Can I get my investment money back if I participate in virtual currency ICO investment?

Author: Shao Shiwei, Source: Lawyer Liu Honglin

01 Introduction

September 4, 2017, "Announcement on Preventing Token Issuance Financing Risks" (hereinafter referred to as the 94 Announcement) was issued, saying that a large number of domestic ICO (initial coin offering) financings, speculation and speculation were suspected of engaging in illegal financial activities, which seriously disrupted the economic and financial order. And the announcement pointed out that token issuance financing refers to financing entities raising so-called "virtual currencies" such as Bitcoin and Ethereum from investors through the illegal sale and circulation of tokens. It is essentially an act of illegal public financing without approval. , suspected of illegal sales of tokens, illegal issuance of securities, illegal fund-raising, financial fraud, pyramid schemes and other illegal and criminal activities.

02 Real cases

1. In July 2017, Ding met Chen through a friend’s introduction. Chen claimed that he could help Ding make virtual currency investments and recommended to Ding the ShaMiao Coin developed by Black Hole Company. , use ShaMiao coins to raise Bitcoin and Ethereum. The plaintiff transferred 344,000 yuan to the defendant and entrusted Chen to purchase Bitcoin. Chen said that after purchasing a total of 26 Bitcoins and exchanging them for 190,000 ShaMiao coins, he sent the ShaMiao coins to Ding's wallet. After the 94 announcement, Black Hole Company required customers to return Shamu coins and returned the corresponding Bitcoins and Ethereums to customers. Ding returned the ShaMiao coins to Chen's wallet and entrusted Chen to return them to Black Hole Company. After receiving it, Black Hole Company returned the 26 Bitcoins to Chen, but Chen refused to return them to Ding.

2. In October 2018, Li met Wang through a friend’s introduction. Wang introduced to Li that he was running a digital currency derivatives exchange and that the exchange would issue virtual currencies. Therefore, Li signed a "Financing Agreement" with Wang's company and transferred 20 Bitcoins according to the address provided in the agreement. Later, Li learned that the digital currency derivatives exchange mentioned by Wang had not been established, and the corresponding virtual currency had not been issued. However, Li asked Wang to return the Bitcoins he had previously delivered, but his request was unsuccessful.

03 Lawyer Analysis

The 94 announcement pointed out that for token issuance financing and transactions, investors must bear their own investment risks. In judicial practice, there are also different understandings of the effectiveness of entrusted investment in ICO. Some people believe that the contract is valid and believe that the 94 Announcement prohibits any organization and individual from engaging in token issuance and financing activities, but does not prohibit individual investment activities. There is an argument that the contract is invalid. It is believed that investment behavior violates public order and good customs (financial security, market order).

Recently, the "Minutes of the National Court Financial Trial Work Conference (Draft for Comments)" (hereinafter referred to as the "Minutes") were released. Chapter 3 of the Minutes, Articles 83-88, covers the main issues in practice. Existing virtual currency dispute cases and their handling rules. Article 84 stipulates the trial of entrusted investment in virtual currency disputes, which is as follows:

The parties agreed in the contract that the client would register an account on the virtual currency trading platform in his own name and entrust the trustee to Engage in investment activities; or if the principal directly delivers funds to the trustee and the trustee engages in investment management in his own name or actually borrows the name of another person, the two parties may be deemed to have established an entrusted investment contract. If the contract was signed after the "Announcement on Preventing Token Issuance Financing Risks" (September 4, 2017) was released, the People's Court should determine that the entrustment contract is invalid because the agency matter is illegal. For the loss suffered by the client, the cause of the entrusted matter can be used as the main consideration in determining the degree of fault, and the losses will be shared by the parties.

The meeting minutes simply and clearly stipulate the legal effect of the ICO entrusted investment contract (emphasis added): Taking September 4, 2017 as the boundary, contracts signed before that date are valid, and contracts signed after that date are valid. contract is invalid.

As for the legal consequences of invalidating the contract, that is, whether the investment money should be returned, the "Meeting Minutes" also make it clear: the loss suffered by the client will be shared according to the degree of fault.

This also corresponds to the legal consequences of invalid contract in Article 157 of my country's Civil Code. Compared with the 94 Announcement, which stipulates that the principal should bear the risk at his own risk, it is also more fair and reasonable.

Article 157 of the Civil Code: After a civil legal act is invalid, revoked or determined to be ineffective, the property obtained by the actor as a result of the act shall be returned; if the return cannot be made or is unnecessary If it is returned, it should be compensated at a discounted price. The party at fault shall compensate the other party for the resulting losses; if both parties are at fault, they shall each bear corresponding responsibilities. If the law provides otherwise, such provisions shall prevail.

The two cases at the beginning of the article are both quoted from court judgments.

The first case is an effective court judgment in 2019. After the trial, the court believed that the entrustment contract between the two parties in this case complied with legal provisions, and therefore recognized the legal validity of the entrustment contract. If the entrusted matter is stopped for any reason, the defendant should return the corresponding price. Since virtual currency does not have monetary properties and cannot circulate in the market, Bitcoin cannot be returned. [(2019) E 0106 Minchu No. 2042]

In the second case, the client’s petition failed to be supported by the court because the trustee company was an overseas company and had been cancelled.

In similar cases, if the principal signs an entrustment contract with the trustee personally, and the trustee cannot prove that he has performed the entrusted affairs, even if the entrustment time is after the 94 Announcement, the court will still rule that the trustee The obligation to return should be borne, but the loss of interest is not supported. [(2019) Su 12 Min Zhong No. 3024]

Therefore, although it is stipulated in Announcement 94, in practice, the court still considers the degree of fault of both parties, the burden of proof and other factors to comprehensively determine both parties Shared responsibilities. The "Minutes of the Meeting" should also be relatively clear and explicit provisions made with reference to the tendencies of judicial practice, and provide a direction for future judicial practice rules.