Pig Butchering

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Pig butchering is a colloquial term used in the context of financial fraud to describe a scheme in which investors' funds are systematically misappropriated or embezzled. This deceptive practice often involves unauthorized trading, false statements, or Ponzi schemes designed to dupe investors into parting with their money. Pig butchering not only results in financial losses for investors but also undermines trust and confidence in financial markets.[1][2]

The traditional pig-butchering scam originated in China and grew quickly during the Covid pandemic. The scam often involves criminals pretending to cultivate a romantic or personal relationship with victims through dating apps or social media. They gain their victims' trust over weeks of virtual conversations and then manipulate them into investing in phony cryptocurrency investments. After they have gotten as much digital currency as they can, they take off with the funds.

The name “pig butchering” refers to the process of fattening up victims with flattery and companionship before leading them to a potential financial slaughter.[3]

Background[edit]

In a pig butchering scheme, fraudulent individuals or entities may claim to invest the money in various financial instruments, but instead, they engage in high-risk or speculative trading without the investors' knowledge or consent.[4]

Additionally, perpetrators of pig butchering often provide false or misleading statements to investors, exaggerating the returns on their investments or providing fake account statements that show consistent gains. These tactics are meant to create the illusion of a successful investment.

Some pig butchering schemes operate as Ponzi schemes, where returns to earlier investors are paid using the capital of newer investors. This creates a cycle of dependency, and the scheme eventually collapses when there are not enough new investors to pay the returns promised to earlier participants.

Funds collected from investors are frequently embezzled by those orchestrating pig butchering schemes. These individuals divert the money for personal use or to cover previous losses, leaving investors with significant financial losses.[5]

Regulatory Cases[edit]

The Commodity Futures Trading Commission (CFTC) achieved its first victory against a "pig butchering" scam on December 20, 2023, when the U.S. District Court for the Central District of California issued a default judgment against California resident Cunwen Zhu and his company, Justby International Auctions. The judgment permanently enjoined Zhu and his company for their involvement in fraudulent activities. Specifically, they were found liable for unlawfully soliciting funds in connection with digital asset commodities and forex trading and for misappropriating customers' funds.[6] [7] [8]

References[edit]