The assistant treasurer, Stephen Jones, has questioned why Australia’s consumer watchdog did not issue a consumer warning against the HyperVerse crypto investment scheme in line with a number of overseas regulators.
A Guardian Australia investigation has revealed widespread losses to the HyperVerse scheme, which escaped regulator attention in Australia despite one overseas authority warning it was a possible “scam” and another describing it as a “suspected pyramid scheme”.
The HyperVerse scheme was run by an organisation called HyperTech. Australian blockchain entrepreneur Sam Lee was chairman of the HyperTech group, while his business partner Zijing “Ryan” Xu was listed as the group’s “founder”. The pair were also directors of the Australian bitcoin company Blockchain Global, which collapsed in 2021 owing creditors $58m.
A report from US-based blockchain analysts Chainalysis estimates consumer losses to HyperVerse in 2022 amounted to US$1.3bn. HyperVerse was previously known as HyperFund and appears to have undergone various rebrandings as it sought to attract more members.
Jones said he would be asking the Australian Securities and Investments Commission (Asic) why there was no consumer warning issued in Australia about the HyperTech schemes as occurred in the UK, New Zealand, Canada, Germany and Hungary, among others, as early as 2021.
Jones told Guardian Australia the schemes appeared to be selling “worthless investment products” and “tragically, a bunch of Australians got caught up in it”.
“This type of scheme works by convincing innocent people to invest their money into a product that might not exist, with the only source of income being money from new investors,” Jones alleged.
“I simply don’t know why a warning wasn’t issued.
“It seemed pretty clear that there should have been concerns raised about … this operation.”
HyperFund and HyperVerse were described in promotional material online as “membership schemes” in which people were asked to pay in cryptocurrency for subscription packages, with rewards accumulating in “hyper units” at a daily rate of 0.5%.
Members were also incentivised to recruit new members. Investors were trained to build their “trees” and build a “community”, with people moving up a ranking system based on the number of people they brought into the scheme.
While initial investors were able to cash out their hyper units, convert to other cryptocurrencies or withdraw funds, many later investors say they have lost their money.
In August 2022, the Hungarian central bank released a public statement comparing the system underpinning HyperVerse and HyperFund to a “suspected pyramid scheme”, “behind which there is no real economic activity, the only income of the system is the payments of new entrants”.
In HyperVerse and HyperFund, early investors were able to make withdrawals, but many later investors have said they lost their deposits. This has led people in online forums who invested in the schemes to accuse the company of using new membership funds to pay out returns for early investors, with no actual enterprise taking place.
A separate investment platform promoted by Lee – called We Are All Satoshi – was the subject of a “desist and refrain order” from California’s Commissioner of Financial Protection and Innovation in September 2023. It alleged that We Are All Satoshi was a “fraudulent pyramid and Ponzi scheme”, and “does not sell or purport to sell any actual product and has no apparent source of revenue other than funds received from investors”.
It named Lee as the “founder, CEO and chairman” of We Are All Satoshi and alleged he was targeting investors in the state, breaching multiple provisions of the state’s corporations code and ordering him to stop “until the qualification requirements” under California law were met.
Xu is not named in the order and there is no suggestion he was involved in We Are All Satoshi. The Guardian has been unable to contact him for comment.
Lee and Xu have not responded to questions from Guardian Australia about the schemes but Lee has previously denied allegations by investors that HyperVerse was a scam.
“No, because if it was a scam, the website would be offline and I wouldn’t be even wasting my time trying to get the information from the community in order to hold corporate accountable,” he said in a February 2023 Zoom meeting with investors.
Lee did not respond to questions from the Guardian about his involvement in the establishment and operation of HyperFund and HyperVerse before the publication of a previous Guardian Australia article.
In a WhatsApp message after the article was published he alleged it included “misstatements” about his role in running the Hyper schemes, but did not respond when asked what they were. He also claimed that “people on the internet continues [sic] to make things up”.
Separately to the HyperTech group of investment schemes, Lee and Xu were also behind the collapsed crypto exchange platform Blockchain Global, which owes creditors $58m.
In October the liquidator for Blockchain Global said in a publicly available report that last year he had referred Lee and Xu to Asic, alleging that they “may have contravened” the Corporations Act, and listing a range of potential breaches.
The liquidator’s report makes a number of allegations about the running of the business by former directors and key personnel and states that he has been unable to progress his own examination of Lee and Xu as they now live overseas and he “was unable to effect service of the summonses on them”. Asic said it did not intend to take any further action at this time.
Jones said he expected the regulator to use all available powers to investigate the schemes and investor losses and, if wrongdoing was found, hold those responsible to account.
“I think it sends a powerful message if the regulators are going after them using every tool that is available to them to ensure that they are brought to account,” he said.
Speaking generally, Jones indicated the government intended to do more to crack down on the distribution methods for unlicensed investment schemes, with consultation under way on a new code of conduct for social media companies, telecommunication companies and banks.
“It’s about removing the distribution channels or locking down the distribution channels and putting obligations on the social media platforms … to pull down scam and fake investment promotions – that is all key,” Jones said.
“This is about what the obligation should be upon all of those bodies to lift the bar and put in place more protective standards and there will be penalties and a liability if they haven’t met those standards.
“We’re picking on those because they’re the key parts of the ecosystem.”
He said Asic had taken down 3,000 websites in the past four months – about half of which were fake investment opportunities – comparing government efforts to tackle the proliferation of such schemes to a “game of whack-a-mole”.