In recent years, virtual currency has gradually changed from a novelty that ordinary people have rarely heard of to a "way to get rich" that everyone can hear from time to time. Therefore, many people, when they have only a vague understanding of virtual currency, buy virtual currency through referrals under the recommendation of their friends, relatives or investment institutions, hoping to get rich through investment.
However, the market has risks, and investment needs to be cautious. The virtual currency market has more risks than the ordinary financial market. In addition to the market value fluctuations of the product itself, there are also new risks such as trading platforms running away, hacker attacks and theft of coins . In this case, ordinary people who invest in virtual currencies can easily lose all their money and have conflicts and disputes with the introducers. So can the lost investment funds be recovered? Today we focus on this issue and study representative cases from courts across Zhejiang.
If I entrust a friend to invest in virtual currency and I lose the principal, can I ask my friend to compensate me?
Case 1: (2023) Zhejiang 0481 Civil No. 3094
Xing and Shen were friends. Shen told Xing that investing in virtual currency would ensure a profit . Based on the trust between friends, Xing handed over 10,000 yuan to Shen, who invested and operated the currency, and Xing gained profits. Later, Shen made an operational error, which resulted in Xing's 10,000 yuan principal being lost. Shen admitted that there was a problem with his operation and was willing to compensate Xing for 70% of his investment , but he never fulfilled his promise. Xing filed a lawsuit in court, demanding Shen to return his investment of 7,000 yuan.
During the trial, Xing submitted WeChat chat records as evidence to the court. Shen said to Xing: "After I lost a trade following the strategy, I opened another trade with the remaining money and carried it. My position went bankrupt. About 70% of the money was lost by me. Let's see how to compensate you."
Case Analysis:
In the eyes of ordinary people without professional legal knowledge, the facts of this case are clear and distinct. It was Shen's persuasion that made Xing believe that investing in virtual currency would make a steady profit. After the loss occurred, Shen also admitted that 70% of the loss was caused by his wrong operation and promised to compensate. Xing is now suing just to get back the compensation that Shen refused to pay. The court should support Xing's claim. However, the court's ruling was not so. The court rejected Xing's lawsuit.
The court held that:
On September 4, 2017, the People's Bank of China and other departments issued the "Notice on Preventing Risks in Token Issuance and Financing" , which reminded investors that they must bear the investment risks themselves. The investment project involved in the case is a network virtual currency similar to Bitcoin. According to the notices and announcements issued by the People's Bank of China and other departments, virtual currency is not issued by the monetary authority, does not have monetary attributes such as legal compensation and compulsion, and is not a real currency. In terms of nature, the virtual currency involved in the case is actually a specific virtual commodity sold and circulated by the virtual currency platform. It does not have the same legal status as currency and cannot and should not be circulated and used as currency in the market. Although the behavior of citizens investing and trading in such illegal items is personal freedom, it cannot be protected by law. In this case, the plaintiff handed over the money to the defendant for investment and financial management of virtual currency. These behaviors are not protected by law in China, and the consequences of their behaviors should be borne by the plaintiff.
The final judgment of the court:
All of Xing’s claims were dismissed.
Attorney Mankiw’s analysis:
In short, after the release of the "Notice on Preventing the Risks of Token Issuance and Financing" in September 2017, the investment behavior of buying and selling virtual currencies is illegal in China. Although it is not illegal, it is not protected by law. If the principal is lost due to the entrusted investment in virtual currencies, and the trustee is required to compensate for the loss, even if the trustee promises to protect the principal, the court will not support it.
So does it mean that once you buy virtual currency, you have to accept your fate if you lose money, and you cannot seek redress through legal means?
I entrust someone to buy virtual currency, but the other party does not purchase the sufficient amount. Can I ask for a refund?
Case 2: (2019) Zhejiang 0726 Civil No. 2357
Ying met Zhu through someone else's introduction and knew that Zhu was engaged in virtual currency trading. On April 26, 2018, Ying handed 13,000 yuan in cash to Zhu and asked Zhu to help buy 10,000 IBOT coins at the price of 1.3 yuan each on Caesars.com. Afterwards, Zhu "charged" Ying with more than 9,000 IBOT coins. Caesars.com, where IBOT coins were purchased, is now closed. Ying was unable to get back the principal, so he sued Zhu and demanded that he return the principal of 13,000 yuan.
Case Analysis:
At first glance, this case is very similar to Case 1. It is also about citizens entrusting each other to invest in virtual currency, and for various reasons, they lost the principal and sued the entrustee to compensate for the lost principal. Logically, the court should also dismiss all of Ying’s claims. However, careful readers should find the difference. Ying entrusted Zhu to purchase 10,000 IBOT coins, but Zhu only purchased more than 9,000 IBOT coins.
The court held that:
Illegal debts are not protected by law. According to the notices and announcements issued by the People's Bank of China and other departments, the virtual currency purchased by the plaintiff on behalf of the defendant was not issued by the monetary authorities, did not have monetary attributes such as legal compensation and compulsion, and was not a real currency. In terms of nature, virtual currencies such as Bitcoin are a specific virtual commodity that does not have the same legal status as currency and cannot and should not be circulated and used as currency in the market. Although citizens' investment and trading in virtual currencies is a personal freedom, it is not protected by law.
In this case, the plaintiff handed over the involved amount of 13,000 yuan to the defendant, and asked the defendant to purchase 10,000 IBOT coins at a price of 1.3 yuan each. The defendant should deliver 10,000 IBOT coins to the plaintiff as agreed. According to the statements of the plaintiff and the third party, the defendant only "charged" the plaintiff with more than 9,000 IBOT coins. Since the defendant failed to provide evidence to prove that he had purchased 10,000 IBOT coins for the plaintiff, the defendant shall bear the adverse consequences. Although the risks arising from investing in virtual currencies are not protected by law, the defendant has no evidence to prove that he used all the money he received from the plaintiff to invest in virtual currencies. For the natural debt formed by the 1,300 yuan collected for the unfinished entrusted matters, the plaintiff has the right to request the termination of performance, and the defendant should return the corresponding improper benefits and pay the interest on the funds occupied.
The final judgment of the court:
The court ruled that Zhu should return 1,300 yuan to Ying and rejected Ying's other claims.
Attorney Mankiw’s analysis:
The act of investing in virtual currency is not protected by law, but my country's judicial practice recognizes the virtual commodity attributes of virtual currency. The legal relationship derived from its commodity attributes is protected in judicial practice. This explanation may still be too abstract. Let's use online game equipment, which is also a virtual commodity, as an example. Readers can compare virtual currency to online game equipment. When buying and selling online game equipment, if the buyer pays and the seller does not deliver the goods, then naturally you can sue the court and ask the seller to either return the money or deliver the goods. But if the buyer buys online game equipment and the seller delivers the goods as agreed, but the version is updated two days later and the value of the equipment plummets, if the buyer sues the seller in court to return part of the payment, the court will not support it. Of course, virtual currency is different from online game equipment. my country is still exploring the regulations on virtual currency at the judicial level. The above analogy is only for the sake of understanding, and the two should not be completely equated.
In addition to the above situations, Attorney Mankiw also found a special case through his search.
If I entrust someone else to buy virtual currency, is it true that I won’t get any compensation if I suffer losses?
Case 3: (2022) Zhejiang 0182 Civil No. 2506
On July 30, 2019, Ye met Jin through a friend. Subsequently, Jin lured Ye to invest by promising profits from the promotion of digital currency VRT, and said that the platform currency VRT generated by investing in VRBank could be converted into mainstream digital currencies such as Bitcoin and USDT and could be cashed out on the exchange. Ye registered a VRBank account with the help of Jin. Ye successively purchased a total of RMB 669,390 worth of digital currency VRT from Jin. At the end of December 2019, Ye could no longer log in to Jin's registered VRBank account through the mobile APP, so he asked Jin for a refund. Because Jin did not refund the money, Ye filed a lawsuit, demanding that Jin return RMB 669,390.
Case Analysis:
The facts of this case are basically the same as those in Case 1. There is no difference at the legal level between the currency price fluctuations and the losses caused by the platform running away. The defendant has not even promised stable profits or compensation for losses, but the final judgment is very different.
The court held that:
Online virtual currency is not issued by the monetary authorities, does not have the monetary attributes such as legal compensation and compulsion, does not have the same legal status as legal tender, and cannot realize the circulation function through the redemption of legal tender. Based on this, the virtual currency trading between the plaintiff and the defendant is essentially an unauthorized illegal financing behavior, which seriously disrupts the economic and financial order and should be confirmed as invalid. The defendant knew or should have known that online virtual currency cannot be bought and sold, but still recommended relevant information to the plaintiff and assisted him in purchasing it. The plaintiff voluntarily registered a VRBank account and repeatedly transferred money to the defendant to purchase the corresponding virtual currency while knowing or should have known that online virtual currency cannot be bought and sold. Both parties were at fault for this transaction and should bear corresponding responsibilities. This court determines that the defendant shall bear 50% of the responsibility.
The final judgment of the court:
The court ruled that Jin should return RMB 334,695 to Ye, and rejected Ye's other claims.
Attorney Mankiw’s analysis:
Because my country is not a country of case law like Europe and the United States, and in order to balance legal principles and common sense, judges have a large degree of discretion. In this case, it can be seen that the judge fully exercised his discretion. The author speculates that it may be because the funds involved in this case are too large, which led the judge to rule that the defendant should also bear 50% of the responsibility based on the principle of fairness.
Attorney Mankiw's Summary
From the above cases, we can see that, in principle, after the release of the "Notice on Preventing the Risks of Token Issuance and Financing" in September 2017, the investment behavior of buying and selling virtual currencies is not illegal in China, but it is not protected by law. If you entrust others to invest in virtual currencies, the losses incurred in this investment behavior cannot be protected by law. This principle was further emphasized in the "Notice on Further Preventing and Dealing with the Risks of Virtual Currency Trading Speculation" jointly issued by multiple ministries and commissions in September 2021. If investing in virtual currencies and related derivatives violates public order and good morals, the relevant civil legal acts will be invalid, and the losses caused by this will be borne by the person himself.
However, in judicial practice, my country recognizes the value of virtual currency as a virtual commodity, and other legal relationships based on its commodity attributes, such as buying, selling, lending, etc., may be recognized and protected. Finally, even if there is a real investment loss, although the possibility is very low, there is still a chance to obtain certain compensation based on the judge's discretion.
