Landing’s Crypto Crime Defense Series 9: How To Convict Those Involved In Virtual Currency Fraud?

Guangdong Provincial High People's Court, August 23, 2024, 12:40 PM

Virtual currencies do not have the same legal status as fiat currency, but some virtual currencies possess property attributes. Those who commit fundraising fraud, theft, or other crimes involving virtual currencies should be identified as guilty of fundraising fraud, theft, etc., according to the provisions of the Criminal Law. The value of the case is generally determined by the purchase price of the virtual currency or the amount received as stolen goods.

Should cases involving fundraising fraud related to virtual currencies be classified as fundraising fraud or illegally obtaining computer information system data?

Between June and July 2020, Xiong Moumou, seeking illegal profits, colluded with Zou Mou and Zhang Mou (both at large) to commission Cai Mou and others to develop software such as the "Co-governance Exchange" for trading their self-created virtual currency, "CGC Coin." Xiong Moumou, along with Zou Mou and others, promoted this self-created virtual currency through WeChat and other channels, promising daily appreciation and attracting investors to participate and develop downlines through referral rewards and node rewards. Using a backend account, they manipulated the displayed market value of their self-created virtual currency by trading themselves, allocating unlimited amounts of coins, and controlling trading volume and prices, creating false daily price charts of around 3% increases to attract investors to purchase it using Tether (USDT) and other cryptocurrencies. On October 15, 2020, Xiong Moumou and others arranged for backend operators to conduct massive transactions, driving the price of their self-created virtual currency down to near zero, thereby illegally appropriating the raised assets. An investigation revealed that Xiong and others defrauded investors of over 15 million Tether coins, with the lowest value at RMB 100,149,595.90 and the highest at RMB 107,505,232.28.

Further investigation revealed that Cai and others, while developing the trading software, secretly intercepted 12,288 Tether coins (worth approximately RMB 81,600) deposited by users; they also tagged and hid 11,053 Tether coins (worth approximately RMB 73,300) that were stuck due to a system malfunction, intending to withdraw the intercepted Tether coins to their own e-wallets later, but this was thwarted by the discovery of the crime.

The Shenzhen Intermediate People's Court, in its first instance judgment, held that the defendant Xiong's actions constituted the crime of fundraising fraud. The defendants Cai and others committed acts of aiding and abetting cybercrime, which were serious offenses, and their actions also constituted the crime of theft; therefore, they should be punished for multiple crimes. Defendant Xiong was sentenced to 15 years imprisonment and fined RMB 500,000 for the crime of fundraising fraud. Defendant Cai was sentenced to one year imprisonment and fined RMB 20,000 for the crime of aiding and abetting cybercrime; and sentenced to three years imprisonment and fined RMB 50,000 for theft. The sentences were to be served concurrently, resulting in a total sentence of three years and six months imprisonment and a fine of RMB 70,000. Defendant Xiong was ordered to return the illegal gains to the participants in the fundraising scheme proportionally.

After the verdict, both defendants Xiong and Cai appealed.

The Guangdong Provincial Higher People's Court, in its final judgment, held that Xiong, with the intent of illegal possession, conspired with others to illegally raise funds using fraudulent methods through a telecommunications network platform, involving a substantial amount of money; his actions constituted the crime of fundraising fraud. Cai and others, knowing that others were using information networks to commit crimes, provided technical support for their crimes, which constituted the crime of aiding and abetting cybercrime; Cai and others also stole public and private property, which constituted the crime of theft. Therefore, they were punished for multiple crimes. Since some of the theft by Cai and others was attempted, they were given a lighter sentence according to law. The conviction and sentence for Xiong were upheld, but the sentence for Cai's theft was overturned, and he was sentenced to two years and six months imprisonment and fined RMB 20,000. The sentences were combined, resulting in a total sentence of three years imprisonment and a fine of RMB 40,000.

This case involves fundraising fraud related to virtual currency. In judicial practice, there are controversies regarding the characterization of virtual currency crimes, the calculation of case value, and the handling of involved assets. Furthermore, the defendant's act of stealing virtual currency on an online platform presents new circumstances regarding the form of cessation, which warrants discussion. Cybercrime is complex; the single charge of illegally obtaining data from computer information systems cannot encompass the diverse range of crimes, including infringement of trade secrets, fundraising fraud, endangering national security, and robbery. The maximum statutory penalty of seven years imprisonment is also insufficient to ensure that punishment fits the crime. The judgment and punishment of crimes should conform to their objective substance, and the handling of crimes involving the online world should be forward-looking, not avoiding new problems and situations. In cases of fundraising fraud where the entire object of the crime is virtual currency, treating virtual currency as property allows for a more accurate grasp of the essence of the relevant data, better ensures that the punishment is proportionate to the crime, and is more conducive to protecting the legitimate rights and interests of the victims.

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