Original article (in B/C/S) was published on 07/11/2023; Authors: Alena Beširević, Marija Manojlović, Maida Salkanović, Nerma Šehović
A pyramid scheme that defrauded thousands in Bosnia and Herzegovina lured victims with promises of quick and easy earnings through a fictitious job that involved clicking on online advertisements and recruiting new members. In collaboration with Detektor, Raskrinkavanje investigated the intricate workings of the fraudulent operation, from the methods it used to reach its victims, to the inner mechanics of the scheme which ultimately collapsed after a few months.
For several months, a pyramid scheme perpetrated through a mobile application eMagnetix that promised fast money by clicking on online ads, was active in Bosnia and Herzegovina. The victims were required to deposit a certain amount of money, ranging from several hundred to several thousand convertible marks, to gain entrance into the scheme. The amount would determine how much time the users were allowed to spend clicking on ads, i.e. how much profit they could make off of their “investment” by working on the application. Users were also enticed with the promise of additional income through recruiting new “members.”
Instead of the promised income, most participants were left with nothing but financial losses when the scheme eventually collapsed.
Similar scams have recently been exposed in neighboring countries. Nonetheless, eMagnetix quickly gained attention and attracted many users in Bosnia and Herzegovina through intensive promotion on social media.
Recruitment on social media: “It’s not a scam”
The eMagnetix application was owned by Magnetix Software Tech, registered in Brčko, a city in northern Bosnia-Herzegovina. Operating on two domains (1, 2), it displayed supposed advertisements for online stores such as eBay, Aliexpress, Otto, ShopDirect, Zalando, Marks and Spencer, and John Lewis. Its main website Easy Magnetix is no longer accessible. The English-language page claimed that it was a “technology cloud platform integrating cloud computing data processing and network marketing”cloud platform working on digital marketing “established in 2020 and “now under Adobe.”
Raskrinkavanje contacted Adobe and other companies that eMagnetix claimed to be collaborating with and whose advertisements were allegedly displayed on the eMagnetix application. We received responses from John Lewis, Marks and Spencer, Otto and Adobe, all four of which confirmed that they had never collaborated with eMagnetix or Magnetix Software Tech.
In June 2023, intensive promotion of the application on social media began. The posts quickly attracted the first members, who believed they could earn money by clicking on ads on eBay and other online sales platforms.
Photo: Screenshot of one of the platforms of eMagnetix
The eMagnetix Facebook group served as a hub for updates on the activities and regularly listed and welcomed new “workers”. The group had over 500 members before the scam was exposed – after that, it was first paused and later deleted. The application was also promoted in other Facebook groups, profiles, and pages (1, 2, 3, 4, 5, 6, 7), which would quickly disappear from Facebook, often having little or no publicly visible activity.
There were also several Instagram accounts promoting eMagnetix, some of which were almost completely inactive after having been created (1, 2, 3). Some were deleted (1, 2, 3, 4, 5, 6, 7), but a significant number remained available at the time this analysis was published (1, 2, 3, 4, 5, 6).
eMagnetix was also promoted on TikTok (1, 2, 3, 4, 5). The account easymagnetixbih was the most active, amassing a following of nearly 1,000 people before deletion. In August, the account posted a video of the alleged opening of eMagnetix premises in Laktaši, northwestern Bosnia-Herzegovina. The same month, the account posted evidence of payments made for the “work” done in the application.
YouTube channels (1, 2) were also used to post promotional videos that described eMagnetix as a “cloud platform working on digital marketing” established in 2020, which collaborates with companies such as eBay and is part of the Adobe company (1, 2, 3).
In the posts, considerable attention was paid to try and convince users that the operation was legitimate and that it is not a hoax. Various profiles posted registration papers of the Magnetix Software Tech company in Brčko and the incorporation papers of the Easy Magnetix Software Tech company in the US state of Colorado. This was posted along with confirmations of paid earnings, the aforementioned videos of the opening of business premises, and claims that eMagnetix operates “under the auspices” of the Adobe company. The illusion of legitimate business was maintained until the very end when it was announced, on August 31, that the company was withdrawing from the Bosnian market “due to rumors circulating about it.” The post referred to a person who, as early as July, exposed eMagnetix as a scam on their Facebook profile. It was claimed that he was paid to do it by “a competitor”.
How did the fictional company operate?
The application operated on two domains that are no longer accessible (1, 2). To sign up, users were required to provide their phone number, a “captcha code,” and a password. The job was introduced as a service that allowed companies to “optimize sales data for their products.” A Telegram channel was used for internal communication.
Users performed various tasks within the application, including clicking on advertisements from popular platforms such as eBay, AliExpress, Otto, ShopDirect, Zalando, Marks and Spencer, and John Lewis. Each task offered a specific earning per click. The availability of tasks was determined by the user’s “level” within the system, which depended on the amount they deposited.
Starting at the initial level (P1) required no deposit, but users could only remain at this level for two days, completing a maximum of ten tasks daily, each earning 0.40 KM (20 euro cents). To attain the highest level (M4), a deposit of 3,500 KM (around 1,800 EUR) had to be made. This would provide access to 40 daily tasks, each yielding 4 KM (2 EUR).
Users were encouraged to recruit new members and assemble a team of at least ten individuals who achieved at least level M1. This would provide them with a fixed monthly salary of 300 KM (150 EUR) – a percentage of the earnings of the new members they recruited. The minimum payout amount was 10 KM (5 EUR), of which the company took a 6% commission. The so-called “fixed salary” would increase as the team expanded.
Furthermore, users were promised a specific commission each time a new individual logged into the application using a phone number provided by an existing user.
As Detektor reports in their article, a deposit of 150 KM (75 EUR) was promised to ensure a daily earning of 6 KM (3 EUR), while a deposit of 500 KM (250 EUR) guaranteed a daily earning of 24 KM (12 EUR) for spending just a few minutes clicking on advertisements.
Members were assured that their deposit would be refunded within a few months. Their earnings would be distributed to them as “humanitarian aid,” in order to avoid paying taxes. The promised incentives for bringing in new “workers” motivated many to create teams, sometimes comprising several hundred people:
The introduction of new members was rewarded individually. Members got a percentage of the daily earnings of those they brought in. Whoever brought ten new members into the business could become a team leader, and the company guaranteed a monthly salary of 300 marks. A salary of 1,500 marks was promised to supervisors who developed five team leaders within their respective teams. Depending on the size of the team, leaders could get additional rewards, such as toasters, phones and laptops with the most appealing reward being a Mercedes SUV. In order to get this reward, one had to recruit 1,000 members.
That was not all. Scheme members were promised a 13th month’s salary if they completed a year’s work for eMagnetix.
Detektor estimates that thousands of citizens were defrauded for over a million convertible marks through this scam. Some of their testimonies can be read in Detektor’s story.
Photo: Explanation of one of the fictional ways of earning on eMagnetix.
Who was behind the scam?
The Easy Magnetix website operated on the emibuy.com domain and did not provide any information regarding its location or ownership while it was active. The “Join us” feature linked to a WhatsApp contact and a Telegram account Trista Nancy. The “Become cooperative merchant” option included a link to the Adobe Experience Cloud page.
The “Become our work user” feature directed users to the emios.cc domain, offering further details in Bosnian/Croatian/Serbian. This domain served as a gateway to the application itself, as did the em188.com domain.
Photo: Screenshot of the Easy Magnetix website
The domain emibuy.com was registered anonymously through the domain sales company Gname.Com Pte. Ltd (archived). Data from the Domaintools service indicate that it was first registered in 2011, with the registration renewed on May 4, 2023, listing Serbia (RS) as the registrant’s country. The domains emios and em188 were also registered anonymously.
The Wayback Machine internet archive has archived these domains several times over the years. The archived “snapshots” of the emibuy domain reveal its history as an online sales platform primarily catering to the Chinese market (1, 2, 3). After a period of inactivity, the Easy Magnetix page appeared on the emibuy domain in May 2023 the latest.
The em188.com domain was established as early as 2006 and it previously hosted a Chinese-language forum dedicated to online earnings. Its ownership has changed multiple times over the years (archived). The emios.cc domain was registered on May 4, 2023 (archived).
The eMagnetix app was owned by the company Magnetix Software Tech, registered in Brčko in May of this year. Detektor journalists’ investigation revealed that the business also operated through the company Najko, used to distribute payments. Both companies are owned by Hungarian citizen Peter Tamas Kasza. Kasza established Magnetix Software Tech, the company where members deposited their funds and bought the second company from the luggage vendor Juncheng Hea at the Arizona market, a large market place near Brčko.
Detektor learned that Kasza has reportedly visited Brčko at least twice this year. He also established companies in Slovakia and Austria and has a private enterprise in Rome. Austrian media reported on an investigation into Kasza’s company for fraudulent activities earlier this summer. The public broadcaster ORF wrote about the warning that the local police sent out about the Nice Tech company’s fraudulent practices. Much like the scheme used by eMagnetix, it swindled about 300 victims out of more than million euros, each person “depositing” between 600 and 15,000 euros to the scheme.
Detektor’s journalists found Kasza at the Budapest address reported in the company register in Brčko, but he declined to provide any comments. More details about the businesses associated with eMagnetix and their owner can be found in Detektor’s story here.
Other scams in the region
During the past year, several such applications operated in the countries of the region, employing a very similar “business model.” They would promise users earnings, only to disappear, along with the “deposits” made by thousands of people, approximately six months later.
Last year, a platform called Kangaroo Treasure was registered in the Serbian Business Registers Agency in April as “retail trade via mail or internet.” Libo Liu, a citizen of the People’s Republic of China, was listed as the director and a legal representative. The company was registered with an initial capital of 100 dinars (around 85 euro cents), with 0 employees and no business income. At present, the company remains active in the business registry database.
According to an article from the Nova portal from October 2022, users were asked to deposit a minimum of 2,000 dinars (17 EUR), which would be refunded to them through completing tasks in the application, such as writing positive reviews for products from AliExpress, Amazon, and similar platforms. They were told that the amount of the deposit would determine the amount of earnings per task, just like in the case of the eMagnetix application. Members were encouraged to recruit new members, with the promise of a percentage of the earnings from each new member. After three months, the fictional business was transferred to a new company under the pretext of avoiding increased taxes. It was registered in the name of Likun Li. The platform operated until the end of August, when it disappeared with the users’ money.
According to media reports, the Kangaroo Treasure application reportedly defrauded about 100,000 individuals in Serbia, resulting in a loss exceeding one million euros. The number of people who lost money in such pyramid schemes is likely even higher considering additional victims of other similar scams, including the Hello Future application, registered in July 2022, as well as Opensoil and Neumann Wallet. In Montenegro, during 2022, the Cheil Worldwide application was used for a similar scam, with no information available in the Central Register of Business Entities of Montenegro.
Media reports indicate that a significant number of these fraudulent operations, both in the region and beyond, are operated by Chinese nationals. One potential explanation for this trend might be the prevalence of pyramid schemes – both online and offline – within China itself (1, 2).
The Indian portal The Print reported last year on several online scams orchestrated by Chinese citizens in India between 2020 and 2022. The scammers used social media to recruit local residents and get them to first set up bank accounts and establish fictitious companies and then recruit more users to invest money, promising substantial and swift returns. The applications would eventually vanish and the funds would be withdrawn from the bank accounts.
According to an article from The Times of India on August 17, 2023, nine individuals linked to an online scam were apprehended in relation to a fraud run by Woo Uyanbe, a Chinese national, who allegedly earned approximately 188 million US dollars through the Dani Data application.
Similarly, in Bangladesh, the applications MTFE and E-movieplan operated following a similar pattern and then vanished. In 2021, the founder of a pyramid scheme called CryptoShares in Zimbabwe disappeared, taking with them more than five million dollars in deposits.
Instances of online pyramid schemes are, therefore, numerous and widespread globally. However, they receive different treatment in different legal systems.
What are pyramid schemes and how to recognize them?
A pyramid scheme is defined as “a fraudulent business model that seeks to funnel revenue from recruited members to the scheme’s organizers by promising payments to members for recruiting new participants”.
It begins with an individual or a small group offering potential members the opportunity to earn money by participating in a business venture. In some cases, they might sell a specific product, but the focus and majority of the profits lie in recruiting new members. Participants are typically required to deposit a certain sum of money to join, with a significant portion of these funds going to the organizers. To make money, participants are tasked with recruiting additional members.
The term “pyramid scheme” derives from the structure wherein earnings and recruitment resemble a pyramid, with the founders at the top and the newest members at the base. As explained in a Forbes article dated May 23, 2023, some key traits of a pyramid scheme include an immediate expectation for members to invest funds in the “business,” a stronger emphasis on recruiting new members over product sales, and higher earnings from recruiting new members than from actual product sales.
There are various types of pyramid schemes, some of which have persisted for decades. Multi-Level Marketing (MLM) companies could be described as businesses that straddle the line between a pyramid scheme and legitimate business. These companies might qualify as pyramid schemes if their focus is primarily on recruiting new members rather than selling products. However, if the bulk of a company’s revenue stems from product and service sales rather than recruitment, it can be considered a legitimate business.
For instance, the US Federal Trade Commission considers MLM companies a legal business if at least 70% of all goods sold are purchased by non-distributors, as per a May article by Forbes.
Frauds where the creators of a specific application, company, or project vanish after collecting funds from investors are commonly referred to as “rug pull” scams. These types of scams often, but not exclusively, take place in the cryptocurrency market.
One of the most notorious and largest scams of this nature was OneCoin, which was initiated in 2014 by Ruja Ignatova, a German citizen of Bulgarian origin, and Karlo Sebastian Greenwood. Ignatova and Greenwood encouraged people to invest in their company OneCoin, prompting them to purchase OneCoin cryptocurrency packages. The company employed a multilevel marketing strategy, with investors receiving a share from each new member they recruited. However, the cryptocurrency itself held no actual value. Through the scam, the company managed to amass roughly four billion US dollars, and Ignatova vanished in 2017 after facing charges. She currently remains on the FBI’s most wanted list.
A Ponzi scheme is a fraudulent scheme that initially presents potential investors with the promise of high returns or significant profits. In reality, the initial investors’ funds are repaid using the investments of new investors.
In both Ponzi and classic pyramid schemes, the model collapses when the number of new members reaches a point where the founder can no longer pay them, or when there are not enough new recruits to sustain the structure. This is why all pyramid schemes are ultimately doomed to fail.
Typical characteristics of online versions of pyramid schemes like eMagnetix are soliciting funds from “investors” and enlisting new members to generate additional income, which should serve as a clear warning not to fall for promises of quick and easy earnings.
Pyramid schemes are illegal in many countries.
How much does the law protect against pyramid schemes?
Pyramid schemes are not explicitly addressed in the trade regulations of Bosnia and Herzegovina (FBiH, RS, Brčko District). Frauds in general are legislated by criminal laws, with penalties ranging from six months to five years in prison.
Anyone who, with the aim of obtaining unlawful property gain for themselves or another person, deceives someone by false presentation or concealment of facts, leading them to act to their own or someone else’s detriment, shall be punished with imprisonment of up to three years. (Criminal Code of FBiH)
Anyone who, with the intention of obtaining unlawful property gain for themselves or another person, deceives someone by false presentation or concealment of facts, leading them to act to their own or someone else’s detriment, shall be punished with imprisonment from six months to three years. (Criminal Code of RS)
Anyone who, as a representative or agent of a legal entity, with the aim of obtaining unlawful property gain for that or another legal entity, through the use of non-payable acceptance orders, checks that they know have no coverage, or in any other way, deceives or keeps someone in deception and thereby induces them to act or refrain from acting to the detriment of their own or someone else’s property, shall be punished with imprisonment from six months to five years. (Criminal Code of the Brčko District)
In Serbia, pyramid selling is expressly prohibited by Article 43 of the Trade Act, which defines it as “trade that enables customers to purchase goods or services solely from persons involved in a chain or network of resale of goods or services (network members), where the seller conditions the purchase: 1) by the obligation to pay a membership fee or other fee to the network organizer or another network member; 2) by the obligation to purchase the same or other goods in a quantity or value that the seller knows or must know to be unreasonably high; 3) by the obligation to find other persons who will engage in the resale of goods from the seller’s offer, if the right to a reward for finding those persons is conditioned on prior payment or the provision of a special fee to the seller.”
The law in Serbia does not explicitly address other types of pyramid schemes. In a response to Raskrinkavanje, the Special Public Prosecutor’s Office for High-Tech Crime in Belgrade emphasized that this criminal offense is regulated by Article 208 of the Criminal Code.
The aforementioned criminal offense implies that a person, with fraudulent intent, obtains for themselves or another person an unlawful property gain, by deceiving or maintaining deception of a person in such a way that the victim does or does not do something to the detriment of their own or another’s property. Given that in this particular case there are a large number of victims, the amount of damage (unlawful property gain for the suspect) suffered is over 1,500,000.00 dinars, making it clear that this case involves a qualified form of the criminal offense Fraud under Article 208, paragraph 4 of the Criminal Code, which carries a penalty of imprisonment ranging from 2 to 10 years, as well as an additional monetary fine.
According to the information obtained by Detektor, “nearly 70 people in Bosnia and Herzegovina have lodged complaints regarding the eMagnetix application scam, citing losses exceeding 160,000 marks (80,000 EUR). This fraud is currently being investigated by the Prosecutor’s Office of Bosnia and Herzegovina as well as the prosecutor’s offices in Sarajevo, Brčko, and Zenica.”
The Brčko District (BD) Police notified Raskrinkavanje that they received multiple reports related to the Magnetix Software Tech doo company’s fraud between August 31 and September 7.
“The complainants stated that they accessed the internet platform “Magnetix Software Tech” by depositing funds in various amounts (depending on the package, the deposit ranged from 100 to 1,500 convertible marks). Moreover, other police authorities received reports about the same issue within their jurisdictions.”
The Brčko District Police of Bosnia and Herzegovina informed the Prosecutor’s Office of the Brčko District about the matter. The Prosecutor’s Office took measures and actions within its competence and submitted a proposal to the Basic Court of the Brčko District of Bosnia and Herzegovina to issue an order to the bank to provide data and suspend the execution of financial transactions on the bank account where the deposit was made, due to the existence of grounds for suspicion of the commission of the criminal offense “Fraud” under Article 288 of the Criminal Code of the Brčko District.
According to the BD Police, the BD Prosecutor’s Office has authorized the initiation of investigative procedures in collaboration with various law enforcement agencies both within and outside of Bosnia and Herzegovina.
As for the eMagnetix case, the Prosecutor’s Office of Bosnia and Herzegovina confirmed that the investigation was launched in September 2023 and is currently in its preliminary stages. “Due to the early and sensitive stage of the proceedings, the Prosecutor’s Office of Bosnia and Herzegovina cannot provide more detailed information to the public at this time,” they told Raskrinkavanje.
Additionally, we reached out to the Special Public Prosecutor’s Office for High-Tech Crime in Belgrade for insights into the Kangaroo Treasure fraud investigation. They informed Raskrinkavanje that, following the initial reports on October 6, 2022, they promptly submitted requests to the Ministry of the Interior of the Republic of Serbia, the Service for the Suppression of Organized Crime, and the High-Tech Crime Unit to gather necessary information for verifying the allegations.
The Special Prosecutor’s Office for High-Tech Crime in Belgrade has opened a total of 744 cases related to this form of fraud from the beginning of 2022 until the present day. There has been no resolution yet in the Kangaroo Treasure case.