Legal Boundaries in Virtual Money Investment Disputes: Distinction Between Civil Disputes and Criminal Offenses

Introduction

Since the relevant regulatory policies were introduced in 2021, a basic consensus has formed regarding the attitude of mainland China towards Virtual Money: investing in Virtual Money and its derivatives is not prohibited for citizens, but if it violates public order and morals, the law will not provide protection, and the risks are borne by the individual. Since Virtual Money is not considered legal tender, it should not be circulated as a means of payment in the market.

This has led to some dilemmas in judicial practice. Most civil filing courts no longer accept legal disputes related to Virtual Money, while the evidentiary standards for criminal filings are quite high, making it very difficult to successfully file a case.

However, the judicial authorities are increasingly recognizing the property attributes of mainstream Virtual Money. Sometimes there are even extreme cases where virtual money investment disputes, which clearly belong to the civil domain, are treated as criminal cases. Therefore, it becomes particularly important to clearly distinguish between "civil disputes" and "criminal offenses" in virtual money investment disputes. This article will analyze this issue in depth through a specific case.

I. Case Overview

According to a public judgment from the Intermediate People's Court of Foshan City, Guangdong Province ((2024) Yue 06 Criminal Final 300), the case is roughly as follows:

From May to June 2022, the defendant Ye某某 fabricated an investment project, promising high returns to investors, which lured Wu某某, Chen某某, Ye某Kun, and others to invest a total of 2.5 million yuan (among which Ye某Kun invested 500,000 worth of USDT).

After receiving the funds, Ye used most of it for personal consumption and repaying debts. Later, due to an inability to pay interest and return the principal, investors reported the case.

The court determined after trial that Ye certain constituted the crime of fraud, and sentenced him to 11 years of imprisonment in the first instance. After Ye certain appealed, the appeal was dismissed and the original judgment was upheld.

The main defense argument of the defendant Ye XX and his defense lawyer is as follows:

1. The relationship between Ye and the investor is a private lending relationship;
2. The evidence is insufficient to prove that Ye certain received Virtual Money worth 500,000 yuan from Ye Moukun.

Both of these opinions were not adopted by the court.

It is worth noting that the court directly described the USDT received by the defendant as "funds", which is a controversial qualification. Strictly speaking, if citizens purchase USDT and other virtual money with legal tender and then suffer investment losses, the law generally does not provide protection. However, if virtual money is scammed by others, should it be entitled to legal protection? Current judicial practice tends to provide certain protection for mainstream virtual money, but this requires a clear distinction between civil investment and criminal offenses.

2. From "Civil Disputes" to "Criminal Fraud": What are the Standards for Determination?

Taking the crime of fraud as an example, the essential difference between "civil disputes" and "criminal fraud" lies in whether the perpetrator has the intent to illegally possess and whether they have objectively committed fraudulent acts.

In this case, the court's main reasons for finding Ye certain guilty of fraud include:

1. The defendant admits to using part of the investment funds to repay personal debts;
2. The defendant admits to using part of the funds for lending to others and investing in Virtual Money;
3. The bank statement shows that after receiving an investment of 1 million yuan, Ye certain used 438,000 yuan the next day to purchase a Mercedes-Benz sedan;
4. Ye XX had external debts at the time of receiving the investment funds and owned no real estate.
5. Mr. Ye had a monthly income of 7,000 to 8,000 yuan at that time, but he had to pay a car loan of 10,000 yuan each month, which left him with a deficit.
6. To respond to investors' claims, Ye created false Virtual Money transfer records and had not actively raised funds for repayment until the incident occurred.

Considering these factors, the court found that Ye had committed fraud. In practice, a single factor may not be sufficient to establish fraud, but the difficulty of defense significantly increases when multiple factors are combined. Unless the defendant can provide evidence to prove that the investor's funds were indeed used for real investments.

3. Court Determination: Virtual Money Can Be Used as an Object of Fraud

One point worth noting in this case is that the investor Ye Moukun used USDT worth 500,000 yuan for the transfer, which was ultimately recognized by the court as "funds" for investment. Although the defense attorney argued that it was difficult to prove that Ye received this virtual money (considering the anonymity of virtual money wallet addresses), the court provided the following reasons:

1. WeChat chat records show that on June 28, 2022, Ye某某 replied "Received" to "Ye某坤 transferred 500,000 RMB equivalent of USDT to Ye某某";
2. Ye certain acknowledged in the record that he received virtual money worth 500,000 yuan.

The court believes that virtual money has manageability, transferability, and value, and can be used as an object of fraud. Therefore, it is determined that Ye XX defrauded Ye Xikun of 500,000 worth of USDT.

4. Practical Judgment: Investor Losses Do Not Equate to Being Scammed

It should be emphasized that not all virtual money investment disputes constitute fraud crimes. Investment losses do not necessarily mean that fraud has occurred; the boundary between criminal and civil matters must be defined according to legal standards. In judicial practice, determining whether a fraud crime has occurred usually considers the following key factors:

1. Does the actor have the "intent to illegally occupy"?

This is one of the subjective elements of the crime of fraud. Judicial authorities will determine whether the perpetrator intended to illegally occupy the property of others from the very beginning when initiating a Virtual Money project or raising funds. If the perpetrator has a genuine intention to operate but fails due to technical, market, or other reasons, it generally falls under investment risk; conversely, if they knowingly engage in a false project or are unable to perform, yet still deceive investors through fictitious means, it is often recognized as fraud.

2. Is there any behavior of fabricating facts or concealing the truth?

The implementation of the crime of fraud is "fabricating facts" or "concealing the truth". In the field of Virtual Money, common manifestations include:

• Fabricating non-existent Virtual Money platforms;
• Claims of "blockchain technology breakthrough", "national endorsement", and "has obtained listing approval" are obviously false information;
• Deliberately concealing the use of funds, misappropriating facts, or payment risks.

If the perpetrator causes others to fall into a misunderstanding and transfers property through these means, it meets the objective requirements of the crime of fraud.

3. Did the victim "dispose of property based on a misunderstanding"?

The essence of the crime of fraud is "to deceive others into willingly handing over property." Judicial authorities will examine whether the victim made an investment decision due to being misled. If the investor actively participates in high-risk projects after fully understanding the risks, it is difficult to constitute fraud even if they ultimately incur losses; however, if they invest based on false profit expectations or non-existent projects, it may be recognized as fraud.

4. Are the fund flows and uses real and legal?

In judicial practice, the true direction of funds will also be investigated. If the funds are rapidly transferred, dispersed, or used for personal consumption, gambling, or other illegal purposes, or if they are not invested in project construction at all, this will strengthen the judgment of "illegal possession." Conversely, if the funds are used for actual project investment and the financial accounts are clear, even if the project fails, it is more likely to be classified as a civil dispute rather than fraud.

V. Conclusion

The investment field of virtual money is rife with opportunities and risks, and investors must be cautious of potential legal risks while pursuing high returns. From a judicial practice perspective, disputes arising from virtual money show a complex trend of "civil and criminal interweaving." Among the most common charges is criminal fraud, which requires judicial authorities to strictly adhere to legal standards.

For ordinary investors, it is important to approach so-called "insider information", "state support", and "guaranteed profits" with caution, enhancing risk awareness and making prudent decisions. In the event of a loss, one should also rationally assess the avenues for rights protection, whether to choose civil litigation (which is currently quite difficult) or to seek criminal prosecution, which needs to be analyzed based on the specific situation.

Although the virtual world is intangible, the legal standards must not be ambiguous. Only by progressing within regulations can a dynamic balance between technological development and legal protection be achieved.