Thousands of Investors Lose Millions as Crypto Schemes Operate Unchecked in Australia

Australia is currently facing a significant financial crisis, one that is hidden in crypto investment schemes. As the dust settles, thousands of investors are left counting their losses, victims of schemes like HyperFund and HyperVerse. 

Investors lose millions as the schemes, orchestrated by Sam Lee and Zijing “Ryan” Xu, founders of the now-collapsed Blockchain Global, have managed to slip through regulatory scrutiny. This happened despite these schemes being labelled potential scams on an international scale. 

This situation reveals the vulnerabilities of investors while raising critical questions about Australia’s regulatory effectiveness in warning investors and addressing high-risk schemes.

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Regulatory Alerts Go Unheeded

The complexity of Lee and Xu’s investment platforms, primarily under the HyperTech group established in 2020, has triggered warnings from financial watchdogs worldwide. The UK, New Zealand, Canada, Germany, and Hungary, among others, have issued cautionary statements, urging investors to exercise due diligence. Surprisingly, ASIC, Australia’s regulatory body, has remained conspicuously silent on the matter. 

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ASIC defends its position, stating that it provides general information on its website about the risks associated with engaging with unlicenced organisations offering unregulated products. According to ASIC, issuing specific warnings depends on the evidence of activities within its jurisdiction and the available legislative tools.  Meanwhile, investors lose millions, and the call for regulatory action intensifies.

The Hungarian central bank’s public statement in August 2022 warning consumers about the HyperVerse and (Previously) HyperFund schemes marked a turning point. Describing the system as a “Suspected pyramid scheme” with no real economic activity, the warning emphasised the significant risk of investors permanently losing part or all of their invested capital. 

Despite such international red flags, ASIC has not issued any warnings or taken action against the HyperTech group schemes. This may leave the door open for the potential scenario where more investors lose millions.

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International Cautions

International warnings against Lee and Xu’s schemes, especially from New Zealand’s Financial Market Authority, have raised eyebrows. Concerns were voiced about HyperFund operating as a potential scam using a Multi-Level Marketing (MLM) model, coupled with claims of offering passive investment opportunities. Such warnings can help potential investors and prevent a scenario where investors lose millions due to participation in dubious schemes.

Lee’s involvement in other investment platforms like StableDao, VidiLook, VAV, V.E.N.D, and We Are All Satoshi further complicates regulations. Investors lose millions as concerns rise about the effectiveness of global regulatory coordination, especially with StableDao and We Are All Satoshi still active. This raises questions about the effectiveness of global regulatory coordination.

Unravelling the Global Puzzle

In September, the Commissioner of Financial Protection and Innovation in California issued a “Desist and refrain order” to Lee for operating the We Are All Satoshi investment platform. The order alleged that it was a “Fraudulent pyramid and Ponzi scheme” with no apparent source of revenue other than funds received from investors. Lee, identified as the founder, CEO, and chairman, faced allegations of breaching multiple provisions of the state’s corporations code. 

The order required him to stop operations until he met the qualification requirements under California law. Notably, Xu is not named in the order, and there is no suggestion of wrongdoing by him in this regard. Despite these international actions and allegations, Lee relocated to Dubai in 2021, and Xu’s whereabouts remain unknown.

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Chris Berg’s Insights on Regulatory Challenges

Chris Berg, from RMIT’s Blockchain Innovation Hub, sheds light on the regulatory challenges posed by the surge in crypto schemes during the pandemic, a trend that has seen investors lose millions. The rapid proliferation of such schemes has outpaced regulators’ technical expertise, making it difficult to identify potential scams swiftly. Berg emphasises the need for education, not only in crypto knowledge but also in recognising scam patterns. He highlights a substantial skill shortage among regulators, creating a gap in understanding how to regulate these schemes effectively.

Investors’ Plight and Structural Concerns

Investors in the Hyper group faced cryptocurrency payments for subscription packages, promising daily returns. The scheme’s structure, resembling a pyramid model, incentivised recruitment, raising concerns about its sustainability. Many investors found themselves unable to withdraw funds, facing challenges as the scheme’s failure unfolded.  

Reports suggest that Australian investors have reported over $350 million in losses to crypto-based investment schemes since 2020, highlighting a concerning trend where investors lose millions. This not only underscores the financial impact on individuals but also calls into question the effectiveness of existing regulatory mechanisms in safeguarding investors.

Lee, currently residing in Dubai, faces criticism for the collapse of the schemes. In Zoom meetings, he expressed ambitious plans to grow the Hyper community to a billion people, seeking 2% of the built value. The failure of HyperVerse and associated schemes has prompted questions about Lee’s accountability. Regulators now face increasing calls for stricter measures against unchecked crypto ventures, especially as investors lose millions in the aftermath.

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Regulatory Inaction and Allegations Against Lee and Xu

In October, the liquidator for Blockchain Global reported that he had referred Lee and Xu to the Australian Securities and Investments Commission (ASIC). The report alleged that they “May have contravened” the Corporations Act. However, ASIC stated it does not intend to take any further action at this time. 

The liquidator’s report makes several allegations about the running of the business, and it states that progress on examining Lee and Xu has been hindered as they now reside overseas. This lack of regulatory action raises concerns about the regulator’s ability to hold those responsible accountable.

Guardian Australia has revealed that separate from Blockchain Global, Lee and Xu have promoted a series of crypto investment schemes since 2018, many of which appear to have failed, leaving investors unable to withdraw funds. The failure of these schemes, resulting in thousands of people globally losing their deposits, intensifies concerns about the regulator’s role in warning investors about high-risk, unregulated investment schemes and possible scams.

Global Concerns and Estimated Losses

Danny De Hek, a New Zealand-based YouTuber tracking the investment schemes of Lee and Xu for the past two years, believes that such schemes have largely gone unchecked by regulators. As losses mount, calls for regulatory reform intensify. De Hek advocates for a law change to help flag individuals involved in fraudulent activities, emphasising the need to address the growing concerns before more investors lose millions. 

An ASIC spokesperson insists that the regulatory body has been active in warning consumers about the risks associated with crypto assets and scams, highlighting several media releases and reports. However, specific examples are not provided.

If Lee’s claim that the community numbered as many as two million people is true, the schemes’ value would amount to at least USD 450 million, based on the minimum investment of USD 300. However, based on investment numbers boasted by senior leaders of the HyperVerse team, investors lose millions, and the amount potentially lost could run into the billions. 

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Cryptic Responses and Lack of Accountability

Lee’s responses to accusations deny the HyperVerse scheme as a scam, pointing to the active website as proof. However, scrutiny reveals the HyperVerse website’s inactivity, raising further questions about Lee’s assertions. Lee tells people they need to be patient if they want to get their money back and urges them to sign up for a new platform, known as StableDao. Yet,  investors lose millions as Lee promotes the dubious alternative.

According to the internet archive, the HyperVerse website became inactive sometime between April and November this year. Guardian Australia also put questions to Lee and Xu before publication but did not receive a response.

The volatile nature of crypto investments, coupled with the increasing sophistication of fraudulent schemes, calls for a proactive approach from regulatory bodies. Australia, like many other nations, stands at a critical juncture where the efficacy of its regulatory framework will significantly impact the future of crypto investments and investor confidence.

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Final Thoughts

The Australian crypto space struggles with unchecked schemes, leaving thousands of investors in financial turmoil. Despite the alarms raised by the international community, regulatory bodies struggle with addressing the risks associated with these schemes. 

Investors lose millions as unchecked schemes persist and regulatory bodies face growing pressure to reform and adapt swiftly to the dynamic crypto industry. As the call for robust regulatory measures intensifies, the urgency to protect investors and maintain trust in the crypto market becomes critical. Australia must learn to adapt alongside the global community to ensure the integrity of financial markets and safeguard the future of crypto investments.

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