A cryptocurrency ponzi scheme in Sri Lanka?
- Many Sri Lankans have been duped by a fake cryptocurrency investment scheme that has swindled millions of rupees
By Hassaan Shazuli
When 37-year-old Harshana Pathirana quit his job in the hotel sector, sold his car, and invested in what he believed was a cryptocurrency, he dreamed of making a fortune, especially as the economy around him cratered.
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 Rs. 2.2 million ($ 6,162) and was promised a five-times-higher return. But I only received about Rs. 200,000 ($ 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 deposited 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 overseas who claim to have been deceived by a group of men that ran a fake cryptocurrency investment scheme and swindled millions of rupees. While it is not clear how many people in total claim to have been duped, one person that Al Jazeera spoke to said easily a thousand people had joined in his district alone, and that since the model worked on bringing on new investors, the scheme had a cascading effect.
These investors are feeling the pinch amid Sri Lanka’s economic crisis which has seen inflation hit 60.8% in July, causing acute shortages of essentials, and making basic meals almost unaffordable.
The scam is said to have affected professionals like doctors, security personnel, and people from lower 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 like South Korea, Italy, and Japan.
Most of them had given up their jobs, pawned their jewellery, mortgaged their property, and sold their vehicles to invest all they could, hoping they would receive significant gains.
“If I had my money today, I could have opened up a fixed deposit account and used it to improve the economic status of my family,” Roshan Marasingha, 38, who spoke to Al Jazeera from South Korea, said.
He said that he had invested Rs. 3.1 million ($ 8,683) and received only Rs. 550,000 ($ 1,540) in return.
“Unfortunately, we were the bottom-level investors in their pyramid (scheme). So we didn’t receive the return that was promised,” Marasingha lamented.
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 operations as a Ponzi scheme, a fraudulent venture in which existing investors were paid with funds collected from new investors.
On its website, Sports Chain calls itself a “highly profitable” and “anonymous” venture, which aims to “become a steadily 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 website for tracking crypto assets, there is no “Sports Chain” cryptocurrency registered or trading in the market.
The Sports Chain mobile application is not available on Google Play or the App Store and has to 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 a way of defining a Ponzi scheme.
To promote this, the men behind the scheme organised multiple events and meetings for investors, sometimes at five-star hotels in the capital Colombo.
A video of one of these meetings, seen by Al Jazeera, showed one of the men explaining how the money deposited by new investors would be divided among the existing ones.
Using the mobile app, investors were asked to empty their virtual wallets by transferring “Sports Chain coins” to an option called the “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 asked to deposit money to a bank account, download a mobile application, and start trading,” Ranjan, an investor, told Al Jazeera.
He preferred to be identified only with his first name as he works for the Sri Lanka Navy.
“I joined this because I was convinced that I could receive a good return on investment,” he said.
To receive more coins in their wallets, investors had to bring in more partners to the network.
The investors allege 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 about 150 coins to the wallet. Then they kept raising the limit to about 500,” another investor Priyanga Kasturiarachchi, 40, told Al Jazeera. Kasturiarachchi had deposited Rs. 1.8 million and had managed to withdraw Rs. 1.3 million, he said.
Kasturiarachchi claims that after he and his daughter highlighted their situation 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 the names of Sri Lankans. It’s not clear what, if anything, is the connection between these people and Bandara and Zhang. None of the payments had been made directly to the bank accounts of Shamal Bandara or Zhang Kai who are alleged to have led the scam. Bandara did not respond to a WhatsApp message sent to his mobile phone. Al Jazeera could not reach any of the others.
No licence for cryptocurrencies
The Central Bank of Sri Lanka (CBSL) says it “has not given any licence or authorisation to any entity or company to operate schemes … including cryptocurrencies”.
Under Sri Lanka’s law, running pyramid or Ponzi schemes can result in imprisonment between three to five years. According to the country’s Banking Act, offenders also have to pay a fine of Rs. 2 million or twice the amount received from the participants in the scheme.
Investors have now filed complaints with the Police Financial Crimes Investigation Division (FCID), and the CBSL.
They have accused the alleged scammers of deceiving them through the fake cryptocurrency scheme, and later threatening them for revealing details on social media.
“We are conducting an inquiry to determine whether we have to file a civil or criminal lawsuit,” a senior officer at the FCID office in Mirihana – a Western Province suburb, told Al Jazeera. He declined to be named as he is not authorised to speak to the media.
“In most cases, the investors are paid for the first few months and then they don’t receive anything at all,” he added. “It is important to raise awareness so that people don’t fall for these schemes.”
In response to Al Jazeera’s queries on whether the Central Bank was investigating this matter, it said complaints of fraudulent schemes generally needed to be directed to the Police for legal action. The Central Bank did not respond to specific queries on the Sports Chain scheme.
Chathuranga Perera, 31, said he had deposited Rs. 3.2 million ($ 8,963) in January 2021, money that he earned by working in the tourism industry. In a series of withdrawals by April, he managed to get Rs. 400,000 ($ 1,120) back, but not anymore.
“This is what I saved for years. Now, I don’t have a job. I’ve lost almost everything,” he told Al Jazeera.
“This money would have come in very useful as we are facing an economic crisis. It hurts to be in this position,” he said.
(This article was first published by Al Jazeera on 15 August)