Analysis of Judicial Practice in Cases Involving Virtual Money

Introduction

Recently, through the study of a large number of criminal cases involving Virtual Money, it can be found that judicial authorities have some implicit rules when handling such cases, or in other words, there is a path dependence in conviction and sentencing. This article will explore how the practical sector determines that certain behaviors constitute crimes in common cases of coin-related offenses.

Case Overview

In April 2020, the Zhejiang Provincial Higher Court made a ruling on a fundraising fraud case. The case involved various business models such as issuing coins, promotional activities, marketing, and ICOs. The uniqueness of the case lies in the fact that the main perpetrator, Xia XX, and others were initially sentenced to probation by the Zhongxiang City Court in Hubei Province for organizing and leading pyramid schemes, but were later overturned by the Hangzhou Intermediate Court, which re-sentenced them for fundraising fraud and imposed a life sentence. This discrepancy in judgment has led to an in-depth reflection on the conviction logic of pyramid scheme crimes and fraud-related crimes.

Legal Determination of Crimes Involving Coins

The legality of Virtual Money transactions

Since the announcement issued by seven ministries and commissions of the state in September 2017 to prevent the risks of token issuance financing, conducting token issuance within China has been regarded as illegal public financing activities, involving illegal fundraising and other criminal activities. Even virtual money issued overseas, due to the lack of national recognition and actual economic value, is essentially still considered a virtual concept.

In the case of Xia Moumou, the court held that the virtual money issued by the parties had issues such as an uncertain total supply, free distribution, and price manipulation, which essentially constituted a Ponzi scheme. Therefore, the issuers in virtual money transactions were deemed to be in violation of the law, but the legal status of ordinary participants was not clearly stated.

Common Types of Virtual Money-related Crimes

Coin-related crimes mainly include fraud-related crimes (such as fraud, contract fraud, fundraising fraud), pyramid scheme crimes, illegal gambling operations, and illegal business operations.

• The core of fraud-related crimes is that the perpetrator aims to illegally possess and deceive others out of their property.
• Pyramid scheme crimes typically involve fictitious projects or projects without actual operational backgrounds, forming multi-level structures and rebate mechanisms.
• The crime of operating a casino is relatively common in virtual money exchanges, as certain perpetual contracts and virtual money games may be classified as gambling.
• The crime of illegal operation mainly involves using Virtual Money for foreign exchange trading or payment settlement.

The conviction logic for crimes involving coins

For example, in the case of pyramid scheme crimes and fundraising fraud.

1. The elements constituting pyramid scheme crimes include:

   • Set threshold to absorb participants
   • Use the number of developers as the basis for calculating compensation
   • Organizations with more than three levels and more than thirty members
   • The perpetrator's intention is to defraud participants of their property.

2. The essence of fraud-related crimes is to defraud others of their property, causing the victim to have a false understanding and dispose of their assets. In virtual money fraud cases, air coins are often used as tools for fraud, used to exchange for mainstream coins.

In the case of Xia Moumou, the main basis for the court to change the ruling from pyramid scheme crime to fundraising fraud crime is:

• The perpetrator attracted investments through illegal fundraising methods, using virtual money that has no actual value.
• The formation of a capital pool and the use of the proceeds for personal consumption and overseas transfers reflect the subjective intent of fundraising fraud.

Conclusion

Although investing in Virtual Money is not explicitly prohibited, national regulatory authorities reserve the right to investigate actions suspected of disrupting financial order and endangering financial security. However, the standards for what constitutes "suspected disruption of financial order and endangering financial security" are not clear, and there may be differences in the understanding and enforcement by law enforcement agencies across regions. This situation is particularly evident in cases involving Virtual Money, reflecting the complexity and regional differences in the application of laws in this area in our country.