Why do police often classify criminal cases involving virtual currency as pyramid schemes?

In recent years, criminal cases involving virtual currencies have occurred frequently. One of the regularities is that many cases involving virtual currencies are often filed by public security organs for the crime of organizing and leading pyramid schemes. As the saying goes, there must be something wrong when things are abnormal. Is it that practitioners in the cryptocurrency circle like to engage in pyramid schemes or is there another hidden reason? In this article, Lawyer Liu will talk about this topic with you.

According to our team’s years of practical experience, criminal cases involving virtual currencies are generally classified as pyramid schemes for the following two reasons:

0 1Criminal cases involving currency are a bit difficult to handle

The difference between currency-related criminal cases and traditional criminal cases is that they have both "simple" and "complex" attributes:

"Simple" refers to the "9.24 Notice" ("Notice on Further Preventing and Dealing with the Risks of Virtual Currency Trading Speculation") before the regulators did not have strong supervision over the cryptocurrency circle. There were entrepreneurs who worked hard, and there were also cryptocurrency speculators who pursued hot money. The bustling cryptocurrency circle was crowded with people. At this time, cryptocurrency-related cases, especially criminal cases, had not yet shown signs of an outbreak. Even if there were cases that constituted a crime, the crime was particularly obvious (such as theft, fraud, etc.). The prosecution, defense, and trial parties generally still used the traditional criminal case thinking model to handle the case.

"Complex" means that after the "9.24 Notice", the state launched a comprehensive attack from the aspects of market/finance/insurance/foreign exchange supervision, network security, judicial policy, etc., just like the singer threw a "two-dimensional foil" or "snow wave paper" to the currency circle. After the noise of the currency circle was immediately quieted, civil disputes and criminal crackdowns broke out. At this time, the behavioral structure and business model in virtual currency cases have also evolved and iterated for several years, and complex transaction models have emerged, which are difficult to give a direct and clear characterization in criminal law (such as NFT, DAO, etc.).

Civil lawsuits involving currency disputes are relatively easy to resolve; however, there is much controversy over how to apply current criminal laws and regulations to criminal cases involving currency. The main disputes lie in the following aspects:

First, the value of criminal virtual currency is difficult to determine. Because the conviction and sentencing of many criminal cases require the determination of the specific amount involved, but virtual currency has been determined by our regulators to have no monetary attributes, only the attributes of virtual goods. The value of virtual goods is related to the major difference between crime and innocence, and between this crime and that crime. In traditional criminal cases, judicial authorities can fix the evidence and the amount involved in the case through price determination, judicial audit, judicial appraisal and other methods of the competent department. However, in criminal cases involving virtual currency, none of the above solutions can be used. In current practice, judicial authorities allow criminal suspects/defendants to entrust third-party disposal companies (the third-party disposal companies are generally recommended by judicial authorities) to dispose of virtual currency, which also poses huge legal risks. At least it shows that judicial authorities allow or even participate in the behavior of criminal suspects/defendants to use third-party disposal companies to conduct bulk transactions of virtual currency that are expressly prohibited by ten national ministries.

Second, criminal cases involving cryptocurrency are more complicated. Most criminal cases involving virtual currency involve many people, especially those involving project parties due to cryptocurrency issuance. From the perspective of judicial authorities, criminal cases involving cryptocurrency issuance are very likely to be classified as organizing and leading pyramid schemes as long as they are accompanied by profit promises, public publicity, public issuance, hierarchical organizations, rebates, and other characteristics.

The above are the reasons why public security organs tend to classify currency-related criminal cases as pyramid schemes based on their own characteristics.

0 2 There are no victims in pyramid schemes, and the property involved belongs to the state

Analyzing from the criminal composition of the crime of organizing and leading pyramid selling activities, there are two main reasons why this crime is widely used by law enforcement agencies in currency-related cases:

First, the composition of this crime is highly consistent with the pattern of criminal cases involving currency, and there are more connections with pyramid schemes in crowd-involved virtual currency cases. For example, as long as the currency is issued, it will inevitably involve publicity and promotion, and basically involve the method of profit or remuneration. At the same time, it is easy to form a hierarchical relationship in this process. Based on the path dependence of thinking, the first thing that the investigating agency considers is pyramid scheme crimes. Even Lawyer Liu has encountered in practice that the public security first filed a case for the crime of organizing and leading pyramid schemes, and then the prosecution opinion of the procuratorate approved the arrest or the public security transferred it to the procuratorate was changed to other charges. It can be seen that the crime of organizing and leading pyramid schemes is particularly "favored" by the public security organs.

Second, there are no victims in the crime of organizing and leading pyramid schemes , and there is no procedure for returning the property involved . In principle, the property involved is confiscated and returned to the state treasury. Although the criminal law uses the expression "defrauding property" in the legal statement of the crime of organizing and leading pyramid schemes, the legislator believes that the participants in pyramid schemes who are defrauded of property are not "victims" in the criminal law. People who participate in pyramid schemes have a certain profit-seeking mentality, so there is no such thing as returning property in pyramid scheme cases. This also verifies why the investigating authorities have the motivation to investigate pyramid scheme cases, especially "rich" pyramid scheme cases.

In fact, in the past two years, in criminal cases involving currency, especially in cases involving currency pyramid schemes , profit-seeking law enforcement has been the main reason why the parties involved, defense lawyers, currency practitioners, and even some ordinary people do not trust the law enforcement agencies. For example, in the past two years, the "contribution" of currency-related criminal cases to the fiscal fines and confiscations of some cities in Jiangsu Province has been more than 50% higher than in previous years.

0 3 Mankiw's lawyer advice

In the face of the increasingly tightened (even tightened to the ceiling) virtual currency regulatory policies in China, Lawyer Liu, based on his experience in representing various criminal cases, offers the following suggestions to entrepreneurs:

First, if your project can or cannot issue a coin, be cautious in issuing one. If you do, you can temporarily choose to develop it overseas in compliance with regulations, but do not conduct business or promote it to Chinese citizens;

Second, if you issue coins and promote them to users in China, it is recommended to isolate them according to the business type (businesses in China must comply with the requirements of current laws, regulations, departmental rules, regulatory policy documents, etc.). Do not engage in operations that are easily identified as pyramid schemes, such as recruiting people for rebates, spreading fission, etc. during the course of business;

Third, once you are involved in criminal charges or criminal cases, you should consult a professional lawyer as soon as possible to avoid the passive situation of blindly pursuing new business models while ignoring the strict supervision of the court. Remember not to blindly believe in finding so-called "acquaintances and capable people" to handle criminal cases, which will affect the timing of lawyers' intervention in the investigation stage, making it difficult to advance subsequent cases in accordance with the law.

The world of Web3.0 is actually very large, and there are many things that can be done, but the risks of issuing virtual currencies domestically must be recognized. Only in this way can we sail steadily in the world of Web3.0.