.

Experts explain that these companies abused virtual currencies to prove the feasibility of profit realization. Lee Kidong, director of the Korea Financial Crime Prevention Research Center, said, "It seems recruiters wanted to intuitively show that profits increased through virtual currency exchanges and payment apps. Seeing the numbers displayed on smartphones makes it feel as if tangible assets are visible, which can deceive investors."

Prosecution rate barely over 11%... Difficult to prove despite large damages

Although illegal multi-level marketing companies deceive investors using similar methods, the process from investigation to punishment is arduous.

According to police statistics, from 2019 to 2022, there were a total of 2,518 cases arrested for violating the Act on the Regulation of Similar Credit Transactions. Among them, only 201 people (7.98%) were detained. The prosecution rate was also just over 10%. According to the Supreme Prosecutors’ Office, last year, 12,652 similar deposit-taking crimes were reported to investigative agencies, but only 10.8% (1,368 cases) were prosecuted.

The reason why similar deposit-taking crimes rarely lead to prosecution is that it is difficult to prove the circumstances of deception. Due to the nature of illegal multi-level marketing, where earlier investors bring in other investors, the boundary between victims and perpetrators often becomes blurred except for the top recruiters.

Lee explained, "Middle-level recruiters may not have realized that the company was deceiving investors and may have brought in other investors unknowingly. Since middle recruiters are rarely prosecuted, cases occur where those who were initially victims later commit similar crimes using the same methods."

Editor's NoteThey gather investors by guaranteeing unrealistic profits. They pay the profits of earlier investors with the money of those who invested later. This simple structure is widely known to us as illegal multi-level marketing or Ponzi schemes. Over time, its form has evolved from forced sales of health supplements to overseas mining investments, and now to blockchain and mobile payment forms. However, with increasingly sophisticated criminal methods, more than 2,000 cases of damage occur every year. We will explore the pain victims endure, the sophistication of fraud methods, the reasons investigations face difficulties, and crime prevention methods in a three-part series.