introduction

As we all know, regarding the regulatory policy on virtual currency in mainland China, since the "9.24 Notice" in 2021 ("Notice on Further Preventing and Dealing with the Risks of Virtual Currency Transaction Speculation"), there is a consensus in the business: Mainland my country does not prohibit citizens from investing in virtual currency and its derivatives, but if it violates public order and good morals, our country’s laws do not provide protection, and the law does not require citizens to bear the risks themselves.

At the same time, given that virtual currency is not a legal tender, it cannot and should not be circulated in the market as legal tender. Therefore, in my country's judicial practice, in principle, the civil case filing division of the court will basically not accept legal disputes related to virtual currency (a few courts accepted it two years ago, but now it is increasingly difficult to file a civil case); the standard of proof for criminal case filing is quite high, and it is even more difficult to successfully file a case.

However, in practice, judicial authorities are increasingly recognizing the property attributes of virtual currencies, especially mainstream virtual currencies. Sometimes, some extreme cases occur, that is, virtual currency investment disputes that do not constitute criminal offenses at all will also be filed, prosecuted, or even tried by judicial authorities. Therefore, it is particularly important to clarify the boundaries between "civil disputes" and "criminal offenses" in virtual currency investment disputes. This article uses a case to conduct a detailed analysis of this.

I. Case Overview

In an open case of the Intermediate People's Court of Foshan City, Guangdong Province (No. (2024) Yue 06 Criminal Final 300), the case can be roughly summarized as follows: Between May and June 2022, Ye fabricated investment projects, promised to give the victims high interest rates, and successively induced Wu Moumou, Chen Moumou, Ye Moukun and others to invest in him, with a total value of RMB 2.5 million (among which Ye Moukun invested USDT worth RMB 500,000 in the defendant Ye Moumou).

However, after receiving the money , Ye used most of it for his daily consumption and repayment of personal debts. Later, because Ye was unable to repay the victim's interest and could not return the principal, the victim reported the case.

After the court heard the case, it was determined that Ye committed fraud and was sentenced to 11 years in prison in the first instance. Ye appealed, but the Foshan Intermediate Court rejected the appeal and upheld the original verdict.

The defense and appeal opinions of the defendant Ye and his defense lawyer disclosed in the judgment are:

First, the relationship between Ye and the victim was a private loan;

Second, the evidence in the case is insufficient to prove that Ye Moumou received virtual currency worth 500,000 yuan from Ye Moukun (one of the victims).

These two opinions were not adopted by the first and second instance courts.

Lawyer Liu believes that the scope of this judgment has been expanded too much. For example, the court directly described the virtual currency USDT received by the defendant Ye as "payment", which is obviously a qualitative error. Virtual currency is not legal tender, not money, and certainly not any payment. In fact, strictly speaking, as long as citizens use their own legal tender such as RMB to purchase virtual currencies such as USDT, and then use virtual currencies for investment and suffer losses, the law will certainly not provide any protection for this loss; however, if this virtual currency is defrauded by others, will the law protect it?

According to current judicial practice, mainstream virtual currencies can still be protected, but this requires a clear distinction between civil investment and criminal offenses.

2. From “civil dispute” to “criminal fraud”: What are the criteria for identification?

Take the crime of fraud listed in this article as an example. The most fundamental difference between "civil disputes" and "criminal fraud" lies in whether the perpetrator has the intention of illegal possession subjectively and whether the perpetrator has committed acts of defrauding others objectively.

The main reasons why Ye was found guilty of fraud by both the first and second instance courts in this case are as follows:

First, the defendant Ye Moumou confessed that he used part of the victim's investment money to repay previous debts;

Second, Ye Moumou confessed in court that he used part of the investors' money to lend to others and invest in virtual currency;

Third, the bank statement showed that after Ye received 1 million yuan from a victim, he used 438,000 yuan to buy a Mercedes-Benz the next day;

Fourth, Ye Moumou was already in foreign debt when he received the victim's investment funds, and he had no real estate under his name;

Fifth, when Ye Moumou collected the victim's investment funds, his monthly income was 7,000 to 8,000 yuan, but he had to pay a 10,000 yuan car loan every month (i.e., his income was not enough to cover his expenses);

Sixth, in order to cope with the victims’ claims for compensation, Ye fabricated false virtual currency transfer records (to gain the victims’ trust), and as of the time of the case, he had not actively raised funds to repay the victims.

In summary, the court found that Ye had committed fraud.

You can look at the above standards in combination. In practice, a single item may not necessarily lead the court to find that Ye committed fraud. However, after combining them, it is indeed difficult to defend himself. Unless Ye can produce evidence that he actually used the victim's money to make an investment.

3. The court determined that virtual currency can be used as a target for fraud

In the case of Ye Moumou’s fraud, what is worth noting for friends in the cryptocurrency circle is that one of the victims, Ye Moukun, used USDT worth 500,000 yuan to transfer money , which was eventually recognized by the court as an investment. And Ye Moumou’s defense lawyer believes that the court cannot prove that Ye Moumou received this virtual currency worth 500,000 yuan (because of the anonymity of the virtual currency wallet address). But the reason given by the court is: in the WeChat chat records between Ye Moukun and the defendant Ye Moumou, on June 28, 2022, the defendant Ye Moumou’s reply to “Ye Moukun transferred USDT equivalent to 500,000 yuan to Ye Moumou” was: “Received”; and Ye Moumou has always admitted in the transcript that he received virtual currency worth 500,000 yuan.

The court held that virtual currency has the possibility of management, transferability and value, and can be used as the object of fraud . Therefore, it was determined that Ye Moumou defrauded Ye Moukun of USDT worth 500,000 yuan.

4. Practical judgment: If investors are deceived, is it necessarily a scam?

However, in summary, not all virtual currency investment disputes constitute fraud. Not all losses mean fraud , and the boundary between criminal and civil must be defined by legal standards. In judicial practice, the following key factors are usually considered in determining whether a crime of fraud has been committed:

1. Does the perpetrator have the “purpose of illegal possession”?

This is one of the subjective elements of the crime of fraud. Judicial organs will first determine whether the perpetrator intends to illegally occupy other people's property from the beginning when launching a virtual currency project or raising funds. If the perpetrator has a sincere intention to operate, even if the failure is caused by technical, market and other reasons, it is generally an investment risk; on the contrary, if he knows that the project is false or he is unable to perform the contract, but still uses fictitious means to lure investors, it will often be considered fraud.

Common behaviors: Some actors fabricate project backgrounds and team information in their publicity, or even have no development capabilities at all, but still make a lot of money. Such situations can easily be determined by judicial authorities as having the purpose of illegal possession.

(2) Is there any act of fabricating facts or concealing the truth?

The act of committing fraud is "fabricating facts" or "concealing the truth", which is particularly typical in the field of virtual currency. For example:

1. Fabricating a non-existent virtual currency platform;

2. Claiming "blockchain technology breakthrough", "state endorsement", "approved for listing" and other obviously false information;

3. Deliberately concealing the purpose of funds, the fact of misappropriation or repayment risks.

If the perpetrator uses these means to mislead others and transfer property as a result, the objective elements of the crime of fraud are met.

(3) Did the victim “dispose of the property based on a mistaken understanding”?

The essence of fraud is "to deceive others into voluntarily handing over their property." Therefore, the judicial authorities will further examine whether the victim made the investment decision because he was misled. This is also the key to distinguishing fraud from civil disputes.

For example: If an investor actively participates in a high-risk project after being fully informed of the risks, even if he or she suffers a loss in the end, it is unlikely to constitute fraud; however, if an investment is made due to belief in false profit expectations or a project that does not exist at all, it may be considered as a fraud.

(IV) Are the flow and use of funds real and legal?

Finally, judicial practice will also investigate the true whereabouts of the funds. If the funds are quickly transferred and dispersed, or even used for personal consumption (like Ye Moumou's behavior in this article), gambling and other illegal purposes, or are not invested in project construction at all, this will strengthen the judgment of "illegal possession".

On the contrary, if the funds are used for actual project investment and the financial accounts can be checked, even if the project fails, it is more likely to be identified as a civil dispute rather than a fraud.

V. Conclusion

The field of virtual currency investment is surging, with opportunities and risks coexisting. While pursuing high returns, investors must also be wary of hidden legal traps. From the perspective of judicial practice, disputes caused by virtual currency are showing a complex trend of "civil and criminal interweaving" , and criminal fraud is one of the most common charges. For judicial organs, its application requires strict adherence to legal standards.

For ordinary cryptocurrency investors, do not easily believe in the so-called "insider information", "national support", "guaranteed profit" and other rhetoric, but should enhance risk awareness and make prudent decisions; once they suffer losses, they should also rationally evaluate the path to protect their rights, whether it is civil litigation (currently difficult) or seeking criminal prosecution, which requires specific analysis of the case.

Although the virtual world is invisible, legal standards cannot be blurred. Only by moving forward in the norms can we truly achieve a dynamic balance between technological development and legal protection.