The Rise of the Crypto Con Artist
The intent of this article is to bring awareness to a new breed of con artist, that has taken the internet by storm. The “Crypto Con-Artist”.
Gone are the days where an email from some mythical Nigerian prince promising you millions, was the vehicle of choice for scammers and con artists. Nowadays, scams might come in the form of an invitation to invest into a crypto arbitrage algorithm, that promises consistent daily returns. I recently found myself joining the ranks of the myriads of unlucky victims that have been lured into one of these traps.
The initial invitation to join the investment pool came from a good friend who had in-turn been roped in by a good friend of his who he trusted. It’s in the weeds of these relationships that the sad story began to take shape. My friend (we’ll call him Tom) had invested some money in this app called HKEX, on the advice of his friend (we’ll call him Jerry). Jerry had supposedly been introduced to this cryptocurrency arbitrage platform by a lady he knew and trusted (we’ll call her Jenny), who was a trader in Hong Kong (at least that’s what I was told). Jerry was so convinced, that he’d gone as far as taking out a loan to invest into this thing. The narrative that was starting to take shape was that of a super exclusive investment opportunity, that was reserved for those “in the know”. The returns where apparently so good that Jenny (the plug) had quit her job to focus on growing the capital her and her partners had invested into the platform (roughly 7 figures USD worth). Naturally, by now my FOMO meter was maxed out. “Could this be real”, and it if was, what did I need to do to participate in these gains. I mean, who wouldn’t love an extra stream of passive income, churning out 1.5–2% daily returns. I was already involved in algorithmic crypto trading (I’m a software engineer by trade) and had designed a few algorithms of my own but had never been able to design something that generated risk free returns via inter-exchange arbitrage, so naturally my curiosity was piqued. If anything, from a purely academic perspective. How were they achieving this?? The initial goal was to gather enough technical intel, that would help me replicate their method, so I decided to go down the rabbit hole and do some “due diligence”. The trust I had in my friend and his judgement, paired with the fact that his friend Jerry had gone as far as taking out a freaking loan to dump into this platform, left me pretty excited.
They had no formal website that you could google. The only way to find their webpage as if you already had the link. I perused their site and stumbled upon their white paper (see below for several screenshots of it):
Anyone reading this would immediately identify some obvious red flags such as the extensive grammatical and spelling errors. They clearly didn’t have enough time to run this through a spell checker. In retrospect, there are a ton of red flags we could dive into from just this white paper alone, without even getting into the actual app, but what I learned through this ordeal is that our minds will find justification for whatever our hearts have already decided. I can even remember convincing myself that the spelling and grammar errors were not that big of deal since the company was probably founded by a group of people non-English speakers.
Fast forwarding into the story a bit, I had downloaded the app to my phone and was in the process of transferring some Tether (USDT) from my Coinbase account to the platform. They accepted deposits in either Bitcoin, Ether or USDT. Even the process of downloading the app was strange. Their app is not listed on the app store. Instead, you have to download an app called Testflight, that developers use to give users early access to their applications for beta testing. This allowed HKEX to bypass the Apple App stores’ stringent screening criteria for apps that get listed. By masquerading as a beta app that was in test mode, they could essentially sneak the app onto people’s phones with minimal regulatory oversight. See below for a collection of screenshots from the app:
As you can see from the screenshots above, this isn’t just your run of the mill scam. Someone clearly put some effort into this. The even had a support link that brought you to a customer support agent via WhatsApp chat. After making a small initial deposit to test the apps functionality and make sure it wasn’t a blatant rug pull, I proceeded to “invest” more money than I really should have.
As I write this, I’m reminded of the old adage that says, “if it sounds too good to be true, it probably is”. From the very beginning I had my doubts about the authenticity of their so-called “arbitrage algorithm”. Why were they trying so hard to keep it under wraps? Why the secrecy? Why did they choose to go the route of a backdoor beta testing app as opposed to publishing their app to the Apple app store? Why did their white paper have so many typos and spelling mistakes? This and many more were questions at the very top of my mind before I’d even invested a single dollar, yet somehow even myself, a software engineer with half a decade of experience in the financial markets, found myself falling for a crypto scam. The promise of a guaranteed 2% return per day, paired with relatively low downside proved too hard to pass up for my opportunistic mind.
After watching my initial investment of a little under 20k grow to just above 40k in a couple months, I decided it was time to make a withdrawal. At the very least, pull out my principal investment. Even Ponzi schemes work for a little bit, right? (this is a joke lol). I just had to make sure I had pulled all my money out before the bubble burst. How hard could that be?
It was when I attempted this first withdrawal from the platform that it became evident that I wasn’t going to recover my money. My friend Tom (who had introduced me to the platform) had a similar idea to pull out his principle investment and was a couple steps ahead of me in the withdrawal process, so he had given me a heads up about some “taxes and fees” we were required to pay before we could access our funds. His friend Jerry (the reason both of us had invested in the platform) was a few steps further in the process and had already paid all of the taxes and fees (more to come on this).
After initiating a withdrawal of 40k worth of USDT from the platform, I reached out to customer support to try and figure out why my withdrawal was stuck in a “wait” state (you can see this in one of the screenshots). I was then informed by the support guy, that I needed to pay close to $9000 in taxes + a $1500 handling fee for my withdrawal to be processed. When I asked why none of this had been disclosed ahead of time anywhere on the platform, I was told it was because the “regulations” had recently changed. At this point I was convinced this was a Ponzi scheme, and these “taxes and fees” were just the last few attempts to squeeze money out of my pocket. I requested that the taxes and fees be subtracted from my profits, and I was told this was not possible, but wasn’t given any solid reason. I decided it was time to attempt a different angle. I asked the customer support agent if he could reverse the withdrawal request, I had submitted, so that I could update it to a smaller amount, which would leave me with a smaller tax obligation that I could afford to pay. He told me that was not possible and paired it with another half thought out excuse. This time, stating that they were trying to prevent tax evasion or something of that nature. This next part is what removed any remaining doubts that might have been lingering in my mind about whether or not this was a scam. When I told him i couldn’t afford 9k in taxes, but I was willing to pay a smaller amount, he asked “well how much can you pay”, which signified to me that his primary objective wasn’t actually the enforcement of some arbitrary process that governed withdrawals, but rather making sure he squeezed a couple extra grand out of my pocket before I realized that I had been duped, like what happened to Tom and Jerry. Both had paid the taxes and fees, and were told to wait patiently for their money, only to discover that both their phone numbers had been blocked by the platform support, who had decided to stop responding to their messages.
The conversation that followed was me going back and forth with customer support, trying to see if there was any way that I could salvage this and pull some of my principal investment out. I didn’t care too much about the profits at this point but just wasn’t stoked to be losing that much money on some fake crypto scheme. Customer support eventually started ignoring my messages and not replying, a pattern I had confirmed with the other 2 guys that were in the same predicament as I was.
We did a bit more digging to try and identify any information about these people (why didn’t we do this at the beginning smh). Even the faces and names in the whitepaper turned out to be bogus. At the time I wrote this, the wallet address they use to receive funds from unsuspecting investors, had received less than 700k worth of deposits, yet given the number of active users that are shown in the platform plus anecdotal statements we had received from the person that introduced all of us to the platform (who supposedly had millions invested herself), we had expected to see several millions worth of funds flowing into that Crypto wallet address. This however was not the case.
I wrote this article in the hopes that it might help the next unlucky soul that gets roped into HKEX/EtherproMiner and any other scams like it out there. They’ve changed their name so many times so it’s probably only a matter of time till they rebrand again. However, it appears the core of their strategy has remained intact.
· Use nefarious tactics to get a bunch of people to invest their money,
· Keep them engaged with some gamified user interface that shows how much money they’re making each day (think scheduled dopamine hits every day when you see your balance go up).
· When they attempt to make a withdrawal, initiate phase 2 of the squeeze and get more money out of them (e.g., requesting that you pay income tax and processing fee before you can pull any of your money out, including your principle investment. that can’t be deducted from gross payout).
· Ghost them until they finally realize they’ve been scammed by some mysterious overseas entity and give up.
Below are screenshots of my whatsapp conversations with two of the support staff from this ponzi scam company. As you’ll clearly see, they are on a mission to suck more money out of my wallet, by any means necessary:
Whatsapp numbers to be mindful:
Links:
Similar Ponzi scheme that recently blew up → https://www.justice.gov/usao-sdny/pr/founder-90-million-cryptocurrency-hedge-fund-sentenced-more-seven-years-prison
The last working website they had → https://h5.hkexpro.xyz/#/
-Lenny Lo-Fi
