Author: Mankun Blockchain
In recent years, virtual currency has gradually transformed from a novelty that ordinary people had hardly heard of into a "means of wealth" that everyone occasionally hears about. As a result, many people, with only a superficial understanding of virtual currency, have invested in it based on recommendations from friends, family, or investment institutions, hoping to get rich.
However, the market carries risks, and investment must be cautious. The virtual currency market is riskier than ordinary financial markets. In addition to the market value fluctuations of the products themselves, there are new risks such as trading platforms running away and hacker attacks stealing coins. In this context, ordinary people investing in virtual currency can easily lose all their capital and end up in disputes with their introducers. So, can they recover their lost investment? Today, we will focus on this issue by studying representative cases from courts across Zhejiang.
Entrusting a friend to operate virtual currency investment, suffering a loss of principal, can the friend compensate?
Case One: (2023) Zhe 0481 Minchu 3094
Xing and Shen are friends. Shen informed Xing that investing in virtual currency could guarantee profits. Based on their trust, Xing handed over 10,000 yuan to Shen for investment operations, expecting to gain returns. Later, due to Shen's operational errors, Xing lost the entire 10,000 yuan principal. Shen admitted that there were issues with his operations and was willing to compensate Xing 70% of the investment, but he never fulfilled this promise. Xing then filed a lawsuit in court, demanding that Shen return 7,000 yuan of his investment.
During the trial, Xing submitted WeChat chat records as evidence, where Shen told Xing: "After losing a trade due to strategy, I opened a trade myself and held onto it, which led to a liquidation. About 70% of the money was lost because of my mistakes. Let's see how I can compensate you."
Case Analysis:
To an ordinary person without professional legal knowledge, the facts of this case are clear. Shen's persuasion led Xing to believe that investing in virtual currency was risk-free. After the loss, Shen admitted that 70% of the loss was due to his operational errors and promised compensation. Xing's lawsuit is merely an attempt to recover the compensation that Shen has defaulted on, and the court should support Xing's claim. However, the court's ruling was not in favor of this. The court dismissed Xing's lawsuit.
Court's Opinion:
On September 4, 2017, the People's Bank of China and other departments issued the "Announcement on Preventing Risks of Token Issuance Financing," which reminded investors that they must bear investment risks themselves. The investment project in question is a type of network virtual currency similar to Bitcoin. According to the notices and announcements issued by the People's Bank of China and other departments, virtual currency is not issued by monetary authorities and does not possess the attributes of legal tender and coerciveness, thus it is not true currency. In nature, the virtual currency involved in this case is actually a specific virtual commodity sold and circulated by virtual currency platforms, which does not have the same legal status as currency and should not be circulated as currency in the market. While citizens' investment and trading of such illegal items are personal freedoms, they cannot be protected by law. In this case, the plaintiff entrusted the defendant with funds for virtual currency investment and financial management, and these actions are not protected by law in China; the consequences of these actions should be borne by the plaintiff.
Final Court Ruling:
Dismissed all claims of Xing.
Mankun Lawyer's Analysis:
In short, after the announcement on September 4, 2017, the act of buying and selling virtual currency is illegal in China. Although it is not a crime, it is also not protected by law. If one suffers a loss of principal due to entrusting someone to invest in virtual currency, even if the entrusted person promises to guarantee the principal, they cannot obtain support from the court.
So, does this mean that if one buys virtual currency and incurs losses, they can only accept their fate and cannot seek legal remedies?
If entrusted to purchase virtual currency, but the other party did not purchase the full amount, can one demand a refund?
Case Two: (2019) Zhe 0726 Minchu 2357
Ying met Zhu through a referral and learned that Zhu was engaged in virtual currency trading. On April 26, 2018, Ying handed 13,000 yuan in cash to Zhu, asking him to help purchase 10,000 IBOT coins at a price of 1.3 yuan each on Pionex. Subsequently, Zhu only "credited" Ying with over 9,000 IBOT coins. The Pionex platform for purchasing IBOT coins has since closed. Unable to recover his principal, Ying sued Zhu for the return of 13,000 yuan.
Case Analysis:
At first glance, this case is very similar to Case One, where citizens entrusted someone to invest in virtual currency and lost their principal for various reasons, suing for compensation. Logically, the court should also dismiss all of Ying's claims. However, attentive readers should notice the difference: Ying entrusted Zhu to purchase 10,000 IBOT coins, but Zhu only purchased over 9,000 IBOT coins.
Court's Opinion:
Illegal debts are not protected by law. According to notices and announcements issued by the People's Bank of China and other departments, the virtual currency purchased by the plaintiff through the defendant is not issued by monetary authorities and does not possess the attributes of legal tender and coerciveness, thus it is not true currency. In nature, virtual currencies like Bitcoin are a specific virtual commodity that does not have the same legal status as currency and should not be circulated as currency in the market. While citizens' investment and trading of virtual currency are personal freedoms, they are not protected by law.
In this case, the plaintiff entrusted the defendant with 13,000 yuan to purchase 10,000 IBOT coins at a price of 1.3 yuan each. The defendant should deliver 10,000 IBOT coins to the plaintiff as agreed. According to the statements of the plaintiff and outsiders, the defendant only "credited" the plaintiff with over 9,000 IBOT coins. Since the defendant failed to provide evidence that he had purchased 10,000 IBOT coins for the plaintiff, the adverse consequences should be borne by the defendant. Although the risks arising from investing in virtual currency are not protected by law, the defendant has no evidence to prove that he used all the funds received from the plaintiff for investing in virtual currency. Therefore, the natural debt formed by the 1,300 yuan received without completing the entrusted matter allows the plaintiff to demand termination of performance, and the defendant should return the corresponding unjust enrichment and pay interest for the use of funds.
Final Court Ruling:
Zhu is ordered to return 1,300 yuan to Ying, and Ying's other claims are dismissed.
Mankun Lawyer's Analysis:
While the act of investing in virtual currency is not protected by law, judicial practice in China recognizes the value of virtual currency as a virtual commodity. Legal relationships arising from its commodity attributes, such as buying, selling, and lending, may be acknowledged and protected. This explanation may still be too abstract, so let's use online game equipment, which is also a virtual commodity, as an example. Readers can compare virtual currency to online game equipment. When buying and selling online game equipment, if the buyer pays but the seller does not deliver, the buyer can naturally sue the seller in court for a refund or delivery. However, if the buyer purchases online game equipment, and the seller delivers as agreed, but two days later, due to a version update, the value of that equipment plummets, if the buyer sues the seller for a partial refund, the court will not support it. Of course, virtual currency is still different from online game equipment, and the current judicial regulations regarding virtual currency in China are still being explored. This analogy is merely for understanding and should not equate the two completely.
Additionally, apart from the above situations, Mankun Lawyer has also discovered a special case.
If entrusted to operate and purchase virtual currency, is it really impossible to obtain any compensation for losses?
Case Three: (2022) Zhe 0182 Minchu 2506
On July 30, 2019, Ye met Jin through a friend. Subsequently, Jin lured Ye to invest by promoting the digital currency VRT, promising returns, and claimed that the platform currency VRT generated from investments in VRBank could be exchanged for mainstream digital currencies like Bitcoin and USDT and could be liquidated on exchanges. With Jin's help, Ye registered a VRBank account. Ye purchased a total of 669,390 yuan worth of digital currency VRT from Jin. By the end of December 2019, Ye could no longer log into the VRBank account registered by Jin via the mobile app and requested a refund from Jin. As Jin refused to refund, Ye filed a lawsuit demanding the return of 669,390 yuan.
Case Analysis:
The facts of this case are almost identical to Case One. The losses due to currency price fluctuations and platform failures are legally indistinguishable, and the defendant did not even promise stable profits or compensation for losses, yet the final judgment results are vastly different.
Court's Opinion:
Network virtual currency is not issued by monetary authorities and does not possess the attributes of legal tender and coerciveness, nor does it have the same legal status as legal currency, and cannot achieve circulation functions through conversion into legal currency. Therefore, the buying and selling of virtual currency between the plaintiff and defendant is essentially an unapproved illegal financing behavior that severely disrupts the economic and financial order and should be declared invalid. The defendant knew or should have known that network virtual currency should not be bought and sold, yet still recommended relevant information to the plaintiff and assisted in the purchase. The plaintiff, knowing or should have known that network virtual currency should not be bought and sold, voluntarily registered a VRBank account and repeatedly transferred money to the defendant to purchase the corresponding virtual currency. Both parties bear fault in this transaction and should each assume corresponding responsibilities. The court determined that the defendant should bear 50% of the responsibility.
Final Court Ruling:
Jin is ordered to return 334,695 yuan to Ye, and Ye's other claims are dismissed.
Mankun Lawyer's Analysis:
Since China is not a common law country like those in Europe and the United States, and in order to balance legal principles with fairness, judges have considerable discretion. In this case, it is evident that the judge exercised his discretion fully. The author speculates that the large amount of money involved may have led the judge to rule that the defendant should bear 50% of the responsibility based on principles of fairness.
Mankun Lawyer's Summary
From the above cases, we can see that, in principle, after the announcement on September 4, 2017, the act of buying and selling virtual currency is illegal in China. Although it is not a crime, it is also not protected by law. Entrusting others to invest in virtual currency results in losses that cannot be protected by law. This principle was further emphasized in the "Notice on Further Preventing and Dealing with Risks of Virtual Currency Trading and Speculation" jointly issued by multiple ministries in September 2021, stating that investments in virtual currency and related derivatives that violate public order and good customs are invalid, and the resulting losses are to be borne by the investors themselves.
However, judicial practice in China recognizes the value of virtual currency as a virtual commodity, and legal relationships arising from its commodity attributes, such as buying, selling, and lending, may be acknowledged and protected. Finally, even if there are real investment losses, although the possibility is very low, there is still a chance to obtain some compensation based on the judge's discretion.
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