Author: Wenser, Odaily
The cryptocurrency industry has long been a dark forest, requiring protection against on-chain security threats while also being alert to the legal sword of the real world. Especially for younger groups who are inexperienced, the criminal risk boundaries behind behaviors such as issuing coins, OTC trading, and manipulating liquidity pools are often blurred.
To enhance risk prevention awareness, Odaily Planet Daily has compiled typical recent domestic judicial cases involving cryptocurrencies, analyzing key legal risk points (Note: This article is for legal education reference only and does not constitute legal advice; specific provisions are subject to official interpretation).
Charge One: Reselling foreign exchange constitutes illegal business operations, with the amount involved exceeding 200 million yuan.
The Supreme Court released a typical case indicating that the Sichuan Leshan Intermediate Court elevated the review of a case involving illegal foreign exchange trading using USDT.
Between 2020 and 2021, Wan and others illegally traded foreign exchange using 'RMB—USDT—USD,' with an amount involved exceeding 234 million yuan. The court determined it constituted illegal business operations, with the main perpetrator Wan sentenced to 13 years and 6 months in prison and fined 1.14 million yuan; defendants Huang and Chen were sentenced to 5 years and 6 months and 2 years and 6 months in prison, respectively, with fines of 710,000 yuan and 250,000 yuan. After the first trial ruling, the defendants accepted the judgment and the prosecution did not appeal, making the ruling legally effective.
There are also two other cases of illegal business operations, which are listed here together:
First, in December 2022, the Dapu County People's Court made a ruling on a cash trading cryptocurrency case, sentencing the main perpetrator Chen to eight months in prison for illegal business operations and imposing a fine of 20,000 yuan; accomplice Li was sentenced to six months and ten days in prison with a fine of 1,000 yuan; 5,101,770 yuan of illegal profits were confiscated and turned over to the national treasury.
It is reported that in November 2021, Chen started a cash trading business for cryptocurrencies, purchasing USDT from acquaintances in the cryptocurrency community and reselling it to buyers, profiting from the price difference. The price for each transaction was set by the buyer, who compared the price of one USDT to the prices of other cryptocurrencies on that day to determine a profitable price. Due to the large amounts of cash involved in each transaction, Chen, fearing robbery, hired Li as a bodyguard to escort the cash during transactions with retail investors. After trial, the court determined that Chen and Li were using cryptocurrency trading as a means to illegally trade foreign currencies, which was serious and constituted a crime of illegal business operations.
Second, three young men born after 1995 used cryptocurrency trading as a medium to engage in foreign exchange 'business,' completing over 650 transactions in just a few months, exchanging nearly 30 million yuan in foreign currency. After the Jianhu County Prosecutor's Office brought charges, Lin and the other three were ultimately sentenced to prison terms ranging from 5 years to 1 year and 6 months for illegal business operations, and were each fined. The prosecutor reviewed and determined that Lin and the others used cryptocurrencies as a medium to provide cross-border exchange and payment services, profiting from exchange rate differences, which circumvented national foreign exchange regulations, affecting the effectiveness of foreign exchange management and the stability of legal exchange rates, disrupting normal financial market order, and should be held criminally liable for illegal business operations according to law.
Odaily Planet Daily Commentary: It is well-known that domestic foreign exchange control regulations limit individuals' annual exchange quotas to about 50,000 US dollars, while the decentralization and anonymity of cryptocurrencies provide certain conveniences for foreign exchange processing and trading, hence there are certain legal risks. The first case involved a huge amount and a long span of time, thus being regarded as a typical case of elevated jurisdiction with accurate legal application, appropriate judgment guidance, and significant demonstrative significance. The second and third cases are similar but may have correspondingly lighter penalties due to relatively lighter circumstances.
Charge Two: Money laundering, with a bank flow of 25,000 yuan, and illegal profits exceeding 5,000 yuan.
On July 26, 2024, the Liyang People's Court ruled on a cryptocurrency money laundering case. A jobless man, known as Xiao Wu, was sentenced to six months in prison, one year probation, and fined 2,000 yuan for participating in cryptocurrency 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 cryptocurrencies. He bought USDT on a trading platform and then transferred and sold it using the 'U-MATOU' app, profiting from the price difference.
On December 22, 2023, the Zhongguancun Police Station of the Liyang Public Security Bureau received a report from a citizen claiming they were defrauded of 3,830 yuan through 'order brushing.' Preliminary police investigations revealed that 2,520 yuan was deposited into Xiao Wu's bank card. Investigations showed that Xiao Wu's bank account had a total flow of 13 transactions, totaling over 25,000 yuan, with personal illegal profits exceeding 5,000 yuan.
Odaily Planet Daily Commentary: Money laundering is also one of the high-frequency crimes in the cryptocurrency industry, regardless of whether domestic or overseas, big or small in scale, and regardless of the background of the involved parties, there exists a certain money laundering risk, especially when individuals use their bank cards to assist illegal companies in transferring funds domestically or abroad, which can easily lead to charges of aiding and abetting.
Charge Three: Fraud, post-2000 university student sentenced to 4 years and 6 months in prison and fined 30,000 yuan after issuing Dogecoin and immediately withdrawing liquidity.
Post-2000 university student Yang Qichao issued 'Dogecoin' BFF on the BNB Chain. His withdrawal of liquidity caused others to suffer a loss of 50,000 USDT. He was found guilty of fraud by the Nanyang High-tech Industrial Development Zone People's Court in Henan, sentenced to 4 years and 6 months in prison, and fined 30,000 yuan.
On May 20, 2024, this case was heard in the Nanyang Intermediate People's Court for the second time. Yang Qichao's defense attorney still defended him as not guilty, arguing that the virtual currency issued by defendant Yang had a unique and unalterable contract address, and there was no so-called 'fake currency.' Both the defendant and the complainant were experienced players in the cryptocurrency community, clearly aware of the risks associated with speculative cryptocurrency trading. In addition, the platform allowed liquidity to be added or withdrawn at any time, and the defendant's actions did not violate the platform's rules. Furthermore, the BFF tokens held by the victim appreciated due to the increase in liquidity after the incident; if traded, they could be exchanged for more USDT than before, so the victim suffered no loss. Born in 2000, Yang was a graduating senior at a university in Zhejiang before the incident. In early May 2022, he became aware of a decentralized autonomous organization called 'Future DAO,' which was promoting the issuance of decentralized virtual tokens. He created a token named BFF, identical to the English name of Future DAO, adding liquidity of 300,000 BSC-USD and 630,000 BFF. At the same moment Yang added liquidity, Luo spent 50,000 USDT to exchange for 85,316.72 BFF. Just 24 seconds later, Yang withdrew the liquidity of BFF, causing Luo to receive only 21.6 USDT for 81,043 BFF. During the trace, Luo found Yang through a mutual WeChat friend. Luo requested Yang to refund his loss, but was refused.
On May 3, 2022, Luo reported that he was defrauded of over 300,000 yuan (equivalent to 50,000 USDT) in cryptocurrency investment. Shortly after, the police opened a criminal case for suspected fraud and arrested Yang in November of that year in Hangzhou, Zhejiang.
Odaily Planet Daily Commentary: Yes, issuing coins and withdrawing liquidity strictly constitutes a crime, especially when others suffer property losses and the specific coin issuer can be identified. According to informed sources, Yang is a 'professional scammer in the blockchain' and often pretends to open and withdraw liquidity under the guise of legitimate projects at the same time, making him a 'habitual offender.' According to previous news, the perpetrators even claimed, 'I'm just getting back some of what the boss cut from me; I’ve been cut too.' This serves as a reminder to users to comply with domestic laws and regulations and not to participate in coin issuance activities.
Charge Four: Organizing and Leading Pyramid Schemes, with the maximum amount involved exceeding 210 million yuan.
In November 2024, according to the WeChat public account of the Yunnan Provincial People's Procuratorate, a case involving Li and 10 others organizing and leading pyramid schemes was recently prosecuted by the Shidian County Procuratorate. After court hearings, Li and the other 10 defendants were sentenced to prison terms ranging from 6 years to 2 years, along with fines ranging from 500,000 yuan to 100,000 yuan.
Since May 2021, Li and others gathered Huang, Jin, and others under the guise of 'blockchain' and 'virtual currency' to seek illegal profits. They set up five funding pools on an online platform claiming to buy and hold virtual digital currency A and issue virtual digital currencies B and C, using both offline meetings and online WeChat groups to create the persona of successful individuals. They promoted a reward system and profit prospects with slogans like 'one coin, one mansion; one coin, one luxury car' and 'earn hundreds of thousands to millions easily in a day,' deceiving the public into purchasing and destroying currencies or adding to funding pools to gain entry qualifications and complete assigned tasks to earn static dividends and dynamic returns based on the number of recruits and investment amounts, forming five rebate levels.
According to the appraisal, the total amount of pyramid scheme funds collected by Li and others from the online platform reached over 210 million yuan. The Shidian County Procuratorate's review determined that Li, using virtual currencies as a ploy, colluded with the other nine defendants to defraud property through the online platform, disrupting economic and social order. The total amount of pyramid scheme funds reached over 210 million yuan, with serious circumstances. The actions of Li and the other ten violated the provisions of Article 224-1 of the Criminal Law of the People's Republic of China, constituting the crime of organizing and leading pyramid schemes. After court hearings, the above judgment was made.
In September of the same year, the Zhongxiang People's Procuratorate in Hubei Province prosecuted Chen and three others for organizing and leading pyramid schemes. After legal judgment, Chen and the three were sentenced to 3 years in prison, with 5 years probation and fined 350,000 yuan. Police investigations found 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 other places to find the head of a software design company, Lu (who was handled separately), to develop the virtual currency software APP. In February 2022, the APP officially launched. On February 19 of the same year, the three held a press conference for the APP and invited friends to participate in the virtual currency project while establishing a pyramid scheme organization 'Some Community' under the guise of investing in the virtual currency project. To enhance promotional efficiency, the three used internet platforms and held offline training sessions across the country to promote the virtual currency project, developing members through 'Some Community,' enticing others to invest in purchasing virtual currencies to become members and develop downlines. The prosecuting attorney noted that the three provided corresponding rebates to uplines based on the number of downlines and the payment amounts, forming hierarchical relationships. After several months of careful promotion, the organization rapidly expanded, and to facilitate management, the three divided the organization into five major regions and sixteen vanguard groups, appointing key members to be responsible for them. Every day, the five major regions organized morning meetings for members via online chat software, urging members to complete assigned performance tasks.
By the time of the incident, the APP had over 10,000 registered member accounts, with the highest level reaching 17 layers and an amount involved exceeding 57 million yuan. 'This virtual currency has no actual value, and the project has no real business activities, relying entirely on the continuous development of downline members to maintain operations. What the uplines earn is essentially the money invested by the downlines. Once there are no continuous investments from downlines, the project will collapse.' The prosecutor handling the case stated that Ding, Fu, and Chen developed over 41 downline members directly or indirectly through the APP, and their organizational form constituted a pyramid scheme in the legal sense. On January 11, 2023, Chen, Ding, and Fu were apprehended, and all three truthfully confessed to the criminal facts and voluntarily returned all illegal gains exceeding 22.59 million yuan. On December 22, 2023, this case was transferred to the Zhongxiang People's Procuratorate for prosecution. The prosecutor handling the case believed that the actions of Chen, Ding, and Fu were clear in fact and evidence, and their actions violated the provisions of Article 224-1 of the Criminal Law of the People's Republic of China, constituting the crime of organizing and leading pyramid schemes. The local court subsequently made the judgment mentioned above.
Odaily Planet Daily Commentary: Cryptocurrencies are often a hotspot for pyramid schemes and a common packaging method, which is one reason many people in China 'fear coins.' In the two cases mentioned above, one had as many as 5 levels of pyramid schemes, while the other reached an exaggerated 17 levels, far exceeding the domestic distribution limit of 3 levels, and the amount involved was in the tens of millions or even over a hundred million yuan, making them representative major cases.
Charge Five: Concealing and hiding criminal proceeds, with the amount involved reaching over 15 million yuan.
In March 2021, the Lu Yi County People's Procuratorate in Henan Province ruled on a case involving the use of Bitcoin for 'score-running.' The second-instance judgment showed that seven suspects used mobile phones to conduct 'score-running' through virtual currency trading platforms and other 'Bitcoin' software, with an amount involved 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 only 500 yuan. The Lu Yi County People's Procuratorate charged the seven suspects with concealing and hiding criminal proceeds, sentencing them to a maximum of 4 years in prison and imposing fines up to 10,000 yuan.
In March 2022, a couple used their cryptocurrency accounts to launder over 15 million yuan for upstream crimes, earning so-called 'arbitrage fees.' After being prosecuted by the Xihu District Prosecutor's Office in Hangzhou, this cryptocurrency 'pig butchering' money laundering case was ruled in early March of this year. Ultimately, Zhang and Chen were sentenced to 3 years and 10 months in prison, with a fine of 10,000 yuan; and 3 years in prison, with 3 years probation and a fine of 8,000 yuan.
In August 2023, the Mawei District Prosecutor's Office in Fuzhou, Fujian Province, prosecuted defendant Chen for concealing and hiding criminal proceeds. In February 2022, Chen received a call from Lin, instructing him to download a chat app and send two bank cards registered under his name to a chat group. Soon, the two bank cards received seven transfers, generating a bank flow of 99,609 yuan. Subsequently, Chen continued to transfer the funds in the cards to his Alipay and WeChat accounts and then to a third bank card. Finally, Chen purchased virtual currency worth 94,988 yuan from a seller and sent the transaction screenshot to the chat group to complete the trade, earning a commission of 147.1 yuan. The court ultimately sentenced Chen to 9 months in prison, with a 1-year probation and a fine of 5,000 yuan. Prosecutors stated: Fraud gangs use cryptocurrencies to transfer and wash illegal proceeds. Such online money laundering under the guise of purchasing virtual currencies, knowing that others are committing crimes using the information network and providing assistance, violates the law.
Odaily Planet Daily Commentary: In this charge, the defendants gained less than 150 yuan, but ultimately received a prison sentence of 9 months, and the fines were much higher than the commission earned. It must be said that whether engaging in 'score-running' commission activities or assisting others in money laundering, these are highly risky behaviors, and everyone should take heed.
Charge Six: Illegal acquisition of computer information, with profits exceeding 2.5 million yuan.
In October 2023, a group composed of Lin, Chen, and three others funded the construction of a fake score-running website and embedded a Trojan virus in the website link. They then used chat software to lure victims into clicking the link, enabling them to remotely control computers and steal cryptocurrencies. The five stole a total of 3,000 USDT worth 18,000 yuan. In March 2022, they were apprehended by law enforcement, and the prosecution subsequently brought them to court.
The Guangzhou Haizhu Court ultimately ruled that 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 yuan to 12,000 yuan.
In June 2024, three employees of the cybersecurity company 360 were sentenced for stealing others' cryptocurrencies. The Xuhui District People's Procuratorate in Shanghai accused Hong, along with Yang and Zhang (who were handled separately), of exploiting a vulnerability in Yapi for remote code execution to gain access to the target cryptocurrency website. They then controlled the internal servers through lateral penetration and Trojan implantation, found the server source code, and downloaded the victim Su's virtual wallet address, private key, etc., and issued false commands to transfer virtual currencies from the victim's wallet address. Subsequently, they exchanged it for other cryptocurrencies and sold it, obtaining illegal gains totaling over 2.5 million yuan.
Odaily Planet Daily Commentary: It is worth noting 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 seen as illegal acquisition of computer information and may also be viewed as theft or robbery.
For example, the People's Court of Shijingshan District in Beijing and the First Intermediate People's Court of Beijing heard a civil dispute over Litecoin investment in 2022. It was ultimately determined that Litecoin is a specific virtual commodity and does not have the same legal status as currency, nor should it be circulated and used as currency in the market. However, Litecoin has the attributes of virtual property and virtual goods, which should be protected by law. The Chaoyang District People's Court in Beijing heard a robbery case involving Bitcoin, ultimately determining that virtual currencies are not a legal form of currency, but this does not affect the property attributes of virtual currencies. Virtual currencies have property attributes in the criminal law sense and can be the object of property crimes. Ultimately, the gang of defendants was convicted and punished for robbery for violently and coercively robbing others of their Bitcoin.
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