In recent years, virtual currencies have gradually transformed from something that ordinary people hardly heard of into a method of 'wealth creation' that people occasionally hear about. Many people, with a limited understanding of virtual currencies, have, under recommendations from friends, family, or investment institutions, invested in virtual currencies with the hope of getting rich.
However, the market is risky, and investments require caution. The virtual currency market has more risks than ordinary financial markets. In addition to the market value fluctuations of the products themselves, there are also new risks such as trading platform failures and hacker attacks. In such cases, ordinary people investing in virtual currencies can easily lose all their capital and may have disputes with their introducers. So, can they recover the lost investment? Today, we focus on this issue by studying representative cases from courts in various parts of Zhejiang.
If you entrust someone to invest in virtual currencies and suffer a loss, can you ask your friend for compensation?
Case One: (2023) Zhe 0481 Min Chu 3094
Xing and Shen are friends. Shen informed Xing that investing in virtual currencies could yield guaranteed returns. Based on the trust between friends, Xing entrusted Shen with 10,000 yuan for investment, from which Xing expected to gain profits. Later, due to Shen's operational errors, Xing lost the entire principal of 10,000 yuan. Shen acknowledged his operational issues and was willing to compensate Xing 70% of the investment amount, but he never fulfilled this promise. Xing then filed a lawsuit seeking to recover 7,000 yuan of his investment from Shen.
During the trial, Xing submitted WeChat chat records as evidence, where Shen told Xing: 'After losing a trade due to strategy, I opened a trade myself and held onto it, causing a major loss. About 70% of the money was lost due to my mistakes. Let's see how I can compensate you.'
Case Analysis:
To ordinary people without professional legal knowledge, the facts of this case seem clear: it was Shen's persuasion that led Xing to believe that investing in virtual currencies could yield guaranteed profits. After suffering losses, Shen acknowledged that 70% of the losses were due to his operational errors and promised compensation. Now, Xing's lawsuit is simply to recover the compensation that Shen has avoided. The court should support Xing's claim. However, the court's ruling was not so; it dismissed Xing's litigation request.
The court believes:
On September 4, 2017, the People's Bank of China and other departments issued an announcement (on preventing risks from token issuance and financing), reminding investors to bear their own investment risks. The investment project involved is similar to Bitcoin, a type of online virtual currency. According to notifications and announcements issued by the People's Bank of China and other departments, virtual currencies are not issued by monetary authorities and do not possess legal tender characteristics or compulsory attributes, and they are not currency in the true sense. In nature, the virtual currency involved is actually a specific virtual commodity sold and circulated by a virtual currency platform. It does not have the same legal status as currency and cannot and should not circulate as currency in the market. Although the investment and trading of this illegal item is a personal freedom, it cannot be protected by law. In this case, the plaintiff entrusted the defendant with funds for virtual currency investment and financial management. These actions are not protected by law in our country, and the consequences of these actions should be borne by the plaintiff.
Final court ruling:
The court dismissed all of Xing's litigation requests.
Lawyer Mankun's analysis:
In short, after the announcement (on preventing the risks of token issuance and financing) was issued in September 2017, the investment behavior of buying and selling virtual currencies is illegal in our country; although it is not a crime, it is also not protected by law. If entrusted to invest in virtual currencies leads to a loss of principal, even if the entrusted party promises capital preservation, they cannot obtain the court's support.
So, does that mean that if you buy virtual currencies and incur losses, you can only resign yourself to fate and cannot seek legal remedies?
If you entrust someone to purchase virtual currencies but they do not buy enough, can you demand a refund?
Case Two: (2019) Zhe 0726 Min Chu 2357
Ying met Zhu through an introduction and learned that Zhu was engaged in virtual currency trading. On April 26, 2018, Ying entrusted 13,000 yuan in cash to Zhu to help purchase 10,000 IBOT coins at a price of 1.3 yuan each on the Kaiser website. Subsequently, Zhu only provided Ying with over 9,000 IBOT coins. The Kaiser website for purchasing IBOT coins has now been closed. Ying, unable to recover the principal, sued Zhu to demand the return of 13,000 yuan.
Case Analysis:
At first glance, this case is extremely similar to Case One, where a citizen entrusted the investment in virtual currency, and due to various reasons, lost the principal and sued for compensation for the lost principal. Therefore, logically, the court should also dismiss all of Ying's litigation claims. However, attentive readers should notice the difference: Ying entrusted Zhu to purchase 10,000 IBOT coins, but Zhu only purchased over 9,000 IBOT coins.
The court believes:
Illegal debts are not protected by law. According to notifications and announcements issued by the People's Bank of China and other departments, the virtual currencies that the plaintiff entrusted the defendant to purchase are not issued by monetary authorities and do not have legal tender characteristics or compulsory attributes, and they are not currency in the true sense. In nature, virtual currencies like Bitcoin are a specific type of virtual commodity that does not hold the same legal status as currency and cannot and should not circulate as currency in the market. Although individuals' freedom to invest and trade virtual currencies is acknowledged, it is not protected by law.
In this case, the plaintiff entrusted the defendant with 13,000 yuan to purchase 10,000 IBOT coins at a price of 1.3 yuan each. The defendant should deliver 10,000 IBOT coins to the plaintiff as agreed. According to the statements of the plaintiff and third parties, the defendant only provided the plaintiff with over 9,000 IBOT coins. Since the defendant failed to provide evidence that it had purchased 10,000 IBOT coins for the plaintiff, the adverse consequences are borne by the defendant. Although the risks of investing in virtual currencies are not legally protected, the defendant has no evidence to prove that all the funds received from the plaintiff were used for investing in virtual currencies. Therefore, the plaintiff has the right to terminate the performance of the entrusted matter and the defendant should return the corresponding unjust enrichment and pay interest on the funds occupied.
Final court ruling:
The judgment orders Zhu to return 1,300 yuan to Ying, dismissing Ying's other litigation requests.
Lawyer Mankun's analysis:
Investing in virtual currency is not protected by law, but judicial practice in our country recognizes the virtual commodity attributes of virtual currencies. Legal relationships derived from their commodity attributes are protected in judicial practice. This explanation may still be too abstract, so let’s use online game equipment, which is also a virtual commodity, as an example. Readers can compare virtual currencies to online game equipment. When buying and selling online game equipment, if the buyer pays but the seller does not deliver the goods, the buyer can naturally sue in court to demand either a refund or the delivery of goods. However, if the buyer purchases online game equipment and the seller delivers as agreed, but two days later, after a version update, the value of the equipment plummets, and the buyer sues the seller for a partial refund, the court will not support this. Of course, virtual currencies are still different from online game equipment. Currently, our country's judicial regulations on virtual currencies are still being explored, and the above analogy is only for understanding; the two should not be completely equated.
Additionally, apart from the above situation, lawyer Mankun also discovered a special case.
If you entrust someone to operate and purchase virtual currencies and suffer losses, is it really impossible to obtain any compensation?
Case Three: (2022) Zhe 0182 Min Chu 2506
On July 30, 2019, Ye met Jin through a friend's introduction. Subsequently, Jin lured Ye into investing by promoting the digital currency VRT with promised returns, stating that the platform currency VRT generated from investing within VRBank could be exchanged for mainstream digital currencies like Bitcoin and USDT and could be monetized on exchanges. With Jin's help, Ye registered a VRBank account. Ye purchased a total of 669,390 yuan worth of VRT from Jin. At the end of December 2019, Ye could no longer log into the VRBank account registered by Jin via the mobile app, and therefore requested a refund from Jin. Due to Jin's refusal to refund, Ye filed a lawsuit demanding Jin return 669,390 yuan.
Case Analysis:
The facts of this case are almost identical to Case One. The losses caused by currency price fluctuations and platform failures have no legal distinction, and the defendant has not promised stable profits or compensation for losses, but the final judgment is vastly different.
The court believes:
Online virtual currencies are not issued by monetary authorities, do not possess legal tender characteristics or compulsory attributes, and do not hold the same legal status as legal tender. They also cannot achieve circulation functions through conversion with legal tender. Therefore, the buying and selling of virtual currencies between the plaintiff and the defendant essentially constitutes an unauthorized illegal financing behavior that severely disrupts the economic and financial order and should be declared invalid. The defendant knowingly or should have known that online virtual currencies could not be bought and sold, yet still recommended the relevant information to the plaintiff and assisted in purchasing. Meanwhile, the plaintiff, knowing or should have known that online virtual currencies could not be bought and sold, voluntarily registered a VRBank account and repeatedly transferred funds to the defendant to purchase the corresponding virtual currencies. Both parties share fault in this transaction and should bear corresponding responsibilities. The court determines that the defendant shall bear 50% of the responsibility.
Final court ruling:
The judgment orders Jin to return 334,695 yuan to Ye, dismissing Ye's other litigation requests.
Lawyer Mankun's analysis:
Since our country is not a common law country like those in Europe and America, and in order to balance legal principles with moral considerations, judges have considerable discretion. In this case, it can be seen that the judge fully exercised his discretion. The author speculates that the large amount of money involved in this case led the judge to rule that the defendant should bear 50% of the responsibility based on fairness principles.
Lawyer Mankun's summary
From the above cases, we can see that, in principle, after the announcement (on preventing the risks of token issuance and financing) was issued in September 2017, the investment behavior of buying and selling virtual currencies is illegal in our country; although it is not a crime, it is also not protected by law. Entrusting others to invest in virtual currencies means that the losses incurred in that investment behavior are not protected by law. This principle was further emphasized in the notice (on further preventing and handling risks associated with virtual currency trading speculation) jointly issued by multiple ministries in September 2021, stating that investment in virtual currencies and related derivatives that violate public order and good morals renders the relevant civil legal acts invalid, and the resulting losses are to be borne by the individual.
However, judicial practice in our country recognizes the value of virtual currencies as virtual commodities, and other legal relationships arising from their commodity attributes, such as buying and selling, lending, etc., may be acknowledged and protected. Finally, even if there is a genuine investment loss, although the possibility is very low, there may still be an opportunity to obtain some compensation based on the judge's discretion.
