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Sri Lankans make crypto Ponzi scam claims | Business and Business News

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

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

“I invested 2.2 million Sri Lankan rupees (US$6,162) and was promised a return five times higher. 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 emigrate to find a job and earn some money.

Pathirana is one of the many Sri Lankans at home and abroad who claim to have been duped by a group of men who ran a fake cryptocurrency investment scheme and scammed millions of rupees. Although it’s not clear how many people overall claim to have been scammed, one person Al Jazeera spoke to said that in his district alone, thousands would have joined easily and that since the model was put in place, the program has attracted new investors to win, this done have a cascading effect.

These investors are feeling the pinch amid Sri Lanka’s economic crisis, which has led to inflation hitting 60.8 percent in July, leaving acute shortages of essential necessities and basic necessities almost unaffordable.

The scam is said to have affected professionals such as doctors, security personnel and people from the lower middle class in rural areas, 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 quit their jobs, pawned their jewelry, mortgaged their property, and sold their vehicles to invest whatever they could in hopes of making significant profits.

“If I had my money today, I could have opened a deposit account and used it to improve my family’s economic status,” said Roshan Marasingha, 38, who spoke to Al Jazeera of South Korea.

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

“Unfortunately, we were the bottom investors in their pyramid (scheme). So we didn’t get the promised return,” Marasingha lamented.

Payment slips with the amounts paid into the sports chain app
Some Sri Lankans made investments while living in other countries [File: Hassaan Shazuli/Al Jazeera]

The scheme

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

They are said to have operated their businesses as a Ponzi scheme, a fraudulent venture in which existing investors were paid with funds raised from new investors.

On its website, Sports Chain describes itself as a “highly profitable” and “anonymous” company that aims to “become an ever-growing cryptocurrency used in the digital financing of the sports industry.”

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

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

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

In order to be able 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 “partner network building” system — which is a way of defining a Ponzi scheme.

To encourage this, the men behind the program organized several events and meetings for investors, sometimes in 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 money raised by new investors would be divided among existing ones.

The mobile app asked investors to empty their virtual wallets by transferring “sports chain coins” into an option called “Power Pool,” where the coins were multiplied by five.

A few cryptocurrency coins were sent back to the wallet from the Power Pool every day.

Screenshot of the sports chains app
Investors had to enter the referral key in the app (pictured) of the partner who introduced the concept to them [Hassaan Shazuli/Al Jazeera]

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

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

“I joined because I believed I could get a good return on investment,” he said.

In order to get more coins in their wallets, investors had to integrate other partners into the network.

Investors claim that the folks behind Sports Chain ran out of money to pay investors by mid-2021 as the number of new investors began to fall drastically after word spread that it was a scam.

“Initially we were able to make withdrawals after receiving about 150 coins in the wallet. Then they kept increasing the limit to around 500,” another investor, Priyanga Kasturiarachchi, 40, told Al Jazeera. Kasturiarachchi deposited 1.8 million rupees and managed to withdraw 1.3 million rupees, he said.

Kasturiarachchi claims that after highlighting their situation on social media, he and his daughter 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 any, the connection between these people and Bandara and Zhang is. None of the payments went directly to the bank accounts of Shamal Bandara or Zhang Kai, who are said to have spearheaded the scam. Bandara did not respond to a WhatsApp message on his cell phone. Al Jazeera couldn’t reach any of the others.

No license for cryptocurrencies

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

Complaints from investors at sports chain app
Several Sri Lankans have lodged complaints with the police [Hassaan Shazuli/Al Jazeera]

Under Sri Lankan law, operating pyramid schemes or Ponzi schemes can result in a prison sentence of between three and five years. Under the country’s banking law, offenders are also required to pay a fine of 2 million Sri Lankan rupees, or double the amount received from participants in the scheme.

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

They have accused the alleged scammers of deceiving them through the fake cryptocurrency scheme and later threatened to reveal details on social media.

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

“In most cases, investors get paid for the first few months and then get nothing at all,” he added. “It’s important to raise awareness so people don’t fall for these programs.”

In response to Al Jazeera’s questions about whether the central bank is investigating the matter, she said complaints about fraudulent schemes generally need to be directed to the police for legal action to be taken. The central bank did not respond to specific inquiries about the sports chain system.

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

“It’s what I’ve been saving for years. Well I don’t have a job. I lost almost everything,” he told Al Jazeera.

“This money would have been very useful as we are facing an economic crisis. It hurts to be in that position,” he said.

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