Author: Lawyer Shao Shiwei
The cryptocurrency space is not lacking new projects, nor is it short of KOLs and team leaders who are in a mess after project collapses.
Lawyer Shao has seen many such parties. They originally believed in a project, invested their own money, and brought in fans and friends as well. After the platform ran away, the people below seek to protect their rights, and they feel they are also victims, so they go to the police station to report, wanting to bring the project party to justice.
The reason they are willing to lead the users below to protect their rights is because they generally think: I didn’t make a profit, and I even lost money, I am here to report the criminals, and the police should help us catch the perpetrators and recover our investment!
However, when judicial authorities handle pyramid scheme cases, the first thing to verify is the downline network, the number of layers, and the records of recruitment. The position of the reporter within the entire pyramid scheme project will naturally be restored during this process. In a case handled by Lawyer Shao, there was a party who entered the police station as a whistleblower but was ultimately left as a criminal suspect.
“I didn’t earn a cent, and I lost my principal, why am I the one being arrested?”—This is the most puzzling question for the party after being criminally detained.
This article combines real cases to break down the most common cognitive misunderstandings of the parties involved in cryptocurrency pyramid schemes.
1. Taking KOLs in the cryptocurrency space as an example: From project promoters to criminal case reporters
The daily routine of cryptocurrency KOLs is to engage with projects, filter projects, and promote projects. Believing in a project, posting introduces on Binance Square or X, doing live streams to explain gameplay and profit mechanisms, bringing fans and friends in with their invitation codes—this is seen as normal content creation and genuine recognition of the project.
As the downline expands, many naturally become large area agents, team leaders, or heads of certain communities.
However, the lifespan of most capital-driven cryptocurrency projects is not long. The shortest lifespan we have seen went from fundraising to running away in just 14 days.
After the platform ran away, the losses fell on every participant. Who do the investors below look for? They look for the person who initially introduced them.
“You said this project could make money, now the money can’t be withdrawn, you have to take responsibility.”
An individual's investment amount may not be large, but with many people, it adds up to hundreds of thousands or millions of debts, which the KOLs and team leaders themselves can't fill.
At the same time, they have also lost money and feel deceived by the project party.
Thus, reporting becomes a seemingly reasonable choice:
It allows them to use the power of judicial authorities to hold the project party accountable, hope to recover their losses, and also provide an explanation to those below—“to uphold justice” and ensure fairness for everyone.
However, when they embark on the path of protecting their rights, they do not know that they may face a shift in identity—from ordinary investment users to criminal suspects in a case.
At this time, facing this change in identity, they often have the following four legal questions:
If I didn’t profit, why do I have responsibility?
I reported the project party to the police, why am I being arrested?
Even if I have responsibility, doesn’t reporting the project party count as contributing?
I’m just an ordinary user; how can I be determined to be an organizer or leader in the crime of pyramid schemes?
Let us answer them one by one.
2. I didn’t profit, and even lost money; how can I have responsibility?
In fact, it is not only cryptocurrency newcomers but also many veterans who have been through both bull and bear markets that generally believe:
Even if they participated in a pyramid scheme project, helped to promote it, and recruited people, if one day the project party runs away, as long as I didn't profit from this project, I am also a victim.
However, the premise for conviction in organizing or leading pyramid schemes has never been about profit; rather, it depends on whether you engaged in recruitment behaviors. If the number of people you directly or indirectly recruited reaches 30 and the number of levels exceeds 3, even if you didn't profit a single cent and even lost money, the conditions for constituting a crime are already met.
For example, in case number (2019) Qian 0330 Criminal Original 316, to meet the platform’s required number of people, defendants A and B even transferred funds to the platform out of their own pockets, and although they did not profit from this, they were still convicted of organizing and leading pyramid schemes.
3. I came to report the project party; how did I end up a criminal?
This situation often relates to what was previously mentioned. It often begins when one discovers that the platform has run away, withdrawals cannot be made, or they face pressure from investors below seeking to protect their rights, prompting them to report to the police. They hope the police can arrest the actual responsible parties of the project.
However, often at the same time as reporting, they themselves are also placed under investigation.
For example, in case number (2016) Su 01 Criminal Final 125, defendants Zhang A, Tong A, and Tong B went to the Yuhuatai District branch of the Nanjing Public Security Bureau to report and claimed to be whistleblowers for the leaders of a pyramid scheme. In the end, the court ruled that these few whistleblowers constituted the crime of organizing and leading pyramid schemes themselves.
Thus, the reasoning has already been clarified earlier: As long as the number of underlings developed directly or indirectly reaches 30 people in 3 layers, the conditions for constituting a crime are already satisfied. Reporting upstream or reporting the project party does not negate one’s behavior in the pyramid organization nor absolve them of criminal responsibility.
4. I reported the project party; does that count as contributing?
Some parties may further inquire: Even if I committed a crime, but I reported the project party, can that count as contributing to mitigate my sentence?
Theoretically, it is possible, but in practice, it is very difficult.
According to relevant regulations by the Supreme People's Court, simply providing the names, contact information, and hiding addresses of co-defendants does not constitute contribution. To be recognized as contributing, one must reach the level of “assisting in capture,” such as arranging a meeting at a designated location as per judicial instructions or leading investigators to capture.
The problem lies in that most Web3 project parties are overseas, and servers are also set up abroad, making it difficult for domestic judicial authorities to reach the actual bosses. Those who are prosecuted are often domestic agents, lecturers, technical personnel, and others. It is almost impossible to achieve contributions by reporting overseas bosses.
To strive for contributions, the realistic path is to assist in capturing domestic co-defendants—but whether this path can be taken depends on the specific circumstances of the case, and there is no fixed answer.
For instance, in case number (2019) Xin 2801 Criminal Original 1320, the defendant Zhan assisted investigators in capturing co-defendants, and the court recognized this as contributing, allowing for a lighter sentence. However, in case number (2020) E 01 Criminal Final 749, the defendant Gu believed he contributed, but the court determined that he had merely explained the criminal facts and identity situations of the co-defendants. Thus, the court did not acknowledge his contribution.
5. I'm not an operator, just an ordinary investment user; how did I become an “organizer or leader”?
This is also a common confusion among parties. They feel that they are not the project founders, not technical heads, just persons who invested and introduced a few friends. How can they be deemed to organize or lead pyramid activities?
In virtual currency pyramid schemes, people recognized as committing crimes include not only the operators, founders, and technical heads/CTOs of the project but also lecturers, agents, customer service personnel, administrative staff, team leaders, etc.
In short, the standard for determining whether one constitutes a pyramid scheme crime is not whether one is the project's initiator or a staff member but rather whether their behavior is recognized as key to establishing or expanding the pyramid organization.
For example, taking KOLs as an example, the following behaviors:
Posting and promoting the project on X or Binance Square, using their followers and influence to endorse the project;
Conducting live streams or offline meetings as a lecturer, explaining the project's gameplay and profit mechanisms;
Creating groups, being a group leader, serving as the community head, answering questions, maintaining popularity, and fostering wealth effects;
Developing downlines and receiving team rewards—even if those rewards haven’t been withdrawn yet when the platform runs away.
All of these may be recognized as playing a crucial role in establishing or expanding a pyramid organization.
For example, in the well-known PlusToken case, besides the project initiator, involved personnel also included planners, technical developers and operations personnel, market promotion BDs, public relations and media liaisons, daily operations and customer service roles, etc.
If the police have opened a case, can we recover the money we invested?
In fact, some investors report cases primarily to recover their financial losses, so they call for everyone to jointly initiate rights protection reports, hoping to increase the success rate of case openings. They believe that as long as the police catch the project party, they can recover some of the hard-earned money they invested.
However, in virtual currency pyramid cases, achieving this goal is very difficult for two reasons.
First, investors participating in pyramid schemes will not legally be recognized as “victims.” The Supreme Court clearly stated in its selected Q&A on the law that participants in pyramid organizations, fully aware that their profits depend on recruiting downlines, join the organization due to the temptation of benefits; thus, there exists a symbiotic relationship between participants and the pyramid organization. As a result, general participants in pyramid organizations should not prosecute in the role of “victims”—this is fundamentally different from the nature of victims in fraud cases or participants in illegal public fundraising.
Second, courts do not accept funds disputes arising from pyramid scheme participation. The Supreme Court clearly stated as early as 1999 that disputes among parties due to pyramid scheme actions that are brought to people's courts should not be treated as civil cases.
Furthermore, according to Article 24 of the "Regulations on Prohibition of Pyramid Schemes," those who organize and plan pyramid schemes, as well as those who introduce and lure others into pyramid schemes, will have their illegal properties and illicit gains confiscated by law.
This means that not only is it very likely that money cannot be recovered, but the profits obtained during pyramid activities also face the risk of being confiscated.
6. Conclusion
When the topic of investment losses comes up, many people's first reaction is: investors must be victims. In cases of fraud or illegal public fundraising, this is indeed the case.
However, in virtual currency pyramid schemes, if investors report as upstream parties, the investigators first must verify whether the reporters themselves are involved in pyramid scheme crimes.
As a lawyer specializing in criminal cases related to Web3 cryptocurrency, I can see that as long as a project exhibits characteristics of static returns, dynamic returns, and recruitment commissions, determining it as a pyramid scheme practically involves no controversy.
However, for ordinary individuals lacking relevant legal knowledge, they often fall into two misunderstandings: one is not realizing that they are participating in a pyramid scheme; and the second is recognizing it but thinking that as long as they haven’t profited, they won’t have criminal risks.
And these cognitive misunderstandings often become the starting point for criminal risks.
免责声明：本文章仅代表作者个人观点，不代表本平台的立场和观点。本文章仅供信息分享，不构成对任何人的任何投资建议。用户与作者之间的任何争议，与本平台无关。如网页中刊载的文章或图片涉及侵权，请提供相关的权利证明和身份证明发送邮件到support@aicoin.com，本平台相关工作人员将会进行核查。
