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Chinese Investors Lose Millions to British Firm's Global Pyramid Scheme

| Aug 15, 2016 10:48 PM EDT

A bank employee counts new 5-yuan (60 U.S. cents) bank notes in Beijing.

A number of Chinese investors, many of them ordinary citizens, have lost millions of cash after being victimized by the pyramid scheme of British firms posing as foreign currency traders, according to Reuters.

Chinese authorities said one of these firms is EuroFx, a firm registered in London and operates in China as a foreign currency trading platform that offers investors with high returns. The firm reportedly used the money of new recruits to pay the older investors.

A Chinese official said that the scheme could be part of a global fraud.

Chinese police showed records of 319 consumer complaints about EuroFX in nine provinces, and placed the total losses at 455 million. The police have also issued 23 arrest warrants for people engaged in illegal fundraising.

But was only part of a larger problem as a group on Shanghai said that EuroFx has 3,700 victims in China and more in nine countries, from the United States to the Philippines, where the victims have lost a total of $1 billion.

Authorities said that EuroFX was one of the recent scams to hit China's emerging wealthy sector and it stands out among other cases because it was the first to involve a Western company, specifically a British citizen.

The report said that the police have detained and questioned David Byrne, who introduced himself as the CEO of EuroFX. Though he was freed after posting bail, Byrne was barred from leaving the country.

During police investigation, Byrne denied that he was in charge and pointed to another Briton. He said he was in China to help Asian customers for an Australian firm.

Meanwhile, British authorities said they could not act on it since EuroFX advertised abroad, which is beyond their jurisdiction. The Financial Conduct Authority (FCA), U.K. regulator, said that firms registered in the U.K. but operate outside the European Union is not regulated by the agency.

The UK regulator however, said that it warned investors in the U.K. in early 2013 that Euro Forex Investment may have been "providing financial services or products in the UK without our authorisation."

One of the victims, Zhang Guiling, a 59-year old grandmother in the village of Tangshan lost her money in the scam and last August, she took her own life.

According to investors, they first heard of EuroFX in 2012 and they were enticed to invest. EuroFX promised investors a return of 6 percent a month for a $10,000 investment and for $100,000, 12 percent.

Investors were then told to open accounts at a bank suggested by EuroFX to withdraw their profits. They were able to make withdrawals early on but later, investors could no longer receive or have access.

In 2014, the investors learned that the companies were dissolved and the directors could no longer be reached.

In April, the investors in Shanghai spotted Byrne in a hotel and they called the police to arrest the Briton.

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