Anatomy of a $39.5 million pig butchering scam

DOJ Urged By Lawmakers To Probe OPEC’s Oil And Gas Price Fixing
Graeme Sloan/Bloomberg

Five men have pleaded guilty for their roles in a global conspiracy to launder more than $36.9 million derived from international digital asset investment scams, using a method known as pig butchering, according to court documents and a Department of Justice announcement.

The scheme, which operated from scam centers primarily located in Cambodia, utilized a complex network of U.S. shell companies, domestic and international bank accounts, and digital asset wallets to move victim funds, the DOJ said Monday.

At the center of the laundering scheme was a standing order to a Bahamas-based bank, through which the $36.9 million flowed, to regularly convert money in the account into stablecoin currency and send that money to a single cryptocurrency wallet.

The defendants who pleaded guilty are Joseph Wong, 33, of Alhambra, California; Yicheng Zhang, 39, of China; Jose Somarriba, 55, of Los Angeles; Shengsheng He, 39, of La Puente, California; and Jingliang Su, 44, of China and Turkey.

Their roles included managing money laundering networks, opening and operating bank accounts, establishing offshore entities, and directing the conversion and transfer of funds.

Scheme origin and victim engagement

The conspiracy involved unindicted co-conspirators contacting U.S. victims through unsolicited social media interactions, telephone calls, text messages, and online dating services. These individuals built trust with victims, often by establishing professional or romantic relationships. Following this trust-building phase, the co-conspirators promoted fraudulent cryptocurrency investments.

In some instances, these co-conspirators induced victims to invest through fraudulent and spoofed investment platforms, which the scammers designed to resemble legitimate cryptocurrency trading platforms. In other cases, they fraudulently induced victims to send funds via wire transfer.

Co-conspirators falsely told victims their investments were appreciating when members of the scheme had in fact converted the funds.

The scheme also encompassed "customer service" or "tech support" fraud, where fake representatives contacted victims about supposed computer issues and requested fund transfers via wire or cryptocurrency platforms to resolve non-existent problems.

Movement of funds through U.S. accounts

Once victims sent funds, the money entered a laundering pipeline. Members of the conspiracy registered numerous U.S. shell companies with the California Secretary of State and elsewhere.

Examples include Sea Dragon Trading and Sea Dragon Remodel, both registered in late 2022. Other shell companies involved included B&C Commerce, Jimei Trading, YXJ Trading, YYJ Consulting, SMX Beauty, and SMX Travel.

The fraudsters opened bank accounts in the names of these shell companies with U.S. financial institutions, including Bank of America (BoA) and JPMorgan Chase (JPMC).

Somarriba, He and other co-conspirators established the Bahamian entity Axis Digital Limited in November 2021. Using this entity, Somarriba and He opened an account at Deltec Bank and Trust Limited in the Bahamas in February 2022. (Deltec had also been a bank for FTX prior to the cryptocurrency trading platform's collapse.)

Offshore conversion and distribution

Between June 2022 and July 2023, Axis Digital's bank account at Deltec received at least $36,900,000 from U.S. bank accounts set up in the names of the various shell companies, according to the charges against the men.

He and Somarriba traveled to Phnom Penh, Cambodia, in July 2022 to meet with co-conspirators regarding the operation of the Deltec account and the subsequent transfer of USDT.

Somarriba, He, Su and other co-conspirators directed Deltec Bank employees to convert the funds received in the Deltec account into USDT (Tether), a virtual currency pegged to the U.S. dollar.

Somarriba directed Deltec to, on an ongoing basis, convert transactions made from the account into USDT and transfer them to a digital wallet with an address that starts with TRteo. Shengsheng He confirmed to Deltec that this is how funds from the bank account should be handled. He and co-conspirators regularly reiterated these directions to the bank.

He and Somarriba received a commission for the transfer of victim funds to USDT. He distributed ledgers detailing profit-sharing arrangements, and he "came to understand that at least a portion of the funds flowing into [the Deltec account] were derived from a criminal offense," according to the charges.

From the TRteo Address, co-conspirators in Cambodia transferred the USDT to the leaders of scam centers throughout the region.

Charges and penalties

Wong and Zhang pleaded guilty to money laundering conspiracy. They each face a maximum penalty of 20 years in prison. Somarriba, He and Su pleaded guilty to conspiracy to operate an unlicensed money services business. They each face a maximum penalty of five years in prison.

All sentences are yet to be determined by the federal district court.

Restitution is also required, with an agreed amount of at least $7,560,014 in He's case. He also agreed that Axis Digital laundered at least $36,905,259, and U.S. attorneys are seeking the forfeiture of the proceeds from this laundering.

For reprint and licensing requests for this article, click here.
Money laundering Fraud Technology Cyber security
MORE FROM AMERICAN BANKER