Real Tokens and Fake Rigs – The CAI Mining Scam

Cryptocurrency scammers are getting sophisticated. Huo Dong and his accomplices have reportedly taken more than $300 million in revenue with a scheme involving a real token, a fake exchange, and hundreds of thousands of useless miners. This is the story of how it happened.

Mining CAI

CAI token was going to be the next big thing and mining it was supposed to be as profitable as mining Bitcoin in the early days. A CAI mining rig sold for about $800, and so long as the CAI token continued to sell for $0.20, the rig would pay for itself in two months. That alone was enough to draw in early investors, but when CAI shot up to $0.30 a coin the demand for miners grew rapidly.

By the time the scam was discovered, approximately 300,000 ASIC mining machines had been sold for over $300 million. What’s unclear is how much each miner cost to produce, as the $300 million represents revenue not profit. Regardless, even with expenses accounted for the scammers were likely pulling in tens of millions of dollars in illicit gains every month.

Driving up the Price

Not only did Huo Dong and his partners create the CAI token, they partnered with a fraudulent exchange called AT owned by the Lianxin Tech company. This allowed them to manipulate the price of the CAI token which gave investors the impression that CAI had risen naturally from $0.07 to as high as $0.30 a coin. Having built the false reputation of CAI being a profitable investment, they began to sell mining rigs.

One of the reasons for the CAI token’s success may have been their association with a company called Shenzhen Bitmain Tech, which was pretending to be an offshoot of Bitmain.

Uncovering the Fraud

Who knows how long the scam might have gone on if a Chinese miner hadn’t discovered that CAI tokens were still being generated even while his mining rig was shut off due to a power outage. The miner contacted authorities and the scam was quickly uncovered, but by that time hundreds of millions of dollars worth of useless miners had already been sold.

The Chinese government has revoked the passports of Huo Dong and his associates and they are under indictment for fundraising fraud. It remains to be seen whether they will be convicted but one thing is for certain: the CAI token is no more.