South Korean Fraudsters Jailed for Sunken Treasure Scam

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Three South Korean executives were sentenced to a total of eleven years jail time last week for their part in the Dmitrii Donskoi saga, one of the most elaborate crypto scams of all time. The scam revolved around an alleged discovery of 200 tons of gold on a sunken Russian warship and an ICO that was launched to help recover it. The recovery never happened and millions of dollars of investor money was lost, but thanks to an investigation by the South Korean Financial Supervisory Services (FSS) the scam was revealed and many of those involved are now behind bars.

This Ship and the Gold

The Russian armored cruiser Dmitrii Donskoi was scuttled on May 29, 1905 after being hit by a Japanese torpedo during the Russo-Japanese war, taking the warship to the bottom of the Sea of Japan just off the South Korean island of Ulleungdo. Along with the ship was, supposedly, over 200 tons of gold bullion and coins (which presumably helped it reach its resting place that bit quicker). The ship lay undisturbed for 113 years until a South Korean salvage firm, Shinil Group, held a press conference showing remarkably clear video of the wreck that they had taken on a dive, as well as revealing what the ship could contain – the long forgotten 200 tons of gold, now worth a cool $133 billion. Naturally the media went mad for the story, with footage of the wreck broadcast internationally, as the world waited to see if it could be retrieved and, more importantly, who could claim ownership.

The Shinil Gold Coin ICO

The story took a twist when news emerged that Shinil Group were launching their own cryptocurrency, Shinil Gold Coin, directly related to the supposed wealth lying at the bottom of the ocean. Investors could buy the token, which was backed by the underwater gold, which would give Shinil the funds to raise it. They would then sell it, with investors pocketing a nice profit. The mention of an ICO being involved, at a time when the phrase was starting to be associated with nefarious and often illegal methods of fundraising, immediately rang alarm bells for many, but still Shinil pressed ahead anyway.

The South Korean Financial Supervisory Services (FSS) offered a stark warning upon hearing the news, saying, “Investors need to be cautious as it’s possible they could suffer massive losses if they bank on rumors without concrete facts regarding the recovery of a treasure ship.” Allied to this, South Korea’s Ministry of Maritime Affairs and Fisheries announced that they had not granted a salvage license to anyone regarding the Dmitrii Donskoi, while doubts began to surface about the presence of the gold in the first place, as well as the group’s ability to claim it as theirs once salvaged. Despite all this, the group still managed to raise an estimated $53.5 million from some 124,000 investors. And that was when the wheels really began to fall off.

Backtracking and Prison

Having already been all too aware of the ICO, the FSS started taking a closer look into the project, and in July 2019 the unwanted attention forced Shinil to perform a spectacular backtrack, stating that they had in fact “not verified the existence of any gold” on the ship and that even if they had, it would only be worth about $9 billion at current value. Further investigations revealed that two groups of the same name were involved in the project – one in Singapore and one in South Korea. Both denied a connection with the other, but it was discovered that the founders of the two companies were siblings. Furthermore, the founder of the Singapore group, the one promising investors huge returns from the ICO, had fled the country shortly after a warrant was issued for his arrest in connection with fraud allegations from 2014.

Police froze Shinil’s assets worth 2.4 billion won ($2.1 million) and imposed a travel ban on 21 people involved in the investigation, three of whom were arrested last year. These three have now been imprisoned, including the founder, although the group has never officially admitted that the ICO was a scam. Who knows, when they get released they might one day be swapping prison bars for gold bars…