Issuing platform currency suspected of fund-raising fraud was prosecuted, and investors' funds were returned

On August 14, 2019, the People's Procuratorate's Case Information Disclosure Network released the indictment of a fund-raising fraud case by the Yandu District Procuratorate of Yancheng City. The indictment shows that the defendants Fu and Jiang set up a virtual currency trading platform and issued AFTC coins , luring many people to buy AFTC coins has been suspected of constituting a crime of fund-raising fraud.

ICO, STO, IMO, IFO, IEO, the terms of blockchain industry financing emerge in endlessly. We have analyzed the legal issues involved in these financing behaviors in previous articles (Chain Law Research｜Why do we say "nothing will work !), we believe that the essence of the various “Os” is to solicit funds from the public, which is illegal under the current regulatory framework.

O1 brief

The defendant, Fu Mou, together with Li Mou and others (handled in another case), illegally set up a virtual currency AFTC currency trading platform on the Internet in March 2018, hyped up the concept of blockchain, issued AFTC currency, and increased the value of the currency through background manipulation. Holding Co., Ltd.” to conduct publicity and promotion, and released false temptation information such as “only rising but not falling” and “holding currency to earn interest” of AFTC coins, luring many investors to buy AFTC coins.

The defendant, Jiang, knew that the AFTC currency was issued on a platform established by the defendant Fu and others, and there was a risk of collapse, which would cause losses to investors in the later stage. He still actively participated in the promotion and absorption of funds as the leader of the third market department, and absorbed the victims Hua XX, Qiu Moumou and others invested in the purchase of AFTC coins. On June 14 of the same year, the defendant Fu Mou closed the AFTC trading platform.

After returning to the case, the defendants Fu and Jiang truthfully confessed their criminal facts, and the defendant Jiang withdrew part of the stolen money of RMB 175,480 and returned it to the victim, obtaining the victim's understanding.

The Yandu District Procuratorate believes that the defendants Fu Mou and Jiang Mou, for the purpose of illegal possession, used methods of fabricating facts and concealing the truth to illegally raise funds from the public, and the amount was huge. According to Article 192, criminal responsibility should be investigated for the crime of fund-raising fraud.

O2 Legal Analysis

On August 24, 2018, the China Banking and Insurance Regulatory Commission, the Central Cyberspace Administration of China, the Ministry of Public Security, the People's Bank of China and the State Administration for Market Regulation jointly issued the "Risk Reminder on Preventing Illegal Fundraising in the Name of "Virtual Currency" and "Blockchain"", pointing out that through Issuing so-called "virtual currency", "virtual assets" and "digital assets" to attract funds and violate the legitimate rights and interests of the public. Such activities are not really based on blockchain technology, but hype the concept of blockchain for illegal fundraising, pyramid schemes, and fraud.

Lawbreakers add "blockchain-related concepts" to illegal fund-raising activities, and fund-raising fraud is a felony among illegal fund-raising crimes, and suspects may face severe penalties.

What is the crime of fund-raising fraud?

According to Article 192 of the Criminal Law, the crime of fund-raising fraud refers to the illegal use of fraudulent means to raise funds for the purpose of illegal possession, and if the amount is relatively large, it is a crime of fund-raising fraud. Having the "purpose of illegal possession" is a necessary subjective element for the crime of fund-raising fraud. If the perpetrator cannot be determined to have the "purpose of illegal possession" subjectively, the crime of fund-raising fraud cannot be established.

What is illegal fundraising?

According to the "Interpretation on Several Issues Concerning the Specific Application of Law in the Trial of Criminal Cases of Illegal Fund-raising" issued by the Supreme People's Court in 2010, illegal fund-raising is an act of absorbing funds from the public (including units and individuals) in violation of the national financial management laws and regulations.

In addition, illegal fund-raising mainly has the following characteristics:

One is to absorb funds without the approval of relevant departments or in the form of legal business;

The second is to publicize to the public through media, promotion meetings, leaflets, mobile phone text messages, etc.;

The third is to promise to repay principal and interest or pay returns in currency, physical objects, equity, etc. within a certain period of time;

The fourth is to absorb funds from the public, that is, unspecified social objects. The objective performance of these four aspects also shows the four characteristics of illegal fund-raising crimes, namely, illegality, openness, temptation and sociality.

In other words, everything from ICO to IEO may be illegal fundraising.

In this case, the AFTC platform issued AFTC coins to lure investors to purchase, which itself is illegal fundraising. Coupled with the use of fraudulent methods and the purpose of illegal possession, the prosecution believes that it is suspected of fund-raising fraud.

If it is determined to constitute a crime of fund-raising fraud, how can investors recover their investment funds?

It is mentioned in the current public indictment that the criminal suspect Jiang Mou voluntarily returned the stolen money and obtained the understanding of the victim, so the court will consider it when sentencing him.

Since the case is tentatively classified as fund-raising fraud, how to protect the rights of subsequent fund-raising participants? That is, how does the investor (victim) recover his investment money?

What needs to be made clear is that as an investor (victim) in a fund-raising fraud case, it is impossible to file a criminal incidental civil lawsuit and directly claim rights.

According to Article 9 of the "Opinions of the Supreme People's Court, the Supreme People's Procuratorate, and the Ministry of Public Security on Several Issues Concerning the Handling of Criminal Cases of Illegal Fund-raising" (hereinafter referred to as "opinions"):

When handling criminal cases of cross-regional illegal fund-raising, the case-handling authorities in the place where the case is hosted shall collect the property involved in the case in a timely manner, and do a good job of basic work for the unified disposal of assets. The case-handling authorities of other places involved in the case shall promptly ascertain the property involved in the case, clarify its source, destination, use, and circulation, handle the formalities of sealing up, seizing, and freezing according to law, and make a detailed list. Enter the only compliance account of the case-handling authority, and provide the relevant information to the case-handling authority of the place where the case is hosted.

After the people's court makes a judgment on the property involved in the case, the relevant localities and departments shall, under the overall coordination of the functional department dealing with illegal fund-raising, effectively perform the obligation of cooperation, and comprehensively use various means to complete the clearing and transportation of the property involved, the realization of property, the collection of funds, Fund clearance and other work to ensure that the actual loss is minimized.

According to relevant regulations, the property involved in the case that is sealed, seized, or frozen should generally be returned to the fund-raising participants after the conclusion of the litigation. If the property involved in the case is not returned in full, it will be returned in proportion to the amount of funds raised by the fund-raising participants. The losses of the compensation fundraising participants are generally prioritized over the execution of other civil debts, fines, and property confiscation.

According to Article 10 of the "Opinions" on the protection of the rights of fund-raising participants, fund-raising participants refer to units and individuals that invest funds in illegal fund-raising activities, except units and individuals that provide assistance for illegal fund-raising activities and obtain economic benefits.

The people's courts, people's procuratorates, and public security organs shall protect the legal rights of fund-raising participants in accordance with the law by publishing the progress of the case and the disposal of assets involved in the case in a timely manner. Fund-raising participants may elect representatives to submit relevant opinions and suggestions to the people's court; if no representative can be elected, the people's court may appoint a representative. The people's court may, depending on the circumstances of the case, decide that the representatives of the fund-raising participants participate in or attend the trial.