Given the overall negative attitude of domestic policies towards virtual currency, related trading, and investment, many Key Opinion Leaders (KOLs) have shifted from domestic social media platforms such as Weibo, Zhihu, and Douyin to foreign platforms such as Twitter, X, and YouTube. According to incomplete statistics, in the first half of 2023, Chinese coin circle content increased by 87% compared to the same period last year. Following the ban on cryptocurrency and mining, the coin circle has become another mainstream on Chinese Twitter.

After attracting a large amount of attention through continuous information output, the main demand for most KOLs is to monetize the traffic. Common monetization methods for KOLs include: paid knowledge, project promotion, commission for bringing in new users, and SocialFi.

Lawyer Shao has previously conducted legal analysis on the risks of KOLs engaging in paid knowledge, commission for bringing in new users, and SocialFi.

One of the most common risks in practice is the legal issues arising from KOLs promoting projects for the project parties. Lawyer Shao has handled many consultations related to KOLs and has also dealt with several criminal cases and criminal legal risk prevention cases involving KOLs.

By Shao Shiwei, Lawyer

01. Case Introduction

1. KOL Promoting a Virtual Asset Trading Platform

The JPEX virtual asset trading platform bankruptcy case is considered the "first criminal case in the Hong Kong coin circle." Several celebrities and internet celebrities had previously promoted this platform. Celebrities and internet celebrities who had endorsed or promoted JPEX include Hong Kong artist Zhang Zhi Lin, Taiwanese singer Chen Ling Jiu, Hong Kong model Zhuang Si Min, Hong Kong internet celebrity Lin Zuo, and YouTuber Chen Yi.

According to the JPEX official website, JPEX claims to have obtained licenses in Canada, the United States, and Australia, and is a "licensed virtual currency platform." In July 2022, the Hong Kong Securities and Futures Commission listed JPEX as an unlicensed company and a suspicious website, and on September 13 of this year, issued a warning statement stating that JPEX's physical stores did not have any licenses from the Securities and Futures Commission and did not apply for licenses.

(Image source: Internet)

On September 18, 2023, the Hong Kong police announced that 8 people, including Hong Kong internet celebrities Lin Zuo and Chen Yi, were arrested on charges of conspiracy to commit fraud.

2. KOL Promoting Projects in the Coin Circle

The project XIRTAM introduced itself as the world's first advanced non-KYC blockchain reputation building system. According to the project's white paper, XIRTAM aims to create a free Play-to-Earn gaming world, and players can participate without purchasing any tickets. In March 2023, there was a peak period of promotion by the project, and there was a clear phenomenon of Chinese KOLs promoting the project. Influencers such as Shi Guang, Mo Mo, Crypto Compass, and Chong Di promoted the project extensively, urging retail investors to buy in. The project defrauded over 2000 Ethereum through methods such as seed round investment, Dutch auction, and public offering, and thousands of people were deceived. Subsequently, the project ran away, and the token price plummeted by over 90% within a few hours.

According to publicly available information, the XIRTAM project team has been arrested in Mianyang, Sichuan, and the main suspect KOLs Shi Guang and Mo Mo have had no further updates after a tweet on May 3.

3. KOLs Posting Tweets to Drive Attention to Project Parties

According to recent user inquiries received by Lawyer Shao (the content of the case has been slightly modified to protect user privacy), a certain KOL with 300,000 followers on a social platform received a private message from a project party, asking for help in promoting their project. The price for one tweet was 900U, and the user posted 3 identical tweets for the project party within two weeks, receiving a total of 2700U.

Unexpectedly, the KOL received messages from fans stating that the project party they had previously recommended was a "Ponzi scheme," and many users had purchased large financial products on the platform operated by the project party, which is currently inaccessible, and the project party has gone missing.

02. Possible Criminal Charges for KOLs Promoting Projects in the Coin Circle

If the project party is suspected of committing a criminal offense, and the KOL plays a significant role in promoting and publicizing the project in question, the KOL may be deemed an accomplice and held criminally responsible by judicial authorities. Common criminal risks include fraud, running a gambling establishment, and involvement in pyramid schemes.

1. Fraud

In April 2024, the decentralized gambling platform ZKasino was suspected of running away. Lawyer Shao had previously analyzed this case, and a few days later, individuals involved in the project were arrested by the Dutch Fiscal Information and Investigation Service on suspicion of fraud.

If the fraudulent behavior of the project party is confirmed, KOLs who had promoted and publicized the project may be suspected of being accomplices to the fraud, based on their level of awareness and involvement in the project, as well as their level of profit.

2. Running a Gambling Establishment

In April 2024, a Weibo user posted that participating in perpetual contract platform fee rebates as an agent for developing downlines constitutes being an accomplice to running a gambling establishment.

KOLs may only publish promotion codes for the platform or post invitation links in YouTube videos, and may not personally engage in trading the contracts they promote. However, the platform system will bind individuals who enter the platform and trade through the links posted by KOLs in the background. This makes KOLs agents in the crime of running a gambling establishment.

According to the law, those who "share in the profits of gambling websites" or "act as agents for gambling websites and accept bets" fall under the provisions of Article 303, Paragraph 2 of the Criminal Law on running a gambling establishment.

3. Organizing and Leading Pyramid Scheme Activities

For example, in the Plus Token 40 billion virtual currency pyramid scheme case handled in Yancheng, Jiangsu, the project party created the Plus Token wallet under the guise of providing digital currency value-added services and continuously engaged in pyramid schemes. The court sentenced Chen and others for organizing and leading pyramid scheme activities, with the individuals involved receiving sentences ranging from 2 to 11 years. According to recent inquiries received by Lawyer Shao, law enforcement agencies across the country are still continuously arresting agents of this platform.

According to the law, "individuals who undertake responsibilities such as promotion and training in pyramid scheme activities" can be recognized as organizers and leaders of pyramid scheme activities. Therefore, if the project promoted by KOLs is suspected of being involved in a pyramid scheme, even if they claim not to be members of the project party, there is still a possibility that their promotional activities may be deemed involvement in pyramid scheme crimes.

03. Conclusion

Since KOLs are referred to as "Key Opinion Leaders," they naturally have corresponding responsibilities. Every word and action should consider their responsibility to their fans and the public.

In order to minimize potential legal risks, KOLs must make careful decisions when cooperating with project parties for promotion. In legal terms, it is necessary to conduct "due diligence" before entering into cooperation, which involves conducting careful investigations, analyses, and evaluations of the background, operations, and potential risks of the intended cooperation. Whether KOLs are physically in China or abroad, they need to prioritize criminal risks. After all, criminal jurisdiction in various countries has a certain degree of "long-arm jurisdiction" characteristics.

Of course, if it is difficult to judge whether project promotion will lead to legal risks, it may be necessary to consult a lawyer.

[1] The "Get Rich Quick" Shortcut for Ordinary People in the Coin Circle: Becoming a KOL (2023 Edition) https://mp.weixin.qq.com/s/hFs-CQVWUV1H51sv9L5Ijw

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