In April this year, the Taoyuan District Court in Taiwan ruled on a cryptocurrency fraud case in the name of "moving bricks". Among them, Zou Beichen, a well-known developer of Taiwan's Ton ecosystem, was sentenced. From this case, we can learn that the proliferation and lack of management of Taiwan’s cryptocurrency asset management companies further highlights that Taiwan’s current supervision of “VASPs” (virtual asset service providers) still lags behind international standards.

Guaranteed profits to external parties, causing trouble for brick-moving companies

According to the judgment, on October 3, 2017, Zou Beichen, Wang Tingyou and other partners jointly established "Block Future Co., Ltd.". The company is mainly engaged in the business of operating virtual currency transactions and mining machine sales on behalf of customers. After the company was established, Zou Beichen was responsible for writing the brick-moving program, which was used to track the price differences between various virtual currency exchanges and conduct arbitrage transactions of buying low and selling high.

The Buzhuan program designed by Zou Beichen aims to earn price differences by buying and selling virtual currencies between different exchanges. However, Zou Beichen knew that the program might cause losses due to factors such as network delays, transaction time differences, and price fluctuations during operation. However, even though he was aware of this risk, he still helped the company to claim that the program guaranteed profits.

Fraudulent techniques: Create internal and external accounts, users think they are making money

The fake accounts concealed the fact of losses and eventually broke out

According to the verdict, Zou Beichen, under the instruction of Wang Tingyou, designed an internal and external accounting system and a performance equalization program to conceal the actual losses in the operation of the brick-and-mortar program. This system presents customers with false virtual currency holdings and evenly distributes single-day trading losses with profits from other trading days, creating the illusion of false daily profits. Ultimately, the blockchain company revealed the truth on June 1, 2018 due to its inability to maintain the false illusion of profitability.

Publish false information to customers: Profit guaranteed

Zou Beichen was responsible for the technical maintenance of the company's website. Under Wang Tingyou's instructions, he helped publish false information that guaranteed profits. This information was made public on the Q&A page of the company's website, misleading a large number of investors, making them mistakenly believe that the brick-and-mortar program had "no risk of loss" and started investing one after another.

The defense tried to get away with a disclaimer, but the court did not accept it.

Wang Tingyou's defense stated that the "User Terms" agreed to by the victim already stated that "profit is not guaranteed" and believed that the victim used the service with the understanding that losses would occur. The court held that the wording of the "User Terms" was difficult to understand and full of grammatical loopholes. It was obviously translated directly using translation software. In addition, the Q&A page clearly stated that there would be no loss, so it was not accepted.

Judgment results and subsequent developments

In court, Zou Beichen confessed his behavior and detailed the operation of the brick-moving program and its risk of loss. His confession was confirmed by multiple witnesses, including other partners and engineers of the company. Their testimony showed that Zou Beichen clearly pointed out the loss risk of the program in an internal meeting of the company, but in the end, under Wang Tingyou's instructions, he still claimed to guarantee profits.

  • The court finally convicted Wang Tingyou of aggravated fraud and was sentenced to four years and six months in prison.

  • Zou Beichen was sentenced to two years in prison and received a five-year suspended sentence because he confessed to the crime and reconciled with multiple victims. The court considered that Zou Beichen had no previous criminal record and actively compensated the victim. It believed that he had no risk of re-offending and issued a suspended sentence.

Wang Tingyou in this case has paid the price for his crimes. Zou Beichen, who received a suspended sentence, also changed his ways. In the following years, he founded the blockchain technology company FDC (Fundamental Technology), served as the co-founder of the cryptocurrency asset management company DeFITs, and now is a well-known Ton ecological development company in Taiwan, TonFura (If Phone Box ), supported by incubator TONX and venture capital TONcoin.Fund.

Taiwan’s virtual asset management company continues to be in turmoil, highlighting loopholes in VASP supervision

Since the incident in 2018, many virtual asset management companies in Taiwan have still experienced problems, whether it is fund fraud, improper operation losses, misappropriation of funds, improper custody, etc., which have emerged in endlessly. Compared with the current Taiwan exchanges and currency dealers (VASP, virtual asset service providers), there are more stringent supervision and penalties; however, virtual asset management companies that use virtual assets to raise funds and conduct investment promotion are still investment A vacuum zone protected by the protector.

FATF regards virtual asset management companies as VASPs, and Taiwan only targets exchanges and currency dealers

The definition of VASP formulated by the Taiwan Financial Supervisory Commission in accordance with the Financial Action Task Force (FATF) is essentially the same. Points 4 and 5 should include virtual asset management companies such as those in the above cases. However, at present, the Taiwan Financial Supervisory Commission and the Taiwan Association are still limited in limiting the scope of regulation to "exchanges and currency dealers" (which are obliged to pass a laundering statement to enable business); but virtual asset management companies that provide financial services, It is not regulated, allowing operators to take chances and causing investors to suffer.

Source: "Chain News" Comparison of VASP definitions

This case reminds us that there are many risks in the virtual currency market and investors should be cautious about related investments. Perhaps at that time, the industry was still in its infancy, and young start-ups were not sure how to provide services prudently, which led to disaster. Now that regulation and industry are more mature, I believe that public investors will be able to invest in crypto assets with more confidence in a more stable environment in the future.

  • This article is reprinted with permission from: Lian News