An article to understand the judicial enlightenment of the "Hero Chain" (HEC) digital currency network fraud case

On April 23, 2019, the Zhuhui Branch of the Public Security Bureau of Hengyang City, Hunan Province, reported on its official WeChat account the progress of the blockchain virtual digital currency network fraud case "Hero Chain" that had been filed for investigation. Previously, many media reported that "Hero Chain" had been listed on Coinegg (a digital asset trading platform), and the token price fell all the way after it went online. As of now, the project has been removed from the shelves, but according to Caijing.com, Coinegg's response is far behind. As mentioned above, "Hero Chain" had been filed for investigation in January 2018, but Coinegg's official removal notice was only released one month ago.

On April 23, 2019, the Zhuhui Branch of the Hengyang Public Security Bureau of Hunan Province reported on its official public account the progress of the blockchain virtual digital currency network fraud case "Hero Chain" that had been filed for investigation.

The article mentioned that "Hero Chain" was an online fraud case under the guise of virtual digital currency, involving more than 300 million yuan. At present, 21 suspects involved in the case have been taken into criminal detention, 15 of whom have been brought to justice, and 9 of them have been approved for arrest by the procuratorate.

The notice also mentioned that in December 2018, the Zhuhui Public Security Bureau received reports from multiple informants that they were defrauded by the "Hero Chain" (HEC) blockchain virtual digital currency project, with the amount of fraud ranging from hundreds of thousands to millions of yuan. On December 29, 2018, the Zhuhui Public Security Bureau officially opened an investigation into the case.

At present, the public security department has arrested 15 suspects, seized 2 computers and 16 mobile phones involved in the case, and seized and frozen more than 20 million yuan of funds involved in the case. According to preliminary investigations, there are hundreds of victims in the "Hero Chain" (HEC) blockchain virtual digital currency network fraud case, with funds involved reaching more than 300 million yuan and illegal profits exceeding 100 million yuan.

The police said that Bai Mouhui, the person in charge of "Hero Chain" (HEC), registered a company overseas and in the mainland, and the company's actual office is in Beijing. At the same time, the company used the gambling industry as a gimmick in the blockchain virtual digital currency project, issued virtual digital currency Hero Coin HEC, and lured a large number of digital currency holders to "invest". In just two months, the project raised nearly 40,000 Ethereums (internationally recognized digital currency, which can be exchanged for about 300 million yuan at the market price at that time), and it distributed most of the raised Ethereum to team staff and agents at all levels in the form of dividends.

Caijing.com believes that this case is common in the field of cryptocurrency. For example, in December 2013, the central bank and five ministries issued a "Notice on Preventing Bitcoin Risks" that identified it as a virtual commodity, and individual holders have relevant rights and interests. However, to date, neither the central bank and other regulatory agencies nor relevant judicial authorities have publicly given judicial recognition to other cryptocurrencies such as Ethereum.

In this regard, Xiao Sa, director of the China Banking Law Research Association, told Caijing.com that from a historical perspective, domestic regulators and judicial authorities have begun to change their attitudes toward virtual currencies such as Bitcoin or Ethereum, and are beginning to consider them as a type of virtual commodity.

"In criminal law, this kind of currency is called property. Only when it is called property under criminal law can it be treated or protected as a protected object in a criminal case."

A legal expert who did not want to be named also mentioned that in judicial practice, Ethereum is also a virtual property protected by law, and legally held Ethereum is also protected by law. The determination of the property nature of Ethereum is basically undisputed in the domestic environment.

"Currently, only a few virtual currencies such as Bitcoin and Ethereum are defined in this way. If other currencies constitute crimes, they will be convicted of corresponding computer crimes. These currencies have low market recognition and a relatively narrow scope of application," Xiao Sa emphasized.

It should be noted that many media reported that Heroes Chain was listed on Coinegg (a digital asset trading platform) before, and the token price has been falling since its launch. As of now, the project has been removed from the shelves, but according to Caijing.com, Coinegg’s response is far behind. As mentioned above, Heroes Chain was investigated in January 2018, but Coinegg’s official removal notice was issued just one month ago.

"From actual case law, the judicial characterization of exchanges mainly involves Article 225 of the Criminal Law on illegal business operations. China has clearly stated that ICO is a form of illegal financing, and the responsibility of the exchange is to hype and trade some tokens. There is already a precedent, so relevant platforms should pay attention to the risks." Xiao Sa said.

When talking about the legal issues that many blockchain projects have in which a company is registered overseas and in the mainland, but the company's actual office is in China.

The above-mentioned legal experts said that there are many jurisdictional connection points for Internet-related crimes, including the residence of the suspect, the location of the website server where the crime was committed, the location of the network access, the location of the website builder and manager, the location of the computer information system or its manager that was violated, the location of the computer information system used by the suspect and the victim, the location of the victim when the violation occurred, and the location where the victim's property was damaged, etc. Jurisdiction can be exercised if there is a connection point.

Xiao Sa also agreed. He believed that if the project party has corresponding entities both in China and abroad, but the main place of business is still in China, the criminal risk will not be reduced. Therefore, thinking that building a structure overseas can avoid legal risks is actually a way of covering one's ears and stealing the bell.