Sri Lankans Make Allegations of Crypto Ponzi Scam | Business and economic news

Colombo, Sri Lanka–When 37-year-old Harshana Pathirana quit his job in the hotel sector, sold his car and invested in what he thought was a cryptocurrency, he dreamed of making a fortune, especially as the economy around him crashed.

More than a year later, with the tourism sector battered in the face of Sri Lanka’s worst economic crisis, Pathirana is unemployed and has lost all his investments.

“I invested 2.2 million Sri Lankan rupees ($6,162) and was promised five times the return. But I only received about 200,000 Sri Lankan rupees ($560.20),” Pathirana told Al Jazeera. “I lost everything.”

Pathirana’s name has been changed to protect his identity as his family is unaware that he has lost his money. “My family thinks I sold the car and put the money in my bank account,” he said. He is now trying to migrate to find a job and earn some money.

Pathirana is one of the many Sri Lankans both locally and abroad who claim to have been defrauded by a group of men who ran a fake cryptocurrency investment scheme and defrauded them of millions of rupees. Although it is not clear how many people in total claim to have been defrauded, one person Al Jazeera spoke to said easily a thousand people had joined in his district alone, and that since the model was working to get new investors, the scheme a cascading effect.

These investors feel squeezed amid Sri Lanka’s economic crisis that has seen inflation hit 60.8 percent in July, causing acute shortages of essentials and making basic meals almost unaffordable.

The scam is said to have targeted professionals such as doctors, security personnel and people from low-middle income backgrounds in rural districts, mostly between the ages of 30 and 40.

Some of those who spoke to Al Jazeera were Sri Lankans who had made investments while working in countries such as South Korea, Italy and Japan.

Most of them had given up their jobs, mortgaged their jewelry, mortgaged their property, and sold their vehicles to invest whatever they could, hoping that they would make substantial gains.

“If I had my money today, I could have opened a fixed deposit account and used it to improve the financial status of my family,” said Roshan Marasingha, 38, speaking to Al Jazeera from South Korea.

He said he had invested 3.1 million Sri Lankan rupees ($8,683) and received only 550,000 Sri Lankan rupees ($1,540) in return.

“Unfortunately, we were the investors at the bottom level of their pyramid (scheme). So we did not receive the return that was promised,” Marasingha lamented.

Arrangement

In official papers filed with Sri Lankan authorities, the investors say that in early 2020, Shamal Bandara, a Sri Lankan, and Zhang Kai, introduced to the investors as Chinese, had set up “Sports Chain”, which they said was a cryptocurrency investment platform.

They are alleged to have run their business as a Ponzi scheme, a fraudulent venture where existing investors were paid with funds raised from new investors.

On its website, Sports Chain calls itself a “highly profitable” and “anonymous” venture, which aims to “become an ever-rising cryptocurrency used in the digital finance of the sports industry”.

Sports Chain’s website is riddled with grammatical errors and promotes itself as “the world’s first competitive public chain platform”.

However, on CoinMarketCap, a crypto asset tracking website, there is no “Sports Chain” cryptocurrency registered or traded in the market.

The Sports Chain mobile application is not available on Google Play or the App Store and must be downloaded using a web link.

To use the app, investors had to enter the referral key of the partner who introduced the concept to them. Sports Chain called this a system of “building a partner network” – which is one way of defining a Ponzi scheme.

To promote this, the men behind the scheme organized several events and meetings for investors, sometimes in five-star hotels in the capital, Colombo.

A video of one of those meetings, seen by Al Jazeera, showed one of the men explaining how the money put in by new investors would be split between the existing ones.

Using the mobile app, investors were asked to empty their virtual wallets by transferring “Sports Chain coins” to an option called “Power Pool” where coins were multiplied by five.

Every day a few cryptocurrency coins were sent back to the wallet from the Power Pool.

“We were told to deposit money in a bank account, download a mobile application and start trading,” Ranjan, an investor, told Al Jazeera.

He preferred to be identified only by his first name as he works for the Sri Lanka Navy.

“I got into this because I was convinced I could get a good return on investment,” he said.

To get more coins in their wallets, investors had to bring in more partners to the network.

The investors claim that by mid-2021, the people behind Sports Chain had run out of money to pay investors, as the number of new investors began to drop drastically after word spread that it was a scam.

“Initially, we could make withdrawals after we received around 150 coins in the wallet. Then they kept raising the limit to around 500, another investor Priyanga Kasturiarachchi (40) told Al Jazeera. Kasturiarachchi had deposited 1.8 million rupees and had managed to withdraw 1.3 million rupees, he said.

Kasturiarachchi claims that after he and his daughter highlighted their plight on social media, they received threatening phone calls.

Al Jazeera saw bank deposit slips, many of which were in the local accounts of at least three foreigners – Wu Chungsheng, Yu Shuhui and Wang Yixiao – while several others were in Sri Lankan names. It is not clear what, if any, connection these people have with Bandara and Zhang. None of the payments had been made directly to the bank accounts of Shamal Bandara or Zhang Kai who allegedly masterminded the fraud. Bandara did not respond to a WhatsApp message sent to his mobile phone. Al Jazeera could not reach any of the others.

No license for cryptocurrencies

The Central Bank of Sri Lanka says it “has not granted any license or authorization to any entity or company to operate schemes … including cryptocurrencies”.

Under Sri Lankan law, operating a pyramid or Ponzi scheme can result in imprisonment of between three and five years. According to the country’s banking law, offenders must also pay a fine of 2 million Sri Lankan rupees or twice the amount received from participants in the scheme.

Investors have now lodged complaints with the Police Financial Crimes Investigation Division (FCID) and the Central Bank of Sri Lanka.

They have accused the alleged fraudsters of defrauding them through the fake cryptocurrency scheme, and later threatened them for revealing details on social media.

“We are conducting an investigation to determine whether we have to file a civil or criminal case,” a senior officer at the FCID office in Mirihana – a suburb in the western province – told Al Jazeera. He declined to be named as he is not authorized to speak to the media.

“In most cases, investors are paid for the first few months and then receive nothing at all,” he added. “It is important to raise awareness so that people do not fall for these schemes.”

In response to Al Jazeera’s question about whether the central bank was investigating this matter, it said that complaints about fraudulent schemes generally had to be directed to the police for legal action. The central bank did not respond to specific inquiries about the Sports Chain Scheme.

Chathuranga Perera, 31, said he had deposited 3.2 million Sri Lankan rupees ($8,963) in January 2021, money he earned working in the tourism industry. In a series of withdrawals by April, he managed to get back 400,000 Sri Lanka Rupees ($1,120), but no more.

“I’ve been saving this for years. Now I don’t have a job. I’ve lost almost everything,” he told Al Jazeera.

“This money would be very useful as we face an economic crisis. It hurts to be in this position, he said.