Abstract
This article reviews several recent judicial cases in China related to cryptocurrencies, analyzing charges such as illegal operation, money laundering, fraud, and pyramid schemes. Through real verdicts, it reveals the serious legal risks and criminal liabilities hidden behind activities such as issuing tokens, OTC trading, and stealing crypto assets. This article is derived from a piece authored by Wenser and compiled, translated, and written by Odaily Planet Daily.
Background
(Background Summary: Why does China’s cryptocurrency ban persist? A review of the ten-year evolution of fake news in the crypto market)
Context
The cryptocurrency industry has long been a dark forest, requiring vigilance against both on-chain security threats and the legal swords of the real world. This is especially true for young individuals who may have limited experience; the criminal risk boundaries underlying activities such as issuing tokens, OTC transactions, and manipulating liquidity pools are often unclear. To enhance risk awareness, Odaily Planet Daily will compile typical domestic judicial cases involving cryptocurrencies in recent years, analyzing key legal risk points. (Note: This article is intended for legal reference only and does not constitute legal advice; specific provisions should be based on official interpretations.)
Charge 1: Illegal Operation for Reselling Foreign Currency, Amount Involved Exceeds 200 Million Yuan
The Supreme Court’s published typical cases show that the Sichuan Leshan Intermediate Court elevated the trial of a case involving the illegal buying and selling of foreign currency using USDT. From 2020 to 2021, Wan Mouyuan and others illegally traded foreign currency through the method of “RMB—USDT—USD,” with an amount involved exceeding 234 million yuan. The court ruled that they constituted the crime of illegal operation, with the principal offender Wan Mouyuan sentenced to 13 years and 6 months in prison and fined 1.14 million yuan; defendants Huang Mouyuan and Chen Mouwen 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 procuratorate did not appeal, making the judgment legally effective.
Additionally, there are two other cases of illegal operation also listed here:
Firstly, in December 2022, the Dapu County People’s Court ruled on a cash trading virtual currency case, sentencing the principal offender Chen Mou to 8 months in prison for illegal operation, and fined 20,000 yuan; the accomplice Li Mou was sentenced to 6 months and 10 days in prison and fined 1,000 yuan; the illicit gains of 5,101,770 yuan were confiscated and turned over to the national treasury. It is reported that in November 2021, Chen Mou engaged in cash trading of virtual currency, purchasing USDT from known retail investors and reselling it to other buyers, earning a profit margin. Each transaction’s price was set by the buying party, who compared the price of 1 USDT with that of other virtual currencies on the same day to calculate a profitable price. Due to the large amounts of cash involved in each transaction, Chen Mou hired Li Mou as a bodyguard to escort the cash transactions with retail investors, fearing robbery. The court found that Chen Mou and Li Mou, under the guise of buying and selling virtual currencies, were in fact conducting illegal foreign exchange trades, which was serious enough to constitute illegal operation.
Secondly, three individuals born after 1995 engaged in buying and selling foreign currency using virtual currency as a medium, completing over 650 transactions in just a few months, exchanging nearly 30 million yuan in foreign currency. After the Public Prosecutor’s Office of Jianhu County filed charges, Lin Mou and others were ultimately sentenced by the court to prison terms ranging from 5 years to 1 year and 6 months for illegal operation, along with fines. Prosecutors concluded that Lin and others used virtual currencies to provide cross-border exchange and payment services to earn exchange rate differences, thereby circumventing national foreign exchange regulations and disrupting the normal order of the financial market.
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, resulting in legal risks. The first case involved a significant amount and a lengthy period of criminal activity, thus being regarded as a typical case of elevated jurisdiction with accurate legal application, appropriate judgment direction, and exemplary significance. The second and third cases were similar, but due to relatively lighter circumstances, the corresponding penalties were also lighter.
Charge 2: Money Laundering, Bank Transactions 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, referred to as “Xiao Wu,” was sentenced to 6 months in prison, with a one-year probation, and fined 2,000 yuan for participating in virtual currency money laundering activities. The case showed that in November 2023, Xiao Wu contacted a “money laundering company” through Telegram to repay credit card debts incurred during university due to investments in foreign exchange and virtual currencies. He bought U coins on a trading platform and then transferred and sold them through the “U-MATOU” app, earning a price difference.
On December 22, 2023, the Zhongguancun Police Station in Liyang received reports from the public that they had been defrauded of 3,830 yuan through “order brushing.” Preliminary investigations revealed that 2,520 yuan was transferred to Xiao Wu’s bank card. Investigations showed that Xiao Wu’s total bank transaction amounted to 13 transactions, totaling over 25,000 yuan, with personal illegal profits exceeding 5,000 yuan.
Odaily Planet Daily’s sharp commentary: Money laundering is also one of the high-frequency crimes in the cryptocurrency industry, regardless of the scale or background of the individuals involved, there are inherent risks, especially when individuals use their bank cards to assist illegal companies in transferring funds domestically and internationally, which can easily constitute aiding and abetting offenses.
Charge 3: Fraud, Post-00s University Student Issues “Dogecoin” and Immediately Withdraws Liquidity, Sentenced to 4 Years and 6 Months and Fined 30,000 Yuan
A university student born after 2000, Yang Qichao, issued “Dogecoin” BFF on the BNB Chain, and due to withdrawing liquidity, caused others to lose 50,000 USDT. The People’s Court of the Nanyang High-tech Industrial Development Zone in Henan Province first-instance ruled him guilty of fraud, sentencing him to 4 years and 6 months in prison and fined 30,000 yuan.
On May 20, 2024, the case was heard in the Nanyang Intermediate People’s Court for the second instance. Yang Qichao’s defense lawyer still defended him as not guilty, arguing that the virtual currency issued by the defendant had a unique and unchangeable contract address, and there was no such thing as a “fake coin.” Both the defendant and the reporter of the case were seasoned players in the crypto sphere, fully aware of the risks involved in speculating on virtual currencies.
Moreover, the platform allows adding or withdrawing liquidity at any time, and the defendant’s actions did not violate the platform’s rules. The BFF coins held by the victim appreciated after liquidity increased, and if traded, could be exchanged for more USDT than before, meaning the victim did not suffer any losses. Born in 2000, Yang Qichao was a senior student about to graduate from a university in Zhejiang. In early May 2022, he became aware of a community autonomous organization called “DAO of Blockchain Future,” which aimed to promote and warm up the issuance 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 moment Yang Qichao added liquidity, Luo Mou spent 50,000 USDT to exchange for 85,316.72 BFF, and just 24 seconds later, Yang Qichao withdrew the liquidity of BFF, causing Luo Mou to exchange 81,043 BFF for only 21.6 USDT. Luo Mou traced back and found Yang Qichao through a mutual WeChat friend. Luo Mou requested Yang Qichao to return his losses, which was refused.
On May 3, 2022, Luo Mou reported that he had been defrauded of over 300,000 yuan (equivalent to 50,000 USDT) in virtual currency investment. Soon, the police filed a criminal case on suspicion of fraud and arrested Yang Qichao in November of that year in Hangzhou, Zhejiang.
Odaily Planet Daily’s sharp commentary: Indeed, withdrawing liquidity after issuing coins strictly constitutes a crime, especially when individuals suffer property losses and can pinpoint the specific issuer. According to informed sources, Yang is known as a “professional scammer” who often uses the names of legitimate projects to launch and withdraw liquidity simultaneously, making him a “career habitual offender.” Earlier news even reported that the perpetrator claimed, “I’m just recouping what my big brother cut from me; I haven’t escaped unscathed.” This serves as a reminder to users to strictly adhere to domestic laws and regulations and refrain from participating in token issuance activities.
Charge 4: Organizing and Leading Pyramid Selling Activities, Amount Involved Up to 210 Million Yuan
In November 2024, according to the public account of the Yunnan Provincial People’s Procuratorate, a recent case involving 10 individuals, including Li Moumou, who organized and led pyramid selling activities, was prosecuted by the Shidian County Procuratorate. After judicial examination, the 10 defendants were sentenced to prison terms ranging from 6 years to 2 years for the crime of organizing and leading pyramid selling activities and fined between 500,000 yuan and 100,000 yuan.
Since May 2021, Li Moumou gathered Huang Mou, Jin Mou, and others, using “blockchain” and “virtual currency” as a gimmick to seek illegal profits. They set up five funds on online platforms under the pretext of purchasing and holding virtual digital currency A and issuing virtual digital currencies B and C, creating a persona of successful individuals through offline meetings and WeChat groups combined with online methods, leveraging special professional backgrounds, touting “one coin, one mansion; one coin, one luxury car” and “earn tens of thousands to hundreds of thousands easily in a day.”
Inducement of Participation through Promotions and Profits
The slogans such as “Get Rich” and “Earn Big” widely promote reward systems and profit prospects, enticing the general public to gain participation qualifications through methods such as purchasing, destroying, and adding to the capital pool, while completing assigned tasks to obtain static bonuses and dynamic profits based on the number of participants and investment amounts, thereby forming five levels of rebates.
According to assessments, the MLM funds collected by Li and others through online platforms totaled over 210 million RMB. The Shidian County Procuratorate reviewed the case and found that Li, using virtual currency as a gimmick, colluded with nine other defendants to defraud property via an online platform, disrupting the economic and social order. The total amount involved reached over 210 million RMB, with serious circumstances. Li and the other ten individuals’ actions violated Article 224-1 of the Criminal Law of the People’s Republic of China, constituting the crime of organizing and leading MLM activities. After court hearings, the aforementioned judgments were made.
Case of Organizing and Leading MLM Activities in Hubei Province
In September of the same year, the Hubei Province Zhongxiang City Procuratorate initiated a public prosecution against Chen and three others for organizing and leading MLM crimes. Following legal proceedings, Chen and the others were sentenced to three years of imprisonment, with a five-year probation, and fined 350,000 RMB. Police investigations revealed that an MLM organization headed by Chen, Ding, and Fu decided to issue a self-created virtual currency for profit. The three agreed on promotional models, reward systems, and profit distribution mechanisms, and traveled to another location to find a software design company head, Lu (handled in another case), to develop virtual currency software APP. In February 2022, the APP officially launched. On February 19 of the same year, Chen and the others held a press conference for the APP, inviting friends to participate in the virtual currency project while establishing the MLM organization “Some Community” under the pretext of investing in the virtual currency project.
To enhance promotional efficiency, the three utilized internet platforms and organized offline training sessions nationwide to promote the virtual currency project, developing members through “Some Community” and enticing others to invest in purchasing virtual currency to become members and develop downlines. The prosecuting attorney explained that Chen and the others provided corresponding rebates to upper-level members based on the number of downlines and the payment amounts of downline members, thereby forming hierarchical levels. After several months of careful promotion, the organization rapidly expanded. For easier management, the three divided the organization into five major battle zones and sixteen pioneer groups, appointing core members to be responsible for each, with daily morning meetings organized through online chat software to mobilize 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 tiers, involving over 57 million RMB. “This virtual currency has no actual value, and the project lacks any physical operational activities, relying solely on the continuous development of downlines to maintain operations. The profits for the upper levels essentially come from the money invested by the downlines. Once there is no continuous investment from new downlines, the project will collapse,” explained the prosecuting attorney. Ding, Fu, and Chen directly or indirectly developed over 41 downlines through the APP, and their organizational form constituted an MLM organization in the legal sense. On January 11, 2023, Chen, Ding, and Fu were arrested by police. Upon arrival, all three truthfully confessed to their criminal activities and voluntarily returned all illegal gains amounting to over 22.59 million RMB. On December 22, 2023, the case was transferred to the Zhongxiang City Procuratorate for public prosecution. The prosecuting attorney asserted that Chen, Ding, and Fu’s actions were clear in fact, and the evidence was solid and sufficient, constituting the crime of organizing and leading MLM activities as per Article 224-1 of the Criminal Law of the People’s Republic of China. Subsequently, the Procuratorate filed a public prosecution, and the local court made the aforementioned judgment.
Odaily Planet Daily Commentary
Cryptocurrencies are often a major area for MLM crimes and a common packaging method, which is a significant reason why many people in the country are wary of cryptocurrencies. In the above-mentioned two cases, one MLM had as many as five levels; while the other reached an exaggerated 17 levels, far exceeding the three-level distribution limit in the country, with the amount involved in the cases reaching tens of millions to hundreds of millions of RMB, thus being classified as representative major cases.
Charge Five: Concealing and Hiding Criminal Proceeds
In March 2021, the Henan Province Luyi County People’s Procuratorate issued a second-instance judgment regarding a case of “running scores” using Bitcoin. The judgment showed that seven criminal suspects used mobile phones through virtual currency trading platforms and other “Bitcoin” software to conduct “running scores” via purchasing and selling virtual currencies, with the amount involved exceeding 9 million RMB. However, among the seven suspects who collected commissions for “running scores,” the highest income was only 8,500 RMB, while the lowest was only 500 RMB. The Henan Province Luyi County People’s Procuratorate sentenced the seven suspects to a maximum of four years of imprisonment for concealing and hiding criminal proceeds, with a maximum fine of 10,000 RMB.
In March 2022, a couple used their virtual currency accounts to launder over 15 million RMB for upstream crimes, earning so-called “brick-moving fees.” Following prosecution by the Xihu District Procuratorate of Hangzhou, the case regarding money laundering for virtual currency “pig-butchering” was adjudicated in early March this year. Ultimately, Zhang and Chen, the couple, were sentenced to three years and ten months of imprisonment and fined 10,000 RMB; and three years of imprisonment with a three-year probation and fined 8,000 RMB.
In August 2023, the Mawei District Procuratorate of 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, instructing him to download a chat software and send two bank cards in his name to the chat group. Shortly after, the two bank cards received seven transfers, generating a bank flow of 99,609 RMB. Subsequently, Chen continued to follow Lin’s instructions, transferring money from the cards into his Alipay and WeChat accounts, and then into a third bank card. Finally, Chen purchased virtual U currency worth 94,988 RMB from a seller and sent transaction screenshots to the chat group to complete the transaction, earning a commission of 147.1 RMB. Ultimately, the court sentenced Chen to nine months of imprisonment with a one-year probation and fined 5,000 RMB.
The prosecutor stated that fraud groups use virtual currencies to transfer and launder illicit proceeds, and this act of online money laundering under the guise of purchasing virtual currencies, knowing that others are committing crimes using information networks and providing assistance, has violated the law.
Odaily Planet Daily Commentary
In this charge, the individuals involved earned less than 150 RMB but were ultimately sentenced to nine months, with fines far exceeding their commission earnings. It should be noted that whether engaging in “running scores” commission activities or assisting others in money laundering, these are highly risky behaviors, and it is hoped that everyone will take heed.
Charge Six: Illegally Obtaining Computer Information
In October 2023, a group consisting of Lin, Chen, and three others funded a scheme to build a fraudulent score-running website and implanted a purchased Trojan virus in the website links. They then used chat software to entice victims to click the links, enabling remote control of computers to steal virtual currencies. The five collectively stole 3,000 USDT coins valued at 18,000 RMB. In March 2022, the five were arrested by public security authorities, and the public prosecution agency subsequently brought the case to court.
The Guangzhou Haizhu Court ultimately ruled that the five defendants were sentenced to imprisonment ranging from six months to two years for illegally obtaining computer information, along with fines ranging from 3,000 to 12,000 RMB.
In June 2024, three employees from a cybersecurity company, 360, were sentenced for stealing others’ virtual currencies. The Shanghai Xu Hui District People’s Procuratorate accused that from February 9 to 20, 2023, Hong, in collaboration with Yang and Zhang (handled in another case), exploited a vulnerability in the Yapi remote code execution to gain access to a target virtual currency website. They then controlled the internal network server through lateral penetration and Trojan implantation, locating and downloading the original code of the server, identifying the victim’s virtual wallet address, private key, etc., and constructed false commands to transfer the virtual currencies from the victim’s wallet address. Afterward, they exchanged these for other virtual currencies and sold them, unlawfully obtaining over 2.5 million RMB.
Odaily Planet Daily Commentary: It is noteworthy that cryptocurrencies have been recognized as personal assets by several local courts. Therefore, the act of stealing cryptocurrencies via Trojan viruses is considered illegal acquisition of computer information and may also be classified as theft or robbery.
For instance, the Shijingshan District People’s Court of Beijing and the First Intermediate People’s Court of Beijing once adjudicated a civil dispute concerning Litecoin investment in 2022, ultimately determining that Litecoin, by nature, should be classified as a specific virtual commodity, lacking the legal status equivalent to currency and unable to circulate as currency in the market. However, Litecoin possesses the attributes of virtual property and virtual goods and should be protected by law. The Chaoyang District People’s Court of Beijing once adjudicated a Bitcoin robbery case, ultimately concluding that virtual currencies, while not a legal currency form, do not negate their property attributes. Virtual currencies have property attributes in the legal sense and can be the subject of property crimes; ultimately, the defendants were convicted and punished for robbing others’ Bitcoins using violence and coercion.
