Chinese authorities seize $62 million in an alleged Ponzi scheme involving Filecoin miners

Chinese authorities have seized crypto assets worth 400 million yuan, or $62.5 million, as part of an investigation into an alleged Filecoin miner Ponzi scam.

Chinese authorities in the city of Xuzhou have detained 31 persons on suspicion of running Ponzi schemes. The suspects are connected to a Shanghai-based Filecoin miner manufacturer, IPFSUnion.

Local authorities confiscated crypto assets including ether, USDT, and FIL as part of the raid, Xinhua reported on Saturday. The article said that police officers detained the individuals in a number of locations, including Shanghai, Wuhan, and Shenzhen, but did not clarify whether they were all IPFSUnion workers or connected distributors.

IPFSUnion stated in a statement to its customers and partners on Friday that the suspects in the case purchased its equipment using allegedly unlawful earnings and that it is supporting authorities with their investigation. As a result, the corporation has restricted the number of miners in data centers to the maximum permitted by the authorities and may only restart full storage capacity after the inquiry is complete.

IPFSUnion is in the top ten Filecoin mining companies in terms of overall effective storage capacity and also offers miners and computing power directly to end-users or via distributors. It received financing from the Fuzhou government in China’s Jiangxi province early this year, as well as from Chinese crypto venture capital company Fenbushi Capital.

Additionally, it is unclear if IPFSUnion is being charged with participating directly in a Ponzi scheme or with intentionally permitting its distributors to oversell equipment that does not exist.

However, Ponzi schemes based on Filecoin miners have been somewhat prevalent in China since 2018, after Protocol Labs’ $200 million initial coins offering the previous year.

Prior to the launch of Filecoin’s test net and main net in 2020, the network’s architecture underwent many adjustments in terms of the hardware and software specs required to mine FIL, the network’s native cryptocurrency.

However, some Chinese firms and brokers took advantage of this knowledge gap to offer substandard or counterfeit Filecoin mining equipment to unsuspecting investors in China, promising high profits. In late 2018, Protocol Labs was forced to issue an anti-fraud statement to inform investors that it had no association with any mining equipment transactions.

Chinese media stated in March 2019 that one such self-claimed manufacturer reportedly defrauded hundreds of individuals out of $300 million through a multi-tier marketing operation for phony Filecoin miners.

Also Read: Bill Markus, Founder Of Dogecoin, Clarifies His Position On Shiba Inu