Fraud Involving Digital Money Increasing in Japan

December 5, 2017

Tokyo- Fraud schemes involving cryptocurrencies are increasing sharply in Japan amid soaring trading prices for the virtual money.

Fraudulent deals take such forms as soliciting investments in bogus projects or in digital money, which is drawing attention as a new Internet-based means of payment.

Fraudsters may be targeting people with a weakness for new things, as seen in the past rise of confidence schemes that abused currency margin trading, experts said.

A 34-year-old man in the city of Saitama, north of Tokyo, was told by an acquaintance in mid-February that investment in a Brazilian company would generate a return of three times the capital in one year. He was intrigued by the adoption of bitcoins in the deal, designed to give investors points that were shown in their own pages on its website and convertible into the digital currency.

The man invested 520,000 yen and steadily accumulated points. Starting around late March, however, the conversion of acquired points became impossible.

The operator of the investment project attributed the problem to hacking that caused the computer system to malfunction. Eventually, the man found himself left with convertible points equivalent to only 200,000 yen.

The deal was a "typical con scheme," said Tetsuro Arai, a lawyer familiar with investment fraud. "The virtual currency was added as a new trick."

While people have grown more aware of or interested in digital currencies, inquiries to seek advice on related problems to the National Consumer Affairs Center of Japan have increased sharply.

Consumers often fall victim to fraud schemes involving virtual money through online advertisements or seminars stressing investment benefits such as steep increases in the value of digital currencies when exchanges for them are opened.

Recently, experts have warned that an unregulated means of crowdfunding via the use of cryptocurrency, known as "initial coin offering," may be used for fraud.

While the issuance of digital currencies by companies to raise funds for new projects is on the rise, some investors are flocking to ICOs in expectations of steep upturns in the value of the cryptocurrencies as in the case of bitcoin. The price of bitcoin has skyrocketed more than 300 times since early 2013.

Unlike share issuance arranged by securities companies, ICOs enable issuers to easily raise funds online, but they may escape adequate checks and offer opportunities to scam artists. In fact, there have been ICOs carried out for bogus projects, experts said.

Companies "lacking substance such as past achievements can resort to ICOs as long as they prepare business plans requiring money," Masayuki Tashiro, an analyst at Fisco Ltd. which operates a cryptocurrency exchange, said. "It's difficult even for professionals to tell" whether an ICO is genuine or fraudulent. Jiji Press