I. Introduction

Since the emergence of virtual currency, the unparalleled level of skyrocketing has allowed the first-time investors to obtain hundreds of millions of dividends, and on the other hand, it has also made some investors who are watching from the sidelines anxious.

The mentality of off-site investors eager to get on the bus has given some criminals an opportunity to defraud investors of their principal by promoting coin issuance, selling mining machines, hosting mining machines, or virtual currency wealth management services, etc. conduct any business. In the end, these cases are often handled by the judiciary as the crime of fund-raising fraud.

This article starts with the cross-crime of virtual currency and fund-raising fraud, summarizes the main points of such cases, and discusses with legal industry colleagues. It also hopes to bring help to practitioners in the blockchain industry and reduce such criminal risks.

Search site: Alpha Code Library

Date retrieved: June 10, 2023

Keywords: "virtual currency", "criminal cause", "fund-raising fraud"

In this search, a total of 159 documents were retrieved. Among them, there are 96 articles from basic courts, 53 articles from intermediate courts, and 10 articles from high courts.

Number of Judgment Documents on Fund-raising Fraud Crime in Different Time Periods in the Alpha Legal Database

2. What is the crime of fund-raising fraud

The crime of fund-raising fraud is a financial fraud crime stipulated in the Criminal Law. Although fund-raising fraud is also in line with the connotation of ordinary fraud crimes, fund-raising fraud not only violates property rights, but also hinders the country’s financial order, so it will be subject to more severe criminal punishment. .

Criminal Law of the People's Republic of China (2020 Amendment)

Article 192 Whoever illegally raises funds by means of fraud for the purpose of illegal possession, if the amount is relatively large, shall be sentenced to fixed-term imprisonment of not less than three years but not more than seven years and shall also be fined; if the amount is huge or there are other serious circumstances, he shall be sentenced to seven years More than one year of fixed-term imprisonment or life imprisonment, and a fine or confiscation of property.

If a unit commits the crime mentioned in the preceding paragraph, the unit shall be fined, and the person in charge who is directly responsible for it and other persons who are directly responsible shall be punished in accordance with the provisions of the preceding paragraph.

** To put it simply, the crime of fund-raising fraud is a special kind of fraud crime, which is dealt with directly in accordance with the criminal law of fund-raising fraud. **

Another crime closely related to the crime of fund-raising fraud is the crime of illegally absorbing public deposits. The difference between the two lies in:

**The crime of illegally absorbing public deposits has relatively real investment projects after absorbing funds, with the purpose of making profits through fundraising. **

**The crime of fund-raising fraud is **** simple and crude, and **** the purpose of criminals absorbing funds is **** to cheat the principal. **

The two are very similar, and even part of the criminal composition is stipulated in the same law. For example, in the newly revised judicial interpretation in 2022, the two overlap to a large extent.

"Interpretation of the Supreme People's Court on Several Issues Concerning the Specific Application of Law in the Trial of Criminal Cases of Illegal Fund-raising" (hereinafter referred to as the "Judicial Interpretation of Illegal Fund-raising")

Article 2 Whoever commits any of the following acts and meets the conditions stipulated in the first paragraph of Article 1 of this Interpretation shall be convicted and punished as crime of illegally absorbing public deposits in accordance with the provisions of Article 176 of the Criminal Law:

……

(8) Illegally absorbing funds by means of online lending, investment in shares, virtual currency transactions, etc.;

……

Article 7 Whoever uses fraudulent means to carry out the acts listed in Article 2 of this Interpretation for the purpose of illegal possession shall be convicted and punished as the crime of fund-raising fraud in accordance with the provisions of Article 192 of the Criminal Law.

From the above judicial interpretations, it is not difficult to see that the most important difference between the crime of illegally absorbing public deposits and the crime of fund-raising fraud is whether to absorb funds through fraud. **

Third, sorting out the key issues in the crime of fund-raising fraud

(1) How to distinguish between the crime of fund-raising fraud and the crime of illegally absorbing public deposits

Since the crime of fund-raising fraud and the crime of illegally absorbing public deposits are so similar, but the sentencing is completely different, then the crime of fund-raising fraud and the crime of illegally absorbing public deposits has become an issue that needs to be focused on.

In the judicial interpretation of the "Judicial Interpretation of Illegal Fund-raising", the purpose of illegal possession of the crime of fund-raising fraud is clearly stipulated:

Article 7 of the Interpretation of the Supreme People's Court on Several Issues Concerning the Specific Application of Law in the Trial of Criminal Cases of Illegal Fund-Raising According to the provisions of Article 2, it shall be convicted and punished for the crime of fund-raising fraud.

Illegal fund-raising by fraudulent means, under any of the following circumstances, can be determined as "for the purpose of illegal possession":

(1) The raised funds are not used for production and operation activities or are obviously disproportionate to the scale of the raised funds, so that the raised funds cannot be returned;

(2) recklessly squandering the raised funds so that the raised funds cannot be returned;

(3) Escaping with raised funds;

(4) Using raised funds for illegal and criminal activities;

(5) fleeing, transferring funds, concealing property, and evading the return of funds;

(6) Concealing or destroying accounts, or engaging in fake bankruptcy or bankruptcy, to evade the return of funds;

(7) Refusing to account for the whereabouts of funds and evading return of funds;

(8) Other circumstances where the purpose of illegal possession can be determined.

The purpose of illegal possession in the crime of fund-raising fraud should be determined specifically according to the circumstances. If part of the illegal fund-raising behavior of the actor has the purpose of illegal possession, the fund-raising funds involved in the part of the illegal fund-raising behavior shall be convicted and punished as the crime of fund-raising fraud; in the joint crime of illegal fund-raising, some actors have the purpose of illegal possession, and other actors have no illegal possession of the fund-raising funds In case of joint intent and behavior, the perpetrator with the purpose of illegal possession shall be convicted and punished for the crime of fund-raising fraud.

**When implemented in the virtual currency industry, if the actor absorbs funds but does not intend to actually operate it, of course it constitutes a crime of fund-raising fraud, such as issuing coins for sale without actual virtual currency products, and conducting mining machine hosting business without actual venues and equipment. **

**However, in judicial practice, some virtual currency issuers who maliciously speculate on the price of virtual currency will also be dealt with as a crime of fund-raising fraud. case. **

Case No.: Higher People's Court of Zhejiang Province (2020) Zhe Xing Zhong No. 9

In 2016, Xia established the "Energy Californium" investment platform. First, according to the number of offline users, he distributed a corresponding amount of virtual currency "Cf" for free to increase the number of users, and then controlled the price of "Cf" on the platform through manual operations. , Let the "californium coin" continue to rise. Prompt later investors to buy "Ciflorium coins" at a higher price, allowing former investors to profit.

The "californium coin" was priced at $16 in June 2016 and rose to about $33 in September 2017.

In actual operation, for example, an investor invests 16 US dollars in exchange for 1 "Cf coin", and obtains 1 "Cf coin" for free through various ways of obtaining "Cf coin" on the platform for free, and then Xia and others manipulate the "Cf coin" "Rising to 32 US dollars, investors can get 64 US dollars by selling "californium coins", which is equivalent to obtaining 64 US dollars in principal and interest with a principal of 16 US dollars, and this 64 US dollars comes from the investment funds of subsequent investors.

**Xia and others also cashed out a large number of "californium coins" in their hands many times during the process, and used the money obtained for personal house purchases, car purchases, and personal squandering. **

This Ponzi scheme also quickly exploded. In September 2017, because Xia and others were unable to cash in on the price of "Cf", the price of "Cf" had dropped to US$0.3 at the time of the incident. Only the investors identified by the court The loss is 445 million yuan,

**In the end, the Hangzhou Intermediate People's Court characterized the behavior of Xia and others as the crime of fund-raising fraud, sentenced Xia to life imprisonment, and confiscated all personal property. **

This case is an atypical crime of virtual currency fund-raising fraud. **Although "Cf coins" do exist, the court judged based on the facts that "Cf coins" have no actual value, and Xia used the money he obtained for personal spending. The court finally dealt with Xia and others for the crime of fund-raising fraud. **

Other operators of virtual currency should also take warning. First, there must be various serious criminal risks in manipulating the price of virtual currency. Second, the company’s capital income obtained from currency issuance should be converted into personal income in a compliant manner Otherwise, you may also face corresponding criminal risks.

(2) How to distinguish the crime of fund-raising fraud from the crime of pyramid selling

In the author's previous article "One Article Explained 丨 A Large Inventory of China's Virtual Currency MLM Cases", I introduced the domestic pyramid scheme crimes involving virtual currency in detail:

Readers may find that due to the virtual nature of virtual currency, there is no physical commodity, and there is often only the flow of funds in the business process. Therefore, the composition of the crime of fund-raising fraud by ** virtual currency and the crime of pyramid schemes are very similar. ** Not only that, but in judicial practice, some of the defendants in the same case were identified as fund-raising fraud and some were identified as pyramid selling crimes.

So how should the two crimes be distinguished?

First of all, in judicial practice, when the court determines the behavior of the two crimes, the court will focus on examining the perpetrator's ability to control the absorption of funds and the specific circumstances of possession, use, and conversion. **

**In judicial cases, the initiators of projects and the actual controllers of funds are more likely to be identified as fund-raising fraud, while the organizers and leaders of other pyramid schemes are identified as organizing and leading pyramid schemes. ** The main criterion for distinction is the disposition and use of funds.

Secondly, in the content of the court review, the court will focus on the purpose of funds, that is, whether most of the collected funds are used for the operation of the project.

In MLM crimes, although there are no real production and operation activities, the organization leaders of MLM activities will also incur many costs when conducting virtual currency MLM activities, such as bonuses for level rebates, purchasing a large number of mines for the implementation of the mining model, etc. Machine costs, office space property costs and staff wages, etc. (such as the "energy californium (kāi)" online investment platform case mentioned above)

In the case of being sentenced to a crime of fund-raising fraud, the initiator of the project and the controller of the funds used most of the funds for personal expenses, which is in line with the determination of illegal possession in the "Judicial Interpretation of Illegal Fund-raising".

** In general, promoters of virtual currency projects are more likely to be involved in fundraising fraud. If **** promoters mainly use the operating income for their business activities, they will often be identified as MLM crimes, while **** use most of their operating income for personal expenses, it will be easier to identify For the crime of fundraising fraud. **

**(3) Does only charging virtual currency during operation constitute the crime of fund-raising fraud? **

In order to avoid various risks brought about by fiat currency transactions, most virtual currency issuers often choose virtual currency as the intermediary of transactions, and users can only use various virtual currencies based on stable coins. This mode of operation can indeed reduce business risks in many aspects.

**So if only virtual currency is charged, does it constitute a crime of fund-raising fraud? **

**The answer is yes. **

Virtual currency has been produced for nearly ten years, and a mature understanding and handling of virtual currency has gradually emerged in judicial practice. Although virtual currency has not been recognized by the government as having the nature of currency, no matter what kind of virtual currency, it will eventually realize its own value by converting it into legal currencies such as US dollars and renminbi. A medium or prop for absorbing funds. **

Therefore, in the virtual currency business, although virtual currency does not belong to currency or capital, only collecting virtual currency does not affect the judiciary's determination of the actor's behavior of absorbing funds. conviction of crime. **

** (4) How to determine the crime amount of the crime of virtual currency fund-raising fraud? **

Friends who consult about the crime of fund-raising fraud are often concerned about the issue of sentencing, and the most important issue in sentencing is the calculation of the amount of crime.

So how to calculate the crime amount of fund-raising fraud? If you have swiped orders in the process of virtual currency operation, will the amount be affected?

Article 8 of the Judicial Interpretation on Illegal Fund-raising stipulates the calculation of sentencing and crime amount:

"Interpretation of the Supreme People's Court on Several Issues Concerning the Specific Application of Law in the Trial of Illegal Fund-raising Criminal Cases" Article 8 If the amount of fund-raising fraud is more than 100,000 yuan, it shall be deemed as a "large amount"; if the amount is more than 1 million yuan, it shall be identified as "substantial".

If the amount of fund-raising fraud is more than 500,000 yuan, and it also has the circumstances of Item 3, Paragraph 2, Article 3 of this Interpretation, it shall be determined as "other serious circumstances" as stipulated in Article 192 of the Criminal Law.

The amount of fund-raising fraud is calculated based on the amount actually obtained by the perpetrator, and the amount returned before the incident should be deducted. Advertising fees, intermediary fees, handling fees, kickbacks paid by the perpetrator for the implementation of fund-raising fraud activities, or expenses such as bribery and gifts, shall not be deducted. The interest paid by the perpetrator to carry out fund-raising fraud activities shall be included in the amount of fraud, except that the principal can be offset against the principal if it has not been returned.

In terms of sentencing, combined with the provisions of the Criminal Law, it can be summarized as the following table:

On the calculation of the amount of crime, this provision can be divided into the following points:

① The amount of the crime is calculated based on the "actual defrauded amount";

② The amount returned before the incident should be deducted;

③ If there is an outstanding principal, the interest paid can be deducted from the principal.

④ Fraud costs will not be deducted;

The first point can clearly answer the previous question about whether the fraudulent transaction of the ** currency issuer can be included in the criminal amount: ** is not included. **

In judicial practice, judicial staff often mistakenly include the false transactions carried out by the currency issuer in order to raise the price of virtual currency into the criminal amount. The currency issuer did not understand the law and did not argue, and finally obtained a significantly heavier amount. sentence. In fact, this amount is only a procedural behavior, it does not belong to the amount actually defrauded by the crime of fund-raising fraud, and cannot be calculated as the amount of crime.

At the same time, it should be noted that the "returned amount" in the second point includes the repurchase behavior of the currency issuer of the virtual currency project. **If the currency issuer successfully recovers the virtual currency from the investor before the case is issued, the repurchase can be deducted as "amount repaid". **

Fourth, Conclusion

The crime of illegal business operation is a pocket crime set up by the criminal law to protect market order. It covers a large number of crimes, and there are many criminal risks that have intersections with virtual currency-related businesses, so such cases are very complicated.

But in general, the crime of illegal business operation is a pocket crime, and it involves new things such as virtual currency. The judiciary will be very cautious in handling it. As long as the key points of the defense are grasped, there is a lot of room for defense. **

This article sorts out the above types of illegal business crimes involving virtual currency that occur more frequently. In addition, there are many virtual currency businesses that involve the risk of illegal business crimes, such as the issuance of ** virtual currency and cross-border brick-and-mortar business. , Provide value-added services of virtual currency, ** OTC business of virtual currency, etc., due to the large content and complexity, they are not expanded in this article, and will be continuously updated in the future.