Author: Xiao Sa Team

 

What is Dogecoin? A simple understanding is that, in addition to mainstream cryptocurrencies with large market capitalization and strong liquidity such as Bitcoin and Ethereum, it is a "non-mainstream" cryptocurrency directly issued by private individuals (individuals, legal persons or non-legal entities). Most of the Dogecoins do not even have a white paper.

Recently, the Sajie team noticed that a certain poker news media published a news article titled "The first criminal case involving the issuance of virtual currency has caused controversy: whether the withdrawal of liquidity and the loss of currency speculation constitutes fraud", reporting a post-00 classmate who was convicted and punished by the Chinese judicial authorities for fraud after issuing Tugoucoin on a public chain overseas. To be honest, such criminal cases in the currency circle are actually not uncommon, and of course it is difficult to say that it is the first case in my country. The Sajie team has actually handled many similar cases involving suspected crimes due to the withdrawal of liquidity. Today, the Sajie team will combine the recent cases to tell you whether the issuance of Tugoucoin is suspected of a crime and what kind of crime it is suspected of.

Case Introduction

The Sajie team reminds everyone that the following information is all from public information: The suspect in this case, Yang Moumou, was born in 2000. Before the incident, he was a senior student who was about to graduate from a university in Zhejiang Province and a skilled crypto asset player. In May 2022, Yang Moumou noticed that an overseas DAO called Blockchain Future Force (BFF) was promoting its ICO and announced that it would issue coins on May 2, 2022.

At 4:41:46 pm on May 2, 2022, Yang issued a BFF coin on an overseas public chain with the same English name as Qudong Future. More than ten minutes later, Yang added 300,000 BSC-USD and 630,000 BFF to the BFF coin project as a liquidity provider to create a liquidity pool (in layman's terms, it is to inject capital into the BFF coin project to make markets). At the same second when Yang added liquidity, Luo instantly exchanged 85,316.72 BFF coins with 50,000 BSC-USD.

24 seconds later, Yang withdrew the liquidity in the BFF coins, and obtained a total of 353,488.115 BSC-USD and 508,069.878 BFF coins. This behavior caused the BFF coins to depreciate significantly. The value of 81,043 BFF coins that Luo bought with 50,000 BSC-USD instantly dropped to only 21.6 BSC-USD.

After the incident, Luo happened to "open the box" of Yang (find out Yang's real identity information) through a mutual friend and asked Yang to return the funds. After finding Yang, Luo reported to the Public Security Bureau of the High-tech Industrial Development Zone of the Nanyang Public Security Bureau in Henan Province on May 3, 2022, claiming that he was defrauded of more than 300,000 yuan (50,000 U) by investing in virtual currency. The Nanyang Public Security Bureau filed a case for suspected fraud and arrested Yang in November 2022.

Did Yang commit the crime of fraud?

With the development of crypto assets, the threshold for issuing coins has become extremely low. A large number of meme coins, dog coins, and air coins have flourished on overseas public chains. The above-mentioned cases are even common. Although such dog coins are suspected of being a pig-killing scheme and cutting leeks, most of the players in the currency circle regard them as a kind of lucky gameplay and capital game. There are even many professional players in the currency circle who use computer technology to use a large amount of funds to buy and sell dog coins for arbitrage in a very short period of time (commonly known as "dog rushing").

So, does Yang's behavior constitute fraud? According to Article 266 of my country's Criminal Law, fraud refers to the act of defrauding public or private property in a large amount. In judicial practice, the elements for a suspect to be guilty of fraud are as follows:

(1) The criminal suspect has the intention of illegally possessing other people’s property;

(2) The suspect objectively committed "fraud", which is generally an act of "fabricating facts" or "concealing the truth";

(3) The victim was misled by the fraud committed by the suspect and disposed of his own property and suffered property losses.

Based on this, the key to whether Yang committed the crime of fraud lies in whether there is evidence to prove that he had the intention to illegally possess the victim's property, whether he committed fraud, and whether the victim fell into a wrong cognition because of Yang's fraud.

1. The perspective of my country’s judicial organs

In this case, the People's Procuratorate of Nanyang High-tech Industrial Development Zone alleged that the defendant Yang Moumou created a fake BFF coin with the same name and promotional materials as the virtual currency issued by Qudong Future, and recharged 300,000 USDT coins himself as bait. After inducing the victim Luo Mou to recharge 50,000 USDT coins, Yang Moumou withdrew a total of more than 350,000 USDT together with the 300,000 USDT he recharged, defrauding Luo Mou of RMB 330,000. His behavior constituted the crime of fraud.

It can be seen that from the prosecutor's perspective, Yang's act of issuing a fake cryptocurrency with the same name as DAO is a "fraud" act, and the act of creating a liquidity pool and withdrawing funds in seconds is an act of using fake cryptocurrency as "bait" to commit fraud. The victim Luo fell into the wrong perception that Yang might operate the crypto asset project for a long time due to Yang's behavior, resulting in property losses. Therefore, Yang's behavior is a fraud.

(II) The views of the SAJIE team

The Sajie team believes that the prosecutor and the first-instance judge's view that Yang's behavior constitutes fraud is debatable. Although this case does have the appearance of fraud on the surface, in fact, to objectively view and correctly evaluate this case, we need to have a deeper understanding of the gameplay of cryptocurrency. In general, based on the following facts, the Sajie team does not believe that the suspect Yang's behavior in this case constitutes fraud.

We believe that the victim is very likely not to have fallen into subjective misperception, and his act of disposing of property is very likely not done by him, but by an automated trading program written in computer code. The transaction records of the victim Luo Mou show that Luo Mou bought BFF coins in the same second that Yang Moumou added liquidity to the BFF project. The Sajie team agrees with the view of the first instance lawyer in this case that this kind of behavior is highly unlikely to be achieved by the victim Luo Moumou through manual operation, but more likely to be completed by the automated trading software specially written (or purchased) for the "Chongtugou" arbitrage pass (no matter how big the hands are, normal humans are unlikely to complete the act of buying BFF coins within one second, let alone buying coins in the same second as the project party added liquidity without knowing inside information).

According to a third-party person in the cryptocurrency circle who checked the victim Luo's transaction records, it was discovered that the victim Luo had invested a large amount of Dogecoin, and many transactions were completed within a few seconds or tens of seconds to complete the buy-sell arbitrage. The relevant operations were extremely professional, and it can be basically determined that he is a professional "trader" or "cryptocurrency sniper" in the cryptocurrency circle.

Therefore, Sister Sa’s team believes that the victim was not actually “cheated”. In other words, the victim did not fall into a wrong cognition because of Yang’s behavior, and the act of disposing of his own property was not made by him. Yang’s behavior did not constitute fraud.

Final Thoughts

The Sajie team believes that although Yang’s behavior in the above case may not constitute fraud, the behavior of posting a coin is still a high-risk behavior, which may constitute illegal business operations, illegal fundraising, and gambling. Especially for illegal fundraising, when the 9.4 announcement and 9.24 notice are still in effect, ICO behavior, whether done in China or abroad, is still likely to constitute the crime of illegally absorbing public deposits as long as the project owner is in China.