Author: Wenser; Editor: Qin Xiaofeng
Produced by | Odaily Planet Daily
The cryptocurrency industry has always been a dark forest, requiring vigilance against on-chain security threats as well as the legal swords of the real world. This is especially true for the younger generation, who may have a vague understanding of the criminal risks behind activities such as issuing tokens, OTC trading, and manipulating liquidity pools.
To enhance risk awareness, Odaily Planet Daily will review typical judicial cases involving cryptocurrencies in recent years, analyzing key legal risk points (Note: This article is for legal reference only and does not constitute legal advice; specific terms are subject to official interpretation).
Charge One: Reselling Foreign Currency Constitutes Illegal Business Operations, Involving Over 200 Million Yuan
The Supreme Court released a typical case showing that the Intermediate People's Court of Leshan, Sichuan, elevated the trial of a case involving the illegal buying and selling of foreign currency using USDT.
Between 2020 and 2021, Wan and others illegally traded foreign currency through the "RMB—USDT—USD" method, with an amount exceeding 234 million yuan. The court determined that they constituted illegal business operations, sentencing the main offender, Wan, to 13 years and 6 months in prison and imposing a fine of 1.14 million yuan; co-defendants Huang and Chen were sentenced to 5 years and 6 months and 2 years and 6 months in prison, respectively, and fined 710,000 yuan and 250,000 yuan. After the first-instance verdict, the defendants accepted the judgment, and the prosecution did not appeal, making the judgment legally effective.
Two other cases were also classified as illegal business operations and are listed here:
First, in December 2022, the People's Court of Dapu County ruled on a cash transaction of virtual currency case, sentencing the main offender, Chen, to 8 months in prison for illegal business operations and imposing a fine of 20,000 yuan; co-offender Li was sentenced to 6 months and 10 days in prison and fined 1,000 yuan; 5,101,770 yuan of illicit funds were confiscated and turned over to the national treasury.
It is reported that in November 2021, Chen started a cash transaction business for virtual currency, purchasing USDT from acquaintances in the crypto community and reselling it to buyers for profit. The price for each transaction was set by the buyer, who compared the price of 1 USDT with the prices of other virtual currencies on that day to calculate a profitable price. Due to the large amounts of cash involved in each transaction, Chen hired Li as a bodyguard to escort the cash during transactions with retail investors. The court found that Chen and Li used the form of buying and selling virtual currency to indirectly trade foreign currency, which was serious enough to constitute illegal business operations.
Second, three "post-95" young men engaged in foreign currency trading using virtual currency as a medium, completing over 650 transactions and exchanging nearly 30 million yuan in just a few months. The Jianhu County Prosecutor's Office filed a public prosecution, and the three were ultimately sentenced to prison terms ranging from 5 years to 1 year and 6 months for illegal business operations, along with fines. Prosecutors found that the three used virtual currency as a medium to provide cross-border exchange and payment services to profit from exchange rate differences, circumventing national foreign exchange regulations, affecting the effectiveness of foreign exchange management and the stability of legal exchange rates, and disrupting normal financial market order, warranting criminal responsibility for illegal business operations.
Odaily Planet Daily's sharp commentary: It is well known that domestic foreign exchange control regulations limit individuals to an annual exchange quota of around 50,000 USD, while the decentralization and anonymity of cryptocurrencies provide certain conveniences for foreign exchange processing and trading, thus posing legal risks. The first case involved a huge amount and a long duration of criminal activity, making it a typical case of elevated jurisdiction with accurate legal application, appropriate judgment guidance, and significant demonstrative meaning. The second and third cases were similar but received relatively lighter penalties due to less severe circumstances.
Charge Two: Money Laundering, Bank Flow of 25,000 Yuan, Illegal Profit of Over 5,000 Yuan
On July 26, 2024, the People's Court of Liyang City, Jiangsu Province, ruled on a virtual currency money laundering case. A jobless man, known as Xiao Wu, was sentenced to 6 months in prison, with a 1-year probation, and fined 2,000 yuan for participating in virtual currency money laundering activities.
The case shows that in November 2023, Xiao Wu contacted a "money laundering company" through Telegram to repay credit card debts incurred during his university years from investing in foreign exchange and virtual currencies. He purchased USDT on a trading platform and then transferred and sold it through the "U-MATOU" app, profiting from the price difference.
On December 22, 2023, the Zhongguancun Police Station in Liyang City received a report from a citizen who claimed to have been scammed out of 3,830 yuan through "order brushing." Preliminary investigations revealed that 2,520 yuan was transferred to Xiao Wu's bank account. An investigation showed that Xiao Wu's bank account had a total flow of 13 transactions, amounting to over 25,000 yuan, with illegal profits exceeding 5,000 yuan.
Odaily Planet Daily's sharp commentary: Money laundering is also a high-frequency crime in the cryptocurrency industry, with certain money laundering risks present regardless of scale or the backgrounds of those involved, especially when individuals use their bank accounts to assist illegal companies in transferring funds domestically and internationally, which can easily constitute aiding and abetting.
Charge Three: Fraud, Post-00s College Student Issues "Dogecoin" and Immediately Withdraws Liquidity, Sentenced to 4 Years and 6 Months and Fined 30,000 Yuan
A post-00s college student, Yang Qichao, issued "Dogecoin" BFF on the BNB Chain and was found to have caused losses of 50,000 USDT to others by withdrawing liquidity. The People's Court of Nanyang High-tech Industrial Development Zone in Henan Province first ruled him guilty of fraud, sentencing him to 4 years and 6 months in prison and imposing a fine of 30,000 yuan.
On May 20, 2024, the case was heard in the Nanyang Intermediate People's Court for a second trial. Yang's defense lawyer argued for his innocence, stating that the virtual currency issued by Yang had a unique and immutable contract address, and there was no so-called "fake currency." Both the defendant and the complainant were experienced players in the crypto community and had a clear understanding of the risks of speculating on virtual currencies. Furthermore, the platform allowed liquidity to be added or withdrawn at any time, and the defendant's actions did not violate platform rules. After the incident, the BFF coins held by the victim appreciated due to increased liquidity, and if traded, could be exchanged for more USDT than before, indicating that the victim did not incur any losses. Born in 2000, Yang was a senior student about to graduate from a university in Zhejiang before the incident. In early May 2022, he became aware of a community autonomous organization called "Blockchain Future DAO" for the promotion and preheating of decentralized virtual tokens. He created a token named BFF, identical to the English name of Blockchain Future, adding liquidity of 300,000 BSC-USD and 630,000 BFF. At the same second Yang added liquidity, Luo spent 50,000 USDT to exchange for 85,316.72 BFF, and just 24 seconds later, Yang withdrew the liquidity of BFF, causing Luo to only exchange 21.6 USDT for 81,043 BFF. Luo traced back through a mutual WeChat friend and found Yang. When Luo requested Yang to refund his losses, he was refused.
On May 3, 2022, Luo reported that he had been defrauded of over 300,000 yuan (equivalent to 50,000 USDT) in virtual currency investment. Soon after, the police opened a criminal case for suspected fraud and arrested Yang in November of the same year in Hangzhou, Zhejiang.
Odaily Planet Daily's sharp commentary: Yes, issuing tokens and withdrawing liquidity can strictly constitute a crime, especially when someone suffers property losses and the specific issuer can be identified. According to insiders, Yang was a "professional scammer" who often launched projects under the guise of legitimate ones, making him a "career criminal." Previous news reports indicated that the perpetrators even claimed, "I just took back what the big brother cut from me; I have been cut too." This serves as a reminder to users to strictly adhere to domestic laws and regulations and refrain from participating in token issuance activities.
Charge Four: Organizing and Leading Pyramid Schemes, Involving Over 210 Million Yuan
In November 2024, according to the official account of the Yunnan Provincial People's Procuratorate, a recent case involving Li and 10 others organizing and leading pyramid schemes was prosecuted by the Shidian County Procuratorate. After court hearings, the 10 defendants were sentenced to prison terms ranging from 2 to 6 years for organizing and leading pyramid schemes, with fines ranging from 100,000 to 500,000 yuan.
Since May 2021, Li gathered Huang, Jin, and others, using "blockchain" and "virtual currency" as a gimmick to seek illegal profits. They set up 5 funds on an online platform under the pretext of purchasing and holding virtual digital currency A and issuing virtual digital currency B and C, combining offline and online methods through on-site meetings and WeChat groups to create a successful persona, leveraging special professional backgrounds, and promoting slogans like "one coin, one mansion; one coin, one luxury car" and "earn hundreds of thousands a day easily," to lure the public into obtaining membership qualifications through purchasing, destroying, and adding to the funds, completing assigned tasks, and receiving static dividends and dynamic income based on the number of people developed and investment amounts, forming 5 levels of rebates.
According to assessments, the pyramid scheme funds collected by Li and others totaled over 210 million yuan. The Shidian County Procuratorate found that Li used virtual currency as a gimmick, colluding with the other nine defendants to defraud property through an online platform, disrupting the economic and social order, with the total pyramid scheme funds exceeding 210 million yuan, which was serious enough to violate Article 224-1 of the Criminal Law of the People's Republic of China, constituting the crime of organizing and leading pyramid schemes. The court then made the aforementioned judgment.
In September of the same year, the Zhongxiang City Procuratorate in Hubei Province prosecuted Chen and three others for organizing and leading pyramid schemes. After legal judgment, Chen and the others were sentenced to 3 years in prison, with a 5-year probation, and fined 350,000 yuan. Police investigations revealed that a pyramid scheme organization led by Chen, Ding, and Fu decided to issue their own virtual currency for profit. The three agreed on promotional models, reward systems, and profit distribution mechanisms, and traveled to find a software design company head, Lu (handled in another case), to develop a virtual currency software app. In February 2022, the app officially launched. On February 19 of the same year, Chen and the others held a launch conference for the app, inviting friends to participate in the virtual currency project while establishing a pyramid scheme organization called "Community." To improve promotional efficiency, the three used internet platforms and held offline training sessions nationwide to promote the virtual currency project, developing members through "Community," enticing others to invest in purchasing virtual currency to become members and develop downlines. The prosecuting attorney explained that the three provided corresponding rebates to upper-level members based on the number of downlines and the payment amounts of downline members, forming a hierarchical structure. After several months of careful promotion, the organization rapidly expanded, and to facilitate management, the three divided the organization into five major battle zones and sixteen vanguard groups, appointing key members to be responsible for each, with daily morning meetings organized through online chat software to call on members to complete assigned performance tasks.
As of the time of the incident, the APP had over 10,000 registered member accounts, with the highest level reaching 17 tiers, involving an amount exceeding 57 million yuan. "This virtual currency has no actual value, and the project has no real business activities; it relies entirely on continuously developing downlines to maintain operations. The money earned by the uplines essentially comes from the funds invested by the downlines. Once there is no continuous influx of funds from new downlines, the project will collapse," explained the prosecuting attorney. Ding, Fu, and Chen developed more than 41 downlines directly or indirectly through the APP, and their organizational structure constituted a pyramid scheme in the legal sense. On January 11, 2023, Chen, Ding, and Fu were arrested by the police. After their arrest, all three confessed to the criminal facts and voluntarily returned all illegal gains amounting to over 22.59 million yuan. On December 22, 2023, the case was transferred to the Zhongxiang City Procuratorate for prosecution. The prosecuting attorney believed that the actions of Chen, Ding, and Fu were clear in fact, with sufficient and conclusive evidence, and their actions violated Article 224-1 of the Criminal Law of the People's Republic of China, constituting the crime of organizing and leading pyramid schemes. The procuratorate subsequently filed a public prosecution, and the local court made the aforementioned judgment.
Odaily Planet Daily's sharp commentary: Cryptocurrencies are often a hotspot for pyramid scheme crimes and common packaging methods, which is a significant reason why many people in China are wary of cryptocurrencies. In the two cases mentioned above, one had a pyramid scheme with as many as 5 levels, while the other reached an exaggerated 17 levels, far exceeding the domestic distribution limit of 3 levels, with the involved funds amounting to tens of millions or even over 100 million yuan, thus being classified as representative major cases.
Charge Five: Concealing and Hiding Criminal Proceeds, Involving Amounts Up to Over 15 Million Yuan
In March 2021, the People's Procuratorate of Luyi County, Henan Province, issued a second-instance judgment on a case involving the use of Bitcoin for "score running." The judgment showed that seven suspects used their mobile phones through virtual currency trading platforms and other "Bitcoin" software to conduct "score running" by buying and selling virtual currencies, with an amount exceeding 9 million yuan. However, among the seven suspects who received commissions for "score running," the highest income was only 8,500 yuan, while the lowest was just 500 yuan. The People's Procuratorate of Luyi County sentenced the seven suspects to a maximum of 4 years in prison for concealing and hiding criminal proceeds, along with fines of up to 10,000 yuan.
In March 2022, a couple used their virtual currency accounts to launder over 15 million yuan for upstream criminals, earning what they called "arbitrage fees." After being prosecuted by the Xihu District Procuratorate in Hangzhou, the case involving money laundering through a virtual currency "pig-butchering" scheme was judged in early March this year. Ultimately, Zhang and Chen, the couple, were sentenced to 3 years and 10 months in prison and fined 10,000 yuan; Chen received a sentence of 3 years in prison, with a 3-year probation, and a fine of 8,000 yuan.
In August 2023, the Mawei District Procuratorate in Fuzhou City, Fujian Province, filed a public prosecution against defendant Chen for concealing and hiding criminal proceeds. In February 2022, Chen received a call from Lin, who guided him to download a certain chat software and instructed him to send two bank cards under his name to a chat group. Soon, the two bank cards received 7 transfers, generating a bank flow of 99,609 yuan. Subsequently, Chen continued to follow Lin's instructions, transferring the money in the cards to his Alipay and WeChat accounts, and then to his third bank card. Finally, Chen purchased virtual U coins worth 94,988 yuan from a seller and sent the transaction screenshot to the chat group to complete the transaction, earning a commission of 147.1 yuan. Ultimately, the court sentenced Chen to 9 months in prison, with a 1-year probation, and fined him 5,000 yuan. The prosecutor stated: Fraud gangs use virtual currencies to transfer and launder illicit funds, and this behavior of conducting online money laundering under the guise of purchasing virtual currencies, while knowing that others are committing crimes using information networks and still providing assistance, has violated the law.
Odaily Planet Daily's sharp commentary: In this charge, the parties involved in the case made profits of less than 150 yuan, but ultimately received sentences of up to 9 months, with fines far exceeding their commission earnings. It must be said that whether engaging in "score running" commission activities or helping others launder money, these are highly risky behaviors, and it is hoped that everyone will take heed.
Charge Six: Illegally Obtaining Computer Information, Maximum Profit Exceeding 2.5 Million Yuan
In October 2023, a gang consisting of Lin, Chen, and three others funded the construction of a fake score running website and implanted a purchased Trojan virus in the website link. They then used chat software to lure victims to click the link, thereby remotely controlling computers to steal virtual currencies. The five stole a total of 3,000 USDT coins worth 18,000 yuan. In March 2022, the five were arrested by the public security authorities, and the prosecution subsequently brought them to court.
The Haizhu District Court in Guangzhou ultimately ruled that the five defendants were sentenced to prison terms ranging from 6 months to 2 years for illegally obtaining computer information, along with fines ranging from 3,000 to 12,000 yuan.
In June 2024, three employees of the cybersecurity company 360 were sentenced for stealing others' virtual currencies. The Xuhui District Procuratorate in Shanghai accused that from February 9 to 20, 2023, Hong, along with Yang and Zhang (both handled in separate cases), exploited a remote code execution vulnerability in Yapi to gain access to the target virtual currency website. They then controlled the internal network servers through lateral penetration and Trojan implantation, found the server source code, and downloaded and analyzed the victim Su's virtual wallet address, private key, etc., constructing false commands to transfer virtual currencies from the victim's wallet address. Afterward, they exchanged the stolen currencies for other virtual currencies and sold them, obtaining illegal gains of over 2.5 million yuan.
Odaily Planet Daily's sharp commentary: It is worth mentioning that cryptocurrencies have been recognized as personal assets by many local courts. Therefore, the act of stealing cryptocurrencies through methods such as Trojan viruses is regarded as illegal obtaining of computer information, and there is also a certain probability that it may be viewed as theft or robbery.
For example, the Shijingshan District Court and the First Intermediate People's Court of Beijing reviewed a civil dispute over Litecoin investment in 2022. They ultimately determined that, in nature, Litecoin should be considered a specific virtual commodity, lacking the legal status equivalent to currency, and should not be circulated as currency in the market. However, Litecoin possesses attributes of virtual property and virtual commodities, which should be protected by law. The Chaoyang District Court of Beijing once handled a Bitcoin robbery case, ultimately concluding that while virtual currencies are not a form of legal currency, this does not affect their property attributes. Virtual currencies have property attributes in the sense of criminal law and can be the object of property crimes; ultimately, the defendants were convicted and punished for robbery for using violence and coercion to rob others of Bitcoin.
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