$6B scam accused in court, China loophole for Hong Kong Bitcoin ETFs: Asia

Our weekly roundup of news from East Asia curates the industry’s most important developments.

Chinese national accused of $5.94 billion scam in court

Yadi Zhang, a Chinese national alleged to have scammed over 130,000 Mainland China investors out of 43 billion Chinese Yuan ($5.94 billion) and then laundered the proceeds using Bitcoin, has been apprehended by UK authorities. 

During her appearance at Westminster Magistrates’ Court on April 20, Zhang indicated through a translator that she intended to plead not guilty to two charges of criminal possession of cryptocurrency. She was remanded in custody.

“There should be no rush to judgment in this case. Ms Zhang asserts that she is wholly innocent,” her lawyer, Roger Sahota of Berkeley Square Solicitors, told the Financial Times.

Previously, her assistant, Wen Jian, a 42-year-old fast food worker in East London, pleaded guilty to charges of money laundering. In 2018, London police seized over 61,000 Bitcoin, now worth $4.0 billion, in a home raid where two women were living at the time. 

Operating through the company “Blue Sky Grid,” Zhang allegedly orchestrated one of the biggest Ponzi schemes in Mainland China with over 130,000 victims. Local news reported at the time: 

“Blue Sky Grid was established in Tianjin in 2014. With slogans such as environmental protection development, smart elderly care, and Bitcoin mining, the company uses zero risk and high interest rebates as bait, and conducts product promotion meetings, develops brokers, and courses and trainings, sign investment agreements with the public, and absorb social funds”

When investors had earned “sufficient interest” and wanted to withdraw, however, things didn’t go well. 

In 2017, faced with an uptick in redemption requests, Zhang reportedly fled China, first purchasing a Myanmese passport in the name of “Nan Yin” and using the forged document to obtain a genuine St. Kitts and Nevis passport through the country’s citizenship-by-investment program. Zhang then used the Nevisian passport to flee to the UK. 

However, due to her lack of English skills and a disability from a previous accident, Zhang was unable to care for herself in the UK and needed an accomplice. Around this time, fast food worker Wen Jian, who was then sleeping in the basement of the East London restaurant where she worked, saw a caretaker job ad posted by Zhang and responded. 

The two women quickly began a mutually beneficial relationship. 

Using Jian’s UK identity, Zhang was allegedly able to open legitimate accounts at crypto exchanges and launder her investors’ capital by purchasing Bitcoin and cashing out to self-custody wallets. Meanwhile, Jian quickly adopted a lavish lifestyle, renting out a luxurious mansion in North London for 17,000 pounds ($21,277) per month. 

However, the saga came to an end after the two women attempted to purchase two historic manors in North London for a combined 36 million pounds ($45 million), but could not explain the source of the funds. This tipped off London police who became suspicious of money laundering. 

In 2018, UK police raided the home Zhang and Jian and discovered 48 electronic devices including laptops, phones, and USB sticks allegedly used to launder funds into Bitcoin. By 2021, forensic police manage to decipher the devices and gain access to 61,000 Bitcoin valued at $4 billion. The whereabouts of the remainder of the stolen funds are currently unknown. 

It is unlikely that Blue Sky Grid investors will ever get their money back. After the seizure, UK police have since applied for civil forfeiture of the Bitcoin, which means that if approved by courts, the stolen Bitcoin will be reverted to the UK government and auctioned. 

Chinese nationals barred from Hong Kong crypto ETFs 

Hong Kong regulators have made it clear that Mainland Chinese residents will not be able to access Hong Kong spot Bitcoin and Ethereum ETFs after their April 30 launch. 

“No matter the virtual asset futures ETFs currently on the Hong Kong market, or the virtual asset spot ETFs that will be issued in the future, they cannot be sold to retail investors in mainland China and other places where the sale of virtual asset-related products is prohibited,” the city’s Securities & Futures Commission said in a statement. 

There is one minor loophole however: The ban does not include Mainland Chinese residents who also have a temporary or permanent residence permit in Hong Kong. Interestingly, all three issuers of the Hong Kong spot crypto ETFs are Chinese off-shore asset managers, and their…