Given the overall negative attitude of domestic policies towards virtual currencies and related transactions and investments, many KOLs (Key Opinion Leaders, or big Vs) have moved from domestic social media platforms such as Weibo, Zhihu, and Douyin to foreign platforms such as Twitter (i.e., Twitter, X), and YouTube. According to incomplete statistics, in the first half of 2023, the content of Chinese cryptocurrency circles increased by 87% compared with the same period last year. Following Huang Tui and Zheng Tui, the cryptocurrency circle has become another top stream on Chinese Twitter.
After accumulating information and attracting a lot of attention, the main goal of most KOLs is to monetize the traffic. Common ways for KOLs to monetize include: knowledge payment, project promotion, commission rebate for bringing in orders, SocialFi, etc.
Lawyer Shao has previously conducted legal analysis on the risks of KOLs’ paid knowledge, commission rebates for bringing in orders, and SocialFi.
In practice, the most common risks are those caused by KOLs promoting projects. Lawyer Shao has handled many KOL-related consultations and has also handled many criminal cases involving KOLs and criminal legal risk prevention and control cases.
Article | Lawyer Shao Shiwei
01. Case introduction
1. KOL promotes virtual asset trading platforms
The collapse of the virtual asset trading platform JPEX is regarded as the "first criminal case in the Hong Kong cryptocurrency circle". Previously, many celebrities and internet celebrities have promoted the platform. Celebrities and internet celebrities who have endorsed or promoted JPEX include Hong Kong artist Julian Cheung, Taiwanese singer Chen Lingjiu, Hong Kong model Chong Simin, Hong Kong internet celebrity rich second generation Lin Zuo, YouTuber Chen Yi, etc.
According to JPEX's official website, JPEX claims to have "obtained licenses from Canada, the United States and Australia" and is a "licensed virtual currency platform." In July 2022, the Hong Kong Securities and Futures Commission listed JPEX on the list of unlicensed companies and suspicious websites, and issued a warning statement on September 13 this year stating that none of JPEX's physical stores have been licensed by the Securities and Futures Commission, nor have they applied for licenses.
(Picture from the Internet)
On September 18, 2023, the Hong Kong police announced that eight people, including Hong Kong internet celebrities Lin Zuo and Chen Yi, were arrested on charges of conspiracy to defraud.
2. KOLs support cryptocurrency projects
The project owner Xirtam introduced that it is the world's first advanced non-KYC blockchain reputation building system. According to the project owner's white paper, XIRTAM wants to create a free Play-to-Earn game world, and players can participate without purchasing any tickets. March 2023 will be the peak period for the project owner to promote it, and the phenomenon of KOL shouting orders in the Chinese area is obvious. Shiguang, Momo, Crypto Compass, Chongdi and others have promoted the project extensively, calling on retail investors to buy. The project owner defrauded more than 2,000 Ethereum funds through seed round investment, Dutch auction, public investment, etc., and the number of people deceived was several thousand. After that, the project owner ran away, and the token price fell by more than 90% in a few hours.
According to public information on the Internet, the XIRTAM project team has been brought to justice in Mianyang, Sichuan, and the KOLs Shi Guang and Mo Mo, the biggest suspects, have not posted any updates since the tweet on May 3.
3. KOL publishes tweets to attract attention for the project
According to a user consultation Lawyer Shao recently received (due to user privacy, the content involved has been slightly modified), a KOL is a big V with 300,000 fans on the social platform. One day, he received a private message from a project party, wanting TA to help promote him. The quotation for a tweet was 900U. The user posted 3 tweets with the same content for the project party within two weeks and received a total of 2,700U.
Unexpectedly, the KOL received messages from fans one after another saying that the project he had previously recommended was a "pig killing scheme" and that many users had purchased large amounts of financial products on the platform operated by the project party. Currently, the platform cannot be opened and the project party has lost contact.
02. Cryptocurrency KOLs promoting projects may be subject to criminal charges
If the project owner is suspected of a criminal offense, and the KOL plays an obvious role in promoting and publicizing the project involved, then the KOL may be identified as an accomplice by the judicial authorities and bear criminal responsibility. Common criminal risks include fraud, opening a casino, pyramid schemes, etc.
1. Fraud
In April 2024, the decentralized gambling game platform ZKasino was rumored to have run away. Lawyer Shao had previously analyzed the case. A few days later, the people involved in the project were arrested by the Netherlands Financial Information and Investigation Bureau on suspicion of fraud.
If the project party's behavior is confirmed to be fraudulent, the KOL who has carried out publicity and promotion for the project party is suspected of committing a joint crime of fraud based on his or her degree of knowledge, the depth of his or her participation in the project, and the degree of profit he or she made.
2. Crime of opening a casino
A Weibo user posted in April 2024 that if one participates in the perpetual contract platform's handling fee rebate and develops downlines as an agent, he or she will constitute an accomplice to the crime of opening a casino.
KOLs may only tweet the platform promotion code or post an invitation link under a YouTube video, and they themselves do not trade the contracts they promote. However, the platform system will bind the people who enter the platform and trade through the links posted by KOLs, so KOLs become agents in the crime of opening a casino.
According to the law, those who "participate in profit sharing with gambling websites" or "act as agents of gambling websites and accept bets" are considered to be "opening a casino" as stipulated in the second paragraph of Article 303 of the Criminal Law.
3. Organizing and leading pyramid selling activities
For example, in the Plus Token 40 billion virtual currency pyramid scheme case handled in Yancheng, Jiangsu, the project owner created the Plus Token wallet in the name of providing digital currency value-added services and continued to conduct pyramid schemes. The court sentenced Chen and others to organize and lead pyramid schemes, and the people involved were sentenced to 2-11 years in prison. According to recent inquiries received by Lawyer Shao, police in various places are still arresting agents on the platform.
According to the law, "personnel who undertake publicity, training and other duties in MLM activities" can be identified as organizers and leaders of MLM activities. Therefore, if the project promoted by a KOL is suspected of MLM, even if they claim that they are not a member of the project, they may still be identified as suspected of MLM crimes.
03. Final words
Since KOL is called a "key opinion leader", it is natural for them to bear corresponding responsibilities. Every word and action must be considered whether it is responsible to the fans and the public.
In order to avoid potential legal risks as much as possible, KOLs must make careful decisions when promoting and cooperating with project parties. In legal terms, "due diligence" is required before cooperating, that is, careful investigation, analysis, and evaluation of the background, business conditions, and possible risks of the proposed cooperation. Whether KOLs are physically present in China or abroad, they must first consider criminal risks. After all, the criminal jurisdiction of countries around the world has a certain degree of "long-arm jurisdiction" characteristics.
Of course, if it is difficult to judge whether the promotion of the project will cause legal risks to yourself, you can consult a lawyer if necessary.
[1] Ordinary people’s shortcut to becoming rich in the cryptocurrency world: Become a KOL (2023 edition) https://mp.weixin.qq.com/s/hFs-CQVWUV1H51sv9L5Ijw