Revisiting the “first case in the cryptocurrency world”, what lessons can we learn from the Plus Token case?

Original title: "Xiao Sa Team | Plus Token Case Revelation", author: Xiao Sa Legal Team

Since 2021, the value of Bitcoin has been rising. Although the price has fallen recently, it still remains at around US$45,000. The Plus Token case, which once shocked the cryptocurrency world, involved eight virtual currencies. After the second-instance verdict in November 2020, the digital currency turned over to the national treasury reached RMB 14.8 billion based on the lowest price between May 1, 2018 and June 27, 2019. According to the latest price of Bitcoin, the value of the 320,000 Bitcoins collected from the national treasury has climbed to around RMB 93.4 billion.

Today, Sister Sa’s legal team will take you to review the Plus Token case.

Basic facts

In early 2018, the defendant Chen planned to set up the PlusToken platform on the Internet with the concept of blockchain to carry out pyramid selling activities. He successively hired the defendants Zheng and Wang to develop, operate and maintain the APP and set up a website, and then joined other persons involved in the case to engage in customer service and currency transfer work on the Plus Token platform. In fact, the Plus Token platform does not have any actual business activities and is spread in my country, South Korea, Japan and other countries through the Internet. In the name of providing digital currency value-added services, the platform claims to have the function of arbitrage transactions and earning price differences on different exchanges at the same time, calling it "smart dog moving bricks", which in fact does not have it.

The platform requires participants to obtain a membership account on the platform through online recommendations, pay a threshold fee of more than US$500 in digital currency, and activate the "smart dog" to obtain platform benefits. Members are organized into upper and lower levels according to the order of recommendation and development, and the membership level is divided into five levels: ordinary members, big households, big coffees, big gods, and creators according to the number of downline members developed and the amount of investment funds. The platform sets up three main income methods, including smart brick-moving income, link income, and executive income, to rebate, directly or indirectly based on the number of developed personnel and the amount of payment. Upon investigation, as of June 27, 2019, the platform recorded a total of 26,xxx94 registered member accounts, of which 15,xxx71 accounts had been authenticated, and the maximum level was 3,293.

Controversy

1. How to identify the crime of “defrauding property” in organizing and leading pyramid selling activities?

2. Who is responsible for the punishment ?

Verdict

The original trial court held that the defendants, in the name of business activities, required participants to pay fees to obtain membership qualifications, and formed levels in a certain order, directly or indirectly used the number of recruits as the basis for remuneration or rebates, lured participants to continue to recruit others to participate, defrauded property, and disrupted the economic and social order, with serious circumstances. The defendants' actions constituted the crime of organizing and leading pyramid selling activities . Some personnel also constituted the crime of concealing and hiding the proceeds of crime .

After trial, the second-instance court held that the facts were clear, the evidence was sufficient, the sentence was appropriate, and the trial procedure was legal, so it rejected the appeal, upheld the original judgment, and issued the ruling No. (2020) Su09 Criminal Final 488 .

Case Analysis

Article 224-1 of the Criminal Law stipulates that the crime of organizing and leading pyramid selling activities refers to the act of organizing and leading pyramid selling activities under the guise of business activities such as selling goods and providing services, requiring participants to pay fees or purchase goods and services to obtain membership qualifications, and forming levels in a certain order, directly or indirectly using the number of people developed as the basis for remuneration or rebates, inducing or coercing participants to continue to develop others to participate, defrauding property, and disrupting the economic and social order.

First of all, regarding the identification of this crime, the author believes that it is mainly necessary to understand what is "pyramid selling activities" and what is "defrauding property" .

First, regarding the identification of "MLM activities". In fact, the term "MLM activities" is not unfamiliar to us. It can be roughly divided into two categories: the first is MLM products, which use the number of products sold as the basis for remuneration or rebates, and is a primitive MLM ; the second is the number of recruits as the basis for remuneration or rebates, which is a fraudulent MLM . The prohibited objects of our crime of organizing and leading MLM activities are the second type .

In practice, perpetrators often illegally obtain benefits by collecting "entry fees" , of which there are two forms: one is to pay the "entry fee" directly , and the other is to obtain membership qualifications by purchasing goods or services . Among them, the second type of "entry fee", although it is based on the purchase of goods or services, its ultimate purpose is to obtain the qualification to join the pyramid scheme organization .

The source of funds for the rebates and returns promised by pyramid scheme organizers to participants is the participants' "entry fees". In order to ensure a continuous flow of funds, they have to continue to multiply the number of participants. Therefore, the higher the level of participants, the more profit they make, and the new or lowest level participants become victims.

Second, regarding the determination of "defrauding property". Some experts believe that defrauding property is an optional concept for the crime of organizing and leading pyramid selling activities; some experts believe that defrauding property is not the only purpose of pyramid selling activities. However, according to Article 224-1 of the Criminal Law, "defrauding property" is clearly stipulated in the article, so it cannot be ignored or overly interpreted .

The object of punishment for this crime is the behavior of organizing and leading a fraudulent MLM organization. Therefore, the dominant characteristic of organizing and leading fraudulent MLM activities is "defrauding property" , but it does not require the perpetrator to have objectively defrauded property, otherwise it would violate the purpose of legislation. As long as the perpetrator organizes and leads MLM activities with the nature of "defrauding property" , the crime of organizing and leading MLM activities can be established.

Article 3 of the Opinions on Several Issues Concerning the Application of Law in Handling Criminal Cases of Organizing and Leading Pyramid Schemes (hereinafter referred to as the Opinions) issued by the Supreme People's Court, the Supreme People's Procuratorate and the Ministry of Public Security on November 14 , 2013 provides: "If the organizers and leaders of pyramid schemes fabricate or distort national policies, fabricate or exaggerate business, investment, service projects and profit prospects, conceal the true source of remuneration and rebates, or use other fraudulent means to commit acts stipulated in Article 224 of the Criminal Law and illegally profit from the fees paid by participants in pyramid schemes or the fees for purchasing goods and services, they shall be deemed to have defrauded property. Whether participants in pyramid schemes believe they have been defrauded does not affect the determination of defrauding property." In this case, PlusToken has been identified as a pyramid scheme platform, and the digital currency invested in the platform is used for the financial operation of the pyramid scheme system. Therefore, regardless of whether the defendant legally owns Bitcoin, it should be confiscated as property used for pyramid scheme crimes.

Finally, regarding the subject of punishment for this crime, Article 1, Paragraph 1 of the Opinions stipulates : " If there are more than 30 people participating in pyramid schemes within an organization and the number of levels is above three , the organizers and leaders shall be held criminally responsible."

Article 2 stipulates the identification of organizers and leaders of pyramid schemes : "(1) Personnel who initiate, plan and manipulate pyramid schemes; (2) Personnel who assume management, coordination and other responsibilities in pyramid schemes; (3) Personnel who assume publicity, training and other responsibilities in pyramid schemes; (4) Personnel who have been criminally punished for organizing and leading pyramid schemes, or have been administratively punished for organizing and leading pyramid schemes within one year, and who have directly or indirectly developed more than 15 people at the third level or above to participate in pyramid schemes; (5) Other persons who play a key role in the implementation of pyramid schemes, the establishment and expansion of pyramid scheme organizations, etc.

In short, as long as someone has initiated, planned, managed, promoted, trained, etc. in MLM activities, he or she can basically be identified as an organizer or leader. The author believes that once identified as an organizer or leader, he or she will most likely be identified as the principal offender of the joint crime. To get rid of the principal offender, one has to prove that he or she did not play an important role, but the difficulty of proving this should not be underestimated.

Of course, those who are assigned by the unit and only perform labor work are generally not held criminally liable.

Final Thoughts

The first case in the cryptocurrency industry fully demonstrated how a huge empire went from being magnificent to losing everything overnight. In many cases, not all defendants had criminal intentions at the beginning, but because the funds and scale expanded too quickly, they had no time to think about the loopholes and could not comply with regulations in a timely manner.

For many emerging industries, they are developing rapidly under the surge of traffic and enthusiasm, and they are unaware of the dangers and high profits they are making. Therefore, the legal team of Sister Sa would like to emphasize the importance of corporate compliance to readers again. We hope that readers can conduct self-examination in a timely manner under the current conditions. If you have any legal questions, please contact the legal team of Sister Sa!

As above, thanks to the readers!