Last month, a South Korean company known as the Shinil Group announced it had discovered the wreckage of a 100-year old Russian warship, which the company said held 200 tons of gold bullion worth roughly $130 billion USD. Now, South Korean police are investigating the company on the suspicion that the story of sunken treasure was an elaborate cryptocurrency scam.
The Dmitrii Donskoi was a Russian armored cruiser that sunk one mile off the coast of South Korea in 1905 during the Battle of Tsushima. According to the Shinil Group, it was discovered over 1,400 feet below the surface using two single-person submarines.
The initial announcement of the discovery was accompanied by footage allegedly showing the submarines exploring the wreck.
Shortly before the Shinil Group announced its discovery of the Donskoi, a “Singapore-based affiliate” of the company, according to South Korean outlet Yonhap News Agency, created a cryptocurrency called Shinil Gold Coin that was tied to the shipwreck’s discovery. Shinil Group previously denied any affiliation with the entity promoting the cryptocurrency, and Motherboard hasn’t confirmed any connection. The scheme tried to attract investors to the cryptocurrency by promising that it would pay dividends worth 10 percent of the value of the gold it alleged was on the ship—about $13 billion—in the first half of 2019. This resulted in over 120,000 Korean investors sinking over $53 million into the Shinil cryptocurrency, according to The Korea Herald.
Yet less than a month after the Shinil Group’s initial announcement, according to the Herald, the company announced that it had failed to identify the gold it had previously believed to be aboard the sunken ship. The underwater footage of the ship was deleted from YouTube, the cryptocurrency website is offline, and the company’s former executives are being investigated for fraud.
On Thursday, Korean police questioned two former executives of the Shinil Group about their activities related to the sunken ship. According to Yonhap, the law enforcement officers suspect that the entire operation may be “a scam by a fraudster family.”
The company’s CEO Choi Yong-seok stepped down earlier this month after Korean officials began investigating whether the Shinil Group was a scam. Now law enforcement officials are looking into his ties to Rhu Seung-jin and Rhu Sang-mi, two siblings who were also involved in the Shinil Group. According to Yonhap, Rhu Seung-jin fled to Vietnam after he was implicated in a separate fraud case from 2014.
At least one part of the saga appears to be true, however. Phil Nuytten, owner of Nuytco Research, a Canadian marine exploration company, says the company found the Dmitrii Donskoi while working under contract with Shinil Group. “We were hired to do some very specific things, which is to locate the vessel, positively identify it as the Donskoi, and do a detailed high def video survey of the ship,” Nuytten told Motherboard over the phone. “And we did all three of those, and that’s all we were contracted to do. As far as the claim for gold and whatever other claims were made, I have no idea.”
This wouldn’t be the first time the Dmitrii Donskoi has been used for fraud. In 2000, after Dong-Ah, a Korean company facing bankruptcy, claimed to have found the ship, the company’s stock soared by over 40 percent. Although the company never claimed to have found gold on the ship, that didn’t stop rumors about its existence. , the rumor was contested by a Russian naval expert.
According to The New York Times, which reported on the alleged Dong-Ah discovery at the time, that much gold was an “impossible weight” for the ship to carry. At the time, the amount of gold on board was rumored to be worth $125 billion. Gold was a fifth of today’s price in 2000 so this would have meant that the ship held 14,000 tons of gold. According to the Times, this would have represented a full one-tenth of all the gold mined in the world at the time.
Given the past history of the ship, the Shinil Group’s claims about finding gold on the ship were immediately met with skepticism in Korea.
"Investors should beware because it's uncertain whether the ship is salvageable and whether Shinil would be able to gain ownership of the assets even if it gets permission to raise it," an official from South Korea’s Financial Supervisory Service said after the Shinil Group announced its discovery. "Dong-Ah Construction made similar claims over the same ship but failed to deliver on its promises and went bankrupt, causing huge losses for investors."
In retrospect, this was sound financial advice. Only a week after the Shinil Group announced its discovery of over $100 billion worth of gold on the Donskoi, then-CEO Choi Yong-seok held a press conference and told reporters “there’s no way for us to figure out whether there would be gold coins or bars on the Donskoi.”