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A case of illegal absorption of public deposits using Bitcoin was recently exposed in Hangzhou, Zhejiang. Two "brick movers" used the low-price advantage of "quasi-futures" transactions and the interest-bearing benefits of borrowing coins as "bait" to defraud more than 7,000 Bitcoins from more than a hundred people. They have now been detained by the police.
"I started trading bitcoin over-the-counter in 2017, but I was defrauded of more than 2 million this year." Wang Zhe (pseudonym) is a senior bitcoin "brick mover", that is, a bitcoin over-the-counter trader who buys low and sells high. As the "upper" in the bitcoin supply chain, Wang Zhe also made profits from the "brick moving" business of buying low and selling high. He once felt very relieved to trade with his peers until he was defrauded. "It felt like a bank went bankrupt."
But this is not an isolated case. In the case of illegal public deposits in Hangzhou Bitcoin that was exposed in April, Wang Zhe was not the only one involved. There were more than 100 players. According to player statistics, there were more than 7,000 Bitcoins, and the amount involved was nearly 300 million yuan. The large scale and the form of "over-the-counter transactions" shook the entire "coin circle".
According to the investigation of the Beijing News reporter, the two Bitcoin "brick movers" involved in this illegal absorption of public deposits are Zhou Yi, 35, from Lishui, Zhejiang, and Li Xiang, 30, from Boli County, Heilongjiang. In the WeChat group, they used "quasi-futures" transactions and borrowing coins to return interest to siphon off more than 7,000 Bitcoins from more than 100 "brick movers". Among them, the most "miserable" one lost more than 600 Bitcoins, a loss of nearly 30 million.
According to players, less than 90% of the more than 7,000 bitcoins involved in the case were used in the currency loan and interest return business, and the bitcoins lent to Zhou Yi and others were not retrieved. In addition, more than 10% of the bitcoins were not received due to participation in their "quasi-futures" transactions.
At present, the first batch of players have reported the case, and the Public Security Bureau of Binjiang District, Hangzhou has filed an investigation into Zhou Yi and others for illegally absorbing public deposits. Regarding the current progress of the case, the Xixing Police Station of Binjiang District, Hangzhou responded to the Beijing News reporter on May 21 that Zhou Yi, Li Xiang and others have been detained and the investigation will continue.
Notice of case filing Notice of case filing
WeChat group QQ group "circle familiar customers":
Buy low and sell high to earn the difference between the platforms. Some people make millions a year.
The illegal Bitcoin deposit-taking cases in Hangzhou almost all occurred in the two WeChat groups "Shaobingpu" and "Tomorrow Will Be Better". Zhou Yi and Li Xiang were traders in the WeChat group "Tomorrow Will Be Better". They have established a goodwill through timely delivery of Bitcoin in the past two years and a price advantage through low-priced "futures", and have attracted a group of regular customers.
The specific transaction process is that if buyer A thinks the price offered by Zhou Yi and Li Xiang is reasonable, they will chat privately on WeChat or QQ, and after confirmation, the bank will transfer the money to the designated bank account. After 1-2 days, Zhou Yi will send the bitcoins to A's designated address. A will see the received bitcoins through his own wallet address.
In Bitcoin transactions, everyone has their own Bitcoin address, and Bitcoin can be transferred between addresses. Bitcoin transactions must be confirmed by the system six times before they are stored in the block.
Zhang Ming (pseudonym) is a "regular customer" in the Shaobingpu WeChat group. He told reporters, "I had been trading in the 'Shaobingpu' group for more than a year before Zhou Yi and Li Xiang joined the group. Later, I observed them in the group for half a year and felt that they were reliable. My first transaction with the two was last summer, and then I bought bitcoin from them three times a week until they lost contact in April this year."
He recalled, "Each transaction amount (with the two people) was about two to three million yuan, and the cumulative transaction volume in nearly a year was over 100 million yuan. Their Bitcoin price was quite low, and I made nearly one million yuan that year."
There are many Bitcoin WeChat trading groups similar to "Shaobing Shop" and "Tomorrow Will Be Better". After the closure of domestic Bitcoin exchanges, many Bitcoin "brick movers" turned to WeChat groups and QQ groups to conduct online one-to-one transactions with zero handling fees. Such groups are often "acquaintance circles" with a certain level of trust before they can conduct transactions in the "pay first, then get coins" mode. They mainly rely on wandering between major platforms and earning the price difference between each platform to make profits.
According to the observation of the Beijing News reporter, there are still many WeChat groups involved in over-the-counter transactions of Bitcoin, but the group names do not mention "Bitcoin", but use code names such as "Shaobing" and "Wutong". In the group of hundreds of people, "traders" will directly call out "39250 to buy 10", "40250 to sell 20", which means "want to buy 10 BTC at a unit price of 39250 yuan", "sell 20 BTC at a price of 40250". If someone has the intention to buy, they will chat with the trader privately.
However, it is not easy to join the above-mentioned WeChat groups. You need to provide personal ID/passport information and obtain a guarantee from the group owner before you can enter.
When the reporter applied for a Bitcoin WeChat group as a "trader", the WeChat group owner told the reporter that two conditions needed to be met: first, provide the group owner with what is known in the cryptocurrency circle as "KYC information", which is the front and back of the ID card/passport, and three photos of the person holding the ID card/passport; the second point is more important, gaining the trust of the group owner so that he is willing to guarantee you and invite you into the group.
"Because I invited you to the group, it is equivalent to guaranteeing you. In case you run away with other people's money, we have to find you based on this information." said the group owner.
The number and amount of bitcoins involved in this case as counted by players. The number and amount of bitcoins involved in this case as counted by players.
“Futures-like” trading model:
The unit price of the currency issued 1-2 days after receiving the payment is more than 100 yuan cheaper than the instant transaction
"Different from the transaction mode of exchanging money for coins, the 'futures' sold by Zhou Yi and his team are issued 1-2 days after receiving the money. On average, one Bitcoin is 100-150 RMB cheaper than the instant transaction." Several players told reporters, "This price is quite attractive. Many people make reservations in advance and then find the next buyer to make a profit from the difference."
What made Zhou Yi and Li Xiang so popular in the industry was this "quasi-futures" trading model based on certain price advantages. Such a large transaction with a stranger who has never met before, and through the "pay first, then transfer coins" method, is rare in the industry.
Zhang Ming is considered to be an early "brick mover" who was exposed to Bitcoin OTC trading. His first exposure to OTC trading was in 2017. He told reporters that he had observed Zhou Yi and Li Xiang for nearly two years and found that they always shipped large quantities and delivered goods on time in the group without any problems. He thought that the two had a "good reputation" and started trading with them.
"Bitcoin OTC traders" who have certain channels and "reputation" in the circle are in the "upstream" position in the Bitcoin supply chain, serving other "brick movers" and charging guarantee service fees or transaction spreads to make profits.
Due to the different market conditions of various Bitcoin trading platforms around the world , there are also certain differences in prices. "Brick movers" move between major platforms and earn profits by earning the price difference between each platform. The specific forms of "brick moving" are: "brick moving" between foreign platforms and domestic platforms; "brick moving" between domestic platforms.
Zhang Ming revealed that after he bought 35 bitcoins in a WeChat group in 2017, he saw that the purchase price at that time was lower than the offer of Bithumb, the largest exchange in South Korea, so he sold them on Bithumb in time and made a one-time profit of 35,000 US dollars.
"In the later period, Zhou Yi rarely showed up in the group, so Li Xiang acted as Zhou Yi's buyer, getting bitcoins from Zhou Yi and selling them in the group. On average, one coin would be dozens of yuan more expensive than Zhou Yi's." Zhang Ming revealed that the remittance account was Zhou Yi's designated bank card number, and Li Xiang only helped Zhou Yi count the number of transactions.
Screenshot of Bitcoin transactions in the WeChat group Shaobingpu. Screenshot of Bitcoin transactions in the WeChat group Shaobingpu.
Borrowing coins to sell interest "bait":
Nearly 90% of players participate in the loan and interest payment business, and a single coin earns 100 yuan in interest every day
In addition to the above-mentioned Bitcoin "quasi-futures" transactions, Zhou Yi and his partner also carried out the "borrowing coins and returning interest" business, that is, renting Bitcoin from familiar customers in the WeChat group and promising to pay high interest. It is reported that the interest on a single Bitcoin can reach 100-120 yuan per day.
Zhang Ming revealed that among the more than 7,000 bitcoins involved in this case, less than 90% were put into the hands of the two people for the sake of daily interest, and finally could not be retrieved because the two "ran away". More than 10% did not get the coins because of participating in their "quasi-futures" transactions.
In addition, some players in this case told reporters that they had previously given Zhou Yi money to buy Bitcoin, but when the time for the issuance of coins came, Zhou Yi and Li Xiang also asked them: "Do you need the coins urgently? The coins you received are not many. If you are not in a hurry, lend them to me and I will give you interest every day."
However, according to the reporter's understanding, most of these players did not accept the interest rebate for borrowing coins, but urged the two to issue coins as soon as possible. But after repeated urging, Zhou Yi and his partner only transferred a "compensation" to the urgent customers via WeChat privately, saying "the coins will be issued soon, wait a little longer."
Player Wang Ping (anonymous) told reporters that he also received a compensation of 700 yuan on April 5. "I know that other people also received compensation during that period, some of them received hundreds of yuan, some received thousands of yuan, but the money was not transferred again, and the coins were not issued again." Players who purchased coins later did not receive the so-called "compensation".
Li Xiang sent a screenshot of compensation to players who did not receive tokens. Li Xiang sent a screenshot of compensation to players who did not receive tokens.
From "good reputation" to loss of contact:
Zhou Yi once explained in a group that he lost contact after learning about the report.
After learning that the trader had run away with the money, what made "brick mover" Wang Zhe feel "desperate" was that he had been cheated twice (elsewhere) this year alone. Including the more than 600,000 yuan that was "swept away" by Zhou Yi, Li Xiang and others this time, he has been cheated of more than 2 million yuan this year.
Since April this year, Zhang Ming also found that the two people who had always paid the money on time began to delay with various reasons.
At first, Zhang Ming was not worried, "After all, they both have a good reputation." He even spent nearly one million to buy dozens of bitcoins before the first batch of bitcoins arrived in his account. In the two transactions, he bought 85 and 25 bitcoins from Zhou Yi and Li Xiang respectively, with a total amount of more than 4 million.
But as the time for the coin issuance got longer and longer, he gradually felt that "something was wrong". "I didn't expect that when I asked in the WeChat group, I found out that so many people hadn't received the coins after a long time. I felt that the situation was not good at the time," said Zhang Ming.
Another player told the reporter that two days after spending more than 400,000 yuan to buy bitcoins, when she asked Li Xiang why the bitcoins had not been issued on time, Zhou Yi directly pulled her into a "rights protection group" with more than 100 people. She did not explain anything more and did not mention any compensation. She said she was "completely confused." In the so-called "rights protection group," except for Zhou Yi and Li Xiang, all the others were buyers who had not received the bitcoins on time.
In this "rights protection group", Zhou Yi posted a conversation with a person named "Stonemason" on WeChat, explaining to everyone that the "Stonemason" Zhou Yi claimed to be located in Brazil, and that due to the chaotic environment in Brazil, Bitcoin transactions could not proceed normally, resulting in the inability to deliver the currency.
On April 14, Zhou Yi posted a video in the rights protection group, again offering a compensation plan. In the video, Zhou Yi said that the two owed too many people bitcoins and could not pay them back for the time being, but they "still made money", so they would return the 5 bitcoins they earned every day to everyone and slowly pay off the owed bitcoins. However, many people in the group said they no longer believed in the two, "I think this is just fooling us, I don't accept it," Zhang Ming said.
Most players do not know who the "mason" is, what is his relationship with Zhou Yi, and whether he really exists. Although some players later said they had contacted the mason, during the conversation, the mason said that he did receive futures from Zhou Yi and claimed that he (Zhou Yi) had given all the coins to him.
After that, when the group learned that someone had decided to report the case, Zhou Yi and Li Xiang "lost contact".
Investigation:
Hangzhou police filed a case to investigate players' dispute over the definition of "non-absorption"
“On April 10, I couldn’t wait any longer, so I told the trading group that the two people hadn’t shipped the coins. I found out that so many people hadn’t received the coins. I felt that the situation was not good at the time, and I immediately decided to return to China and report to the police,” said Zhang Ming, who was also the first person to report the case.
On April 16, more than 20 buyers decided to go to Hangzhou to report the incident to the police.
According to the case filing notice, the Hangzhou Binjiang District Public Security Bureau has filed an investigation into Zhou Yi and others' illegal absorption of public deposits, which meets the criminal case filing standards. A player revealed that another suspect, Li Xiang, was also arrested and detained by the public security authorities in early May.
In the rights protection group, the reporter observed that the players were most concerned about how to characterize the case. They were not satisfied with the current characterization of "illegally absorbing public deposits". "The two people were unable to issue coins because of problems in Brazil, and their claim that they did not deliberately cheat was a sophistry."
"Through communication with lawyers, I found that the difficulty lies in that some buyers who are forced to accept a loan relationship can easily be deemed to have a voluntary loan relationship, and it is difficult to determine from a legal perspective whether it is illegal fund-raising," a buyer expressed his concerns to reporters.
"We just want to provide the police with more information to prove that they knew they could not issue coins in early March, and that subsequent transactions were not only illegal fund-raising, but also fraud," said several buyers.
"The difference between illegally absorbing public deposits and fundraising fraud lies in whether the purpose is illegal possession." Xu Kai, a lawyer at Beijing Deheng Law Firm, once publicly stated.
Xu Kai analyzed that "for the purpose of illegal possession" simply means that when illegally absorbing public deposits, the financier does not meet the conditions for publicly financing to unspecified people, and conducts financing for the purpose of not possessing your money and property, which is illegal absorption of public deposits. However, if the financier intends to illegally raise funds for the purpose of defrauding your property from the beginning, it constitutes fund-raising fraud.
The rights protection group includes buyers from all over the world. Due to the time difference, there are people speaking almost 24 hours a day. They constantly give feedback in the group about who has returned to China to report the case, and they also discuss in the group what the police's feedback means when handling a case.
Regarding the current progress of the case, the Xixing Police Station in Binjiang District, Hangzhou City responded to a reporter from the Beijing News on May 21 that Zhou Yi, Li Xiang and others have been detained and the investigation will continue.
Screenshot of the over-the-counter bitcoin trading in the Wutonghuakai WeChat group. Screenshot of the over-the-counter bitcoin trading in the Wutonghuakai WeChat group.
Risks and legal boundaries:
“Over-the-counter transactions based on Bitcoin are difficult to obtain legal recognition”
Strangers who have never met in WeChat groups can also conduct large transactions, which undoubtedly provides opportunities for crimes such as fraud and illegal fundraising. So, where is the legal boundary of Bitcoin OTC trading?
Xiao Sa, director of the China Banking Law Research Association, said that the legal consequences of such behavior are uncertain. Occasional individual behavior is legal, but doing so as a profession may be suspected of illegal operations.
As early as 2017, the China Internet Finance Association issued a warning about preventing risks of so-called " virtual currencies " such as Bitcoin. It warned investors that participating in speculation through trading platforms of so-called " virtual currencies " such as Bitcoin would face risks of large price fluctuations and security risks, and pointed out that there is no legal basis for the establishment of trading platforms for various so-called "currencies" in China.
According to OpenLaw, there are 461 court judgments related to "Bitcoin". The written judgment time shows that the number of Bitcoin-related judgment cases rose sharply from 2014 to 2018, with the numbers in the five years being 9, 26, 54, 120 and 216 respectively.
The causes of the cases showed that there were 153 cases related to "property infringement", accounting for the largest proportion, of which 98 were determined to be theft cases and 37 were determined to be fraud cases.
Apart from ICOs which are explicitly banned, are current over-the-counter Bitcoin transactions legal and compliant?
In 2013, my country clearly defined the legal attributes of Bitcoin itself: a specific virtual commodity, which means that it is recognized as "property". The General Provisions of the Civil Law, which came into effect on October 1, 2017, once again confirmed that virtual property is protected by Chinese law.
Xiao Sa analyzed that based on this, owning Bitcoin is legal in our country.
Is it legal to exchange Bitcoin in my country? Xiao Sa believes that occasional exchanges between individuals are legal. In her opinion, the "ownership" in Chinese law includes the important right of "disposal". How to dispose of it is the private right of the owner, and others have no right to interfere.
However, if Bitcoin is treated as a quasi-financial product and used as a business to specialize in matching and earning the difference, it may be suspected of illegal crimes. Specifically, it may be suspected of illegal business operations under Article 225 of the Criminal Law.
According to Criminal Law by Zhang Mingkai, the legal interest protected by the crime of illegal business operation is the market economic order. Acts that violate national market economic management regulations, undermine the market economic order, and seriously endanger the development of the market economy are not allowed.
Xiao Sa said that in his communication with other lawyers in the team (former criminal judges), he believed that for criminal policy considerations, for some behaviors of exchanging bitcoins for a living, earning the difference, causing significant losses to customers and causing serious consequences, it cannot be ruled out that they should be reported to the Supreme Court in accordance with Article 225, Paragraph 4 of the Criminal Law, "other illegal business activities that seriously disrupt the market order", and ultimately determine that a certain behavior constitutes a crime in the form of "individual case approval".
After a legal incident occurs, if it is reported to the Supreme Court for "case-by-case instructions", how will they characterize such behavior in the market (information matching, direct counterparty, etc.)? Will they focus on the situation and policies at the time and the legitimate rights and interests of financial consumers?
Wang Deyi, a lawyer at Xunzhen Law Firm, said that from the perspective of current national regulatory policies, domestic bitcoin transactions violate national regulatory policies, and over-the-counter transactions based on bitcoin are difficult to obtain legal recognition.
There are many over-the-counter transactions based on Bitcoin, and there are many forms of futures-like and securities-like transactions. Once a dispute occurs, investors will encounter the following difficulties: First, it is difficult to obtain legal evidence, because online transactions are usually expressed in the form of data, and evidence is difficult to fix; second, domestic laws basically have a negative attitude towards such transactions, and the country has repeatedly reminded investors of the risks. If investors participate in transactions, they may need to bear the risks themselves.
Wang Deyi said that he learned that some online platforms defrauded players of their Bitcoins through fictitious transactions, which actually violated the property rights of Bitcoin players. He believed that the law should protect the property rights of players. (Beijing News) |
