A cryptocurrency project that appears to have raised at least $20 million through a referral-based marketing scheme has been advertising false information about its team members, a CoinDesk investigation has found.

Launched on Dec. 2, BHB claims to offer an ethereum-based solution for peer-to-peer lending, but by Jan. 18, local media reports were already accusing the project of operating an illegal pyramid scheme. Now, CoinDesk is able to reveal inconsistencies in the information provided about its founding team that further suggest something may be amiss at the China-based project.

In particular, CoinDesk has found that images said to represent two BHB team members have been lifted from unaffiliated university professors, who are now publicly denying any association with the project.

According to web materials, alleged team members include a financial engineer named Bobby White, a blockchain expert named David Chen and a product designer named Gregory Moss. The respective images of each individual were featured on BHB’s website, bgepay.com. (The project appears to have taken down the website.)

However, the image of Bobby White used in BHB’s marketing materials is identical to that of an economics professor at China’s Tsinghua University named Alexander White. Meanwhile, the image of Gregory Moss is the same as one used by a philosophy professor at The Chinese University of Hong Kong, who is also named Gregory Moss.

In responses to CoinDesk inquiries, both professors denied any association with the scheme and both stated they had no prior knowledge of the BHB project.  

White said:

“Any use of my photo for such purposes, including attached to the name ‘Bobby White,’ is fraudulent.”

Professor Moss, too, said he is very “troubled” by the incident, claiming he never gave BHB permission to use his image or likeness in connection with marketing its products.

CoinDesk was not able to independently verify the image associated with a third alleged team member named David Chen.

Besides false information about its team members, the project listed invalid contact details on its website, including a disconnected phone number and a supposed headquarters at a New York City address that does not exist (“22/121 Apple Street”).

An unusual model

Adding to concerns is the mechanism for how BHB tokens are issued and promoted at a single exchange, XBTC.CX, whose business appears tied to the BHB project.

Investors are not able to mine or receive BHB tokens through programmatic means. They can only buy these tokens using the U.S. dollar-pegged cryptocurrency known as tether or USDT on XBTC or Chinese yuan through XBTC’s over-the-counter WeChat groups.

XBTC.CX, the only exchange that lists BHB tokens, began its offering on Dec. 2, explaining at the time that users who held at least 700 BHB for 24 hours were eligible to get a dividend issued in USDT that would equal 7 percent of their BHB holdings’ market value. On Dec. 5, the exchange announced it would reduce that reward rate to 1.3 percent.

(Some of XBTC’s web pages related to BHB block IP addresses in the U.S. and U.K.)

Further, the same announcement on Dec. 2 said BHB holders could get additional USDT if they recruited other users to the exchange and had them hold BHB in an account.

In this case, XBTC.CX said anyone who could sign up a user that held a balance of at least 700 BHB would be eligible to receive an additional 1.5 percent of the new account’s BHB value in the form of USDT. The offer suggested these USDT payments would then occur daily.  

If the same user managed to sign up yet another account to the exchange, then they could receive an additional 1 percent of the second account’s BHB holdings every day.

Although users do not have to pay a membership fee to their referrers, the project appears to rely on raising capital from new participants so that promised dividends and commissions for existing accounts can be continuously paid out.

This element of the scheme is notable, as it has attracted comparisons to multi-level marketing (MLM) and pyramid schemes, the latter of which is illegal in China.

Dozens of users on Chinese social media Weibo have been posting threads and raising doubts on the legality of the project, alleging it’s just a disguised pyramid scheme because it’s using latecomers’ money to pay for what early participants were promised.

China’s central government enacted a regulation in 2005 strictly prohibiting what it calls Chuanxiao, or “pyramid selling,” in the country. Based on an English translation provided by the law school at Peking University, the regulation defines pyramid selling as follows:

“An organizer or operator seeks for unlawful interests by recruiting persons to participate in pyramid selling, asking the recruiters to persuade others to participate in pyramid selling so as to form a multi-level relationship, and calculating and paying the remuneration (including material awards and other economic interests) to an upper-level promoter on the basis of the sales performance of the promoters below.”

Links to MoCapital

But while the veracity of the advertised team may be in question, WeChat groups have linked both BHB and XBTC.CX to at least one real person – Renbing Li, the 24-year-old founder of the Hangzhou-based venture firm MoCapital.

In a WeChat response to CoinDesk, Li denied allegations BHB is a pyramid scheme and said it’s rather a project to “liberalize communities.” He did not respond to further questions.

The XBTC exchange did not reply to CoinDesk’s email request for comment.

According to photos and video clips from a BHB project gala held on Jan. 25, obtained by BHB users and reviewed by CoinDesk, Li appeared onstage at the Azure Qiantang luxury hotel in Hangzhou where he referred to himself as the founder of BHB.

The gala featured lucky draws meant to reward winners with Rolls-Royce and Bentley luxury cars, as well as 3 million yuan (about $450,000) in cash. Only XBTC.CX users with more than 10,000 BHB and who signed up more than 10 other users to the exchange – each holding more than 700 BHB – were eligible to attend.

And Li’s association with XBTC.CX and BHB is traceable in other ways not tied to the event.

The MoCapital domain is registered by a firm called Moha Technology based in the city of Jinan in China’s Shandong province. According to China’s business registration database, Renbing Li owns Moha Technology. 

The Jan. 25 event at the Hangzhou hotel was also registered under the name of Moha Technology, according to a customer representative of the hotel.

Further investigation shows that Moha has a fully-owned subsidiary in China called Bihang Blockchain based in Hangzhou, which invested in XBTC, according to a verified job post by Bihang on a third-party recruiting agency. 

$20 million raised

However, while some are raising the alarm about the project, others have been cashing in – data from XBTC shows $21 million in BHB is now changing hands daily for USDT.

Following the initial listing, XBTC had been publishing daily updates on dividend payouts, touting how many users had received a dividend each day. On Jan 24, the exchange claimed a total of 25,732 users on the platform received dividends.

With a minimum reward threshold of 700 BHB, the project’s exchange-based referral program would have attracted those 25,000 investors to purchase at least 18 million of the tokens. 

And data from XBTC showed the initial listing price for BHB was about $1.10 on Dec. 2, which later doubled within just a month. Even assuming all the investors bought in during early December, that would put the proceeds at around $20 million.

However, signs suggest that enthusiasm may be slowing.

On Jan. 27, two days after the gala, a major sell-off took place on the exchange, which resulted in BHB dropping from $1.70 to as low as $0.60 within an hour. It then further plunged to $0.20 in the next two days. 

Following that, XBTC said on Jan 28 and Jan 29 that the number of users who received payouts dropped to 19,873 and 17,358, respectively.

To prevent a run on the proverbial bank, the exchange abruptly announced on Jan. 31 it would suspend paying out dividends and freeze all BHB withdrawals during the Chinese new year in early February, and would only reopen withdrawal gradually afterward. 

That note apparently calmed investors, as afterward the price of BHB rose to $2 within just two days. But the exchange has made no updates on the status ever since, regarding further dividends or withdrawal.

Further, while trading for BHB against USDT is still enabled on XBTC, users in BHB’s WeChat groups have been complaining that since early February the project has also frozen BHB investors’ withdrawal requests for USDT.

The project has made no announcements on the issue. Representatives of the project told investors in the WeChat groups that it’s working to resolve the matter by March 6, but did not give further details.

Renbing Li addresses the BHB gala on Jan. 25, image via BHB Wechat group.