Experts warn of AI-powered fraud, urge early detection and data sharing

The Fun Coffee cryptocurrency investment scam has highlighted the rising ingenuity of Ponzi schemes in the era of artificial intelligence, with experts calling for early detection of suspicious blockchain wallets using tech tools and cross-jurisdiction data sharing between police and crypto exchanges to fight such fraud.

A financial fraud, touting investment in Fun Coffee, has dominated Hong Kong and Macao headlines for days, involving more than HK$100 million ($13 million) and over 260 reports in the two cities so far.

The company, portraying itself as a coffee investment firm based on Vietnam’s Phu Quoc Island with substantial capital and plans for a public listing, entered the Hong Kong market in late 2025. It promoted investments in coffee-related ventures through cryptocurrency, claiming to have developed advanced equipment and technology — with purported returns of up to 278 percent, and higher profits for larger investments and longer deposit periods.

Victims were invited to download the Fun Coffee app before investing using virtual currency. The scheme offered referral bonuses for recruiting contacts and rewards for daily logins, effectively trapping investors in a cycle of repeated contributions.

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On July 20, the app abruptly went offline, leaving investors stranded and prompting them to call the police. Investigations revealed that Fun Coffee was a fraud that generated no real profits, simply paying early investors with funds from newer recruits — a textbook Ponzi scheme described by many experts.

In a Ponzi scheme, the operator pays returns to older investors using money collected from newer investors, rather than from genuine profits. These schemes eventually collapse when new investments dry up.

Since July, the investigation has recorded over 260 claims — at least 255 in Hong Kong and nine in Macao — with estimated losses of over HK$100 million and 3.6 million patacas ($446,000). Individual losses ranged from hundreds of thousands to tens of millions of Hong Kong dollars, with the biggest single loss reaching HK$50 million.

Hong Kong police arrested six suspects on conspiracy to defraud charges, including company directors, a shareholder, a secretary and key promoters, while Macao police detained two suspects for aggravated fraud. Hong Kong’s Securities and Futures Commission also flagged the Fun Coffee GCM Project as a suspicious investment product.

Glitzy "chicken sheds"

During an interview with China Daily, Hui Kai-lung, chair professor of information systems, business statistics, and operations management at Hong Kong University of Science and Technology, said Ponzi schemes, though not new, have grown more deceptive with advances in technology, especially fintech and AI.

Ordinary people, often unfamiliar with the investment models behind new financial products like virtual assets, find it difficult to spot such frauds. Meanwhile, technology makes it easier to construct sophisticated traps — what in Cantonese slang is called “building a chicken shed” to lure in victims.

“Creating a convincing website, hosting a polished offline event, and using digital tools to maintain long-term communication with investors — it’s far cheaper now, especially with AI,” he said.

READ MORE: Hundreds lured into HK$100m 'Fun Coffee' scam in HK, Macao

He added that in affluent economies, it is natural for people to seek investment channels once they have accumulated wealth. Hong Kong, as a financial hub, promotes wealth creation, and even regulated banks and investment institutions often pitch high-return products.

“People are not necessarily greedy,” Hui said.

He added that the most direct defense is for investors to sharpen their judgment — to see through the glitzy “chicken sheds” and focus on the fundamentals of investing, including whether a project can really generate high-value returns.

Many of Fun Coffee’s activities, such as marathons, overseas events, and gift giving that are common across Ponzi schemes, did little to boost investment returns, serving only to create an illusion that the company was legitimate.

Tech as double-edged sword

Technology complicates scams, but also offers the most effective tools to fight them, experts say.

Francis Fong Po-kiu, honorary president of the Hong Kong Information Technology Federation, told China Daily that as the Fun Coffee scam blended offline multilevel marketing with transfers using cryptocurrencies, such as USDT, the main challenge was the disconnect between offline activity and on-chain data.

Victims typically bought USDT through cash exchanges or centralized platforms and sent it to various private wallets. The scam app only showed fake off-chain balances, while funds were actually immediately laundered through decentralized exchanges. This made it difficult to link scattered crypto transactions to a single scam syndicate, Fong said.

As seen in the Fun Coffee case, victims often remain unaware until their funds are nearly depleted. To address this, Fong proposes an early warning system that uses AI to monitor blockchain wallets for signs of Ponzi-like activity.

These wallets typically show a high volume of small incoming transfers from many new accounts with almost no outgoing funds, he said.

Once flagged, these addresses could be pushed to security platforms like Scameter, developed by Hong Kong police, alerting users before they complete a transfer.

Blockchain, unlike traditional banking, makes every transaction transparent. Fong also suggested users check wallet addresses on public block explorers like Etherscan or Tronscan. “A wallet that endlessly absorbs funds and immediately sweeps them out is a major red flag,” he said.

He further called for integrating public fraud databases directly into crypto wallets and messaging apps, which can automatically block transfers to known scam addresses.

Fong said the cross-border nature of cryptocurrencies means funds often flow across multiple jurisdictions — in this case, possibly Vietnam, Singapore, Hong Kong and Macao. This complicates enforcement, Fong added, “as crypto moves instantly, but cross border law enforcement is slow”.

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Intelligence databases vary across jurisdictions, and official asset-freezing requests often require months of legal paperwork. To address this, he urged the creation of a shared international application programming interface network, which would enable communication between different software systems of police forces and crypto exchanges across jurisdictions, aiding real-time tracking and emergency asset freezing.

During a media briefing held with several victims on Wednesday, lawmaker and tech entrepreneur Johnny Ng Kit-chong said his team has helped victims collect data and trace digital assets in the hope of identifying the masterminds behind the scheme.

He urged authorities to improve mechanisms, allowing regulators to freeze both related assets and cryptocurrencies simultaneously upon detecting suspicious transactions.

Ng also called for cooperation between law enforcement in the Macao SAR, Singapore and other jurisdictions to apprehend the culprits, adding that the real number of victims could surpass 1,000.

Contact the writer at amberwu@chinadailyhk.com