Forex Case 1: The Payment Company and Software Provider Behind the Scam

Source: Fazzaco 2020-06-23

Gavel banging heard by all

Recently, Zhengzhou Intermediate People’s Court in China sentenced the chairman of Zhongbaiwen surnamed Li, Mr. Big behind the FXWPD forex scam worth 50 million yuan, to a 15-year imprisonment.

It is very common that an unregulated broker is cracked down on, but one thing worth noting in this case is that responsible persons in Stone Technology (a Qingdao-based financial software company well-known in the industry) and Dinpay (a third-party payment provider headquartered in Shenzhen) were all sentenced to an imprisonment of two to seven years and a fine of tens of thousands of yuan.

Some people voice grievances for the two companies, claiming that they are the “fish in the moat affected by the fire at the city gate”. But the fact is that since the moment when they accepted the bribes and held a candle for the devil, they became the “fire-setters”. As a lesson worth learning, it sounds the alarm for each and every one in the FX market.

I. Case Review: 2396 people were scammed and lost 50 million yuan within 2 years

At the end of 2017, police in Zhengzhou a city in Central China, cracked down on an FX scam, in which Zhongbaiwen Capital Group, a Henan-based consultancy company, filled their own pocked with customers’ investment in FXWPD, a forex broker, under the table.

As the police explained, Zhongbaiwen falsely claimed that FXWPD was a regulated broker and promised a guaranteed 30% return with low risk to FX investors who were lured by plausible-sounding rhetorics on WeChat or QQ to top-up and trade in FXWPD.

As a matter of fact, employees in FXWPD with authorization could easily access the backstage and peddled the illusion that the investor has made profits or suffered losses by fabricating trade-related data.

By tracking down the clues after the rotten apple was removed, the police found the software provider Stone Technology. The company, under the leadership of a five-person team, rented a series of FX pirated software to Zhongbaiwen in the name of Keruide Software Co., Ltd (the same company as Stone) for 1,700 dollars a month.

The police investigated the capital flow and found all the lost money was transferred to the private accounts of the suspects through Dinpay, a third-party payment platform. An employee in the payment service provider surnamed Gu continued to provide FXWPD with payment services after receiving reports from investors, and even sent the reporter’s QQ account and e-mail address to the suspects in exchange for more than 30,000 yuan personal gains.

Relationship Diagram

A total of 35 people were detained in this case. Among them, 21 persons were arrested on the basis of suspected fraud and 3 persons were arrested on the basis of the crime of illegal business. The amount involved was as high as 50 million yuan.

II.Views from lawyers: Providing services for unregulated brokers is suspected of crime

It is understandable that the chairman of Zhongbaiwen should be brought to justice because the company’s hoax to swindle money from investor through FXWPD constitutes a fraud.

But why are other employees sued?

Seemingly, FXWPD was operated by Zhongbaiwen, which was unrelated to its employees. Nevertheless, Chinese laws stipulate that in the cases where a company is established for an illegal purpose, the corporate veil shall be pierced, and core members of a company including the real owner and the management shall be held legally accountable. Hence, other than the chairman surnamed Li, all the core employees shall be punished.

Why is Stone Technology convicted?

Usually, providing technological services for a legal broker complies with the law. But in this case, FXWPD adopted a pirated software, where investors’ deposit was withdrawn through backstage operation instead of being transferred to the real FX market. Knowingly, Stone Technology didn’t stop its support and services for FXWPD. If the latter is involved in a fraud, Stone Technology, as a company that assisted the commission of the fraud, shall be deemed as an accessory.

But why the third-party payment platform was involved in the crime of illegal business operation?

III.Reflection: Industry leniency is to blame

Why do these forex scams continue unabated despite repeated attempts to fight against them? Are those who invest rashly with information asymmetry to blame? Definitely not! They are innocent. If Stone Technology had refused to provide technological support for FXWPD, and Dinpay had terminated payment service after receiving investor report, there would not be so many victims and FXWPD would have been shut down before its marketing and operation started.

The popularity of unregulated brokers can be partly attributed to the leniency of the industry. Shall the FX industry be self-disciplined and refrain from seeking personal interest and illegal acts, these forex scammers will have nowhere to hide and will be doomed to fail.

But the voice of justice shouldn’t be neglected. The suspects were arrested in August 2017, but FXWPD was exposed by FX110 as early as in January 2016. If our voice can be heard by more investors, they would not suffer such a great loss.

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Forex Case 1: The Payment Company and Software Provider Behind the Scam

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