Although policies such as Announcement No. 94 and Announcement No. 924 identify virtual currency-related businesses as "illegal financial activities", in practice, legal disputes involving virtual currency entrusted financial management are common. As early as 2013, five ministries and commissions had clearly pointed out that virtual currencies such as Bitcoin do not have the same legal status as legal tender, but policy regulations still cannot stop enthusiastic investors. Based on the investment philosophy of "the greater the risk, the higher the return", many people still have high expectations for cryptocurrency investment.
However, there are certain barriers to entry into the cryptocurrency industry. Many ordinary investors are not familiar with how to operate trading platforms, nor do they know how to purchase tokens. In particular, some international platforms have technical restrictions on the access and use of Chinese users, which makes it difficult for ordinary investors to directly participate in transactions. Proxy investment has become a shortcut for them. Therefore, virtual currency investment has become a "love-hate relationship" between the client and the proxy investor.
Under the influence of domestic policies, the legal relationship between the agent and the client has become very delicate. If the investment is profitable, both parties will benefit. The client can get a generous return and make a lot of money, and the agent can also charge a considerable service fee. Once the investment is in loss, the client will choose to protect his rights and interests through legal means, usually on the grounds that the virtual currency violates national policies or the investment agreement is invalid, and ask the agent to return the investment or the virtual currency invested. In addition, the client will often choose to report the case to the police as soon as possible, trying to arrest the agent through the police to facilitate subsequent compensation negotiations. If reporting the case is not feasible, they will choose to file a civil lawsuit as a second choice.
When the former client suddenly becomes the victim of a criminal case or the plaintiff in a civil lawsuit , how should the investment agent respond?
Author: Lawyer Shao Shiwei
0 1. Common scenarios
In his daily work, Lawyer Shao will encounter various legal consultations from investors:
When the investment agent is an individual , common legal issues include:
Investing in virtual currency for others (maybe relatives or friends), I charged a certain service fee (or some are out of kindness and do not charge a penny), but the invested assets have since lost money, and relatives and friends ask for the return of the investment, but the investment agent believes that investment is risky and investors should know that the risks are at their own risk, and I do not need to bear the relevant compensation liability. At this time, the two parties have a dispute, and the client went to the police to report the case or sued in court, and now I don’t know how to deal with it;
When the investment agent is an institution , legal issues that are often encountered include:
A fund company mainly invests in stock options and cryptocurrency in the global market, and employs investment researchers, programmers, traders, etc. in China to conduct arbitrage and quantitative trading through the API of cryptocurrency exchanges, with funds coming from investors; or a blockchain game team (whose main body is overseas but actually operated by Chinese) raises funds from multiple VCs and individual investors by selling tokens;
However, due to various factors, the investment suffered losses, and the investment agent faced pressure from many investors to protect their rights and fell into a difficult situation.
0 2. What are the legal risks that the investment agent may face?
The legal risks faced by the investment agent can be roughly divided into two categories: criminal and civil. Therefore, the corresponding adverse legal consequences are also divided into two categories: either compensation or sentencing. Therefore, when consulting a lawyer, the investment agent is often most concerned about understanding the legal nature of the case, whether it is a civil dispute or a suspected criminal offense . If it is a civil dispute, then it is necessary to prepare for possible legal proceedings in the future and collect relevant evidence in advance; if it is a suspected criminal offense, it is necessary to do a good job in criminal legal risk prevention and control to minimize potential legal risks.
Given that each case is different and to protect client privacy, this article will not discuss specific cases that our team has handled, but will only analyze currently publicly available cases and legal provisions.
In the judicial practice, the handling methods and judgments of virtual currency entrusted investment civil litigation cases vary from court to court. Generally speaking, they can be divided into the following categories: 
The court held that disputes arising from virtual currency investment were not within the scope of civil litigation because they violated policy regulations and therefore would not be accepted;
The court believed that such disputes might involve crimes, so it ruled to dismiss the prosecution and transfer the case to the public security organs;
The court held that since the investment behavior violated policy regulations, the investor should bear the risk on its own, and therefore did not support the investor's claim;
The court held that although the investment behavior violated the policy, it was necessary to reasonably divide the fault responsibilities of both parties and then determine the compensation ratio of the investment agent;
Due to limited space, civil disputes (interested friends can scroll to the end of the article to view related articles) are not the focus of this article. We mainly discuss the issue that the investment agent is primarily concerned about - facing the civil prosecution/criminal accusation of investors, what criminal risks may the investment agent face?
First, the court considers that the civil case is suspected of a crime and transfers it to the public security organ.
For example, the Shanghai Hongkou Court heard a virtual currency agency investment dispute case. The plaintiff Zhao invested 700 Ethereum in Polkadot through Xu, an employee of Shanghai Distributed Investment Management Company in 2017, but did not receive the corresponding DOT tokens afterwards. The company said that Xu had resigned in 2018 and his agency investment was related to BLOCKASSET. The third party Sun said that Xu reached an agreement with BLOCKASSET to treat Zhao's 700 Ethereum as a loan and had returned it. The Hongkou Court believed that there was a criminal suspicion in the case and ruled to dismiss the prosecution and transfer the relevant materials to the public security organs or the procuratorate . The amount involved exceeded 90 million yuan.
Second, the investor reports the case to the public security organ, and the investor may be suspected of criminal offences
In practice, in civil litigation, it is relatively rare for a case to be converted from civil to criminal. It is more common for investors to report the case directly to the public security organs. Based on the simple cognition of the reporter, they often believe that the investment agent is suspected of fraud on the grounds that they have suffered investment losses. However, when it comes to the characterization of the case itself, the crimes of fraud, illegal business operation, illegal absorption of public deposits, and organizing and leading pyramid selling activities appear more frequently.
Therefore, what the investment agent needs to do at this time is to understand the criminal charges, check whether it has any related behavior as soon as possible, and do a good job of legal risk prevention and control in advance. For example:
Fraud : Does the investor understand the project and does the project really exist? When introducing the project to investors, what is the content and method of promotion? How well do the investors know about the project?
Crime of illegal business operation: For example, in the current virtual currency quantitative trading investment, the investment agent attracts investors to invest in virtual currency and makes profits by charging handling fees. If the investment agent's business operations are carried out in the mainland, is it possible that the judicial authorities will regard it as a violation of national laws and regulations and engaging in illegal business activities?
Crime of illegally absorbing public deposits : The characteristics of this crime are "illegality, publicity, inducement, and sociality". The investor needs to check his own behavior one by one in accordance with these four characteristics.
Crime of organizing and leading pyramid selling activities : Do the projects or products invested by the agent have the characteristics of pyramid selling in the criminal law sense as shown in the figure below?
0 3. Written at the end
Prevention is often more effective than response.
Under the policy red line, the agent will inevitably face legal risks when conducting entrusted agent investment business in China. For institutional agents, such risks do not mean that "we can guarantee that investors will not lose money", and the risk will not exist. Since the policy stipulates that "virtual currency-related business is an illegal financial activity", the criminal risk may come from the client's report, or from the report of peers or relatives and friends. Therefore, we do not recommend conducting such business in China.
Compared with institutional investors, individual investors have a one-to-one legal relationship with investors, and in practice, most of them are relatives and friends, so the legal risks are relatively small. However, it is still recommended to sign a clear agreement with the client, detailing the rights and responsibilities of both parties, and be sure to explain the relevant risks to the client. Ensure that they have a clear understanding of the high-risk nature of the investment, and properly preserve the communication records with the client and investment-related documents, which will become important evidence in the event of a dispute.
