China’s First Crypto Fraud Case: Student Sentenced to 4 Years in Prison
In a landmark case that has garnered widespread attention in China, a university student has been sentenced to four years and six months in prison and fined 30,000 yuan (approximately $41,000) for “fraudulently” issuing a cryptocurrency named BFF on Binance’s BNB Chain.
The case was heard at the Nanyang High-tech Industrial Development Zone People’s Court in Henan Province, marking the first criminal case in China involving the issuance of virtual currency. According to local media reports, the incident began in May 2022 when a senior student from a university in Zhejiang created a digital virtual currency called “Blockchain Future Force” (BFF) on Binance Chain.
The student allegedly injected liquidity into the token on Binance and then withdrew the funds, causing the value of BFF to plummet. A purchaser of BFF, identified as Mr. Luo, lost 50,000 Tether (USDT), equivalent to about 330,000 RMB, due to the token’s depreciation.
Defense and Court Deliberations
The student’s defense lawyer argued that Mr. Luo, as an experienced participant in cryptocurrency trading, should have been aware of the risks involved. The lawyer contended that Mr. Luo “clearly understood” the speculative nature of cryptocurrency investments and acknowledged the lack of regulatory oversight in the industry.
The defense also questioned whether Mr. Luo’s decision to convert 50,000 USDT into BFF was a result of poor judgment, given the inherent investment risks associated with virtual currencies. The trial also addressed whether virtual currencies are considered property protected under criminal law.
Despite the fact that cryptocurrencies do not possess monetary attributes, the court recognized their ability to be traded on international platforms, generate economic benefits, and exhibit undeniable property characteristics. Thus, the court considered the conversion of $50,000 USDT into the official national currency, RMB, as a “relevant factor” in determining the sentence.
Implications and Reactions
The defense lawyer emphasized that although Mr. Luo initially claimed to have been defrauded, subsequent analysis of his trading records indicated that he engaged in a series of rapid and profitable transactions. This raised doubts about the fraud allegations, suggesting that Mr. Luo might have actually profited from his investments.
The case has sparked extensive discussion about the legal status and regulation of virtual currencies in China. Given that Chinese law has not fully recognized the legality of virtual currencies, issues surrounding their issuance, trading, and protection remain ambiguous. The outcome of this case could set a precedent for future legal proceedings involving virtual currencies, shaping the legal landscape of this emerging sector.
This case underscores the complexities and risks associated with cryptocurrency investments and the ongoing challenges in regulating digital assets within existing legal frameworks.
