Participate in virtual currency ICO investment, can the investment money be returned?

Take the case as an example.

Written by: Shao Shiwei, senior lawyer of Shanghai Mankiw Law Firm

On September 4, 2017, the "Announcement on Preventing the Risks of Token Issuance and Financing" (hereinafter referred to as the 94 Announcement) was issued, saying that domestic ICO (Initial Coin Offering) financing has sprung up, speculation is prevalent, suspected of engaging in illegal financial activities seriously disrupted economic and financial order.

And the announcement pointed out that token issuance financing refers to the so-called "virtual currency" such as Bitcoin and Ethereum raised by the financing entity from investors through the illegal sale and circulation of tokens, which is essentially an illegal public financing without approval. , Suspected of illegal and criminal activities such as illegal sale of token coupons, illegal issuance of securities, illegal fundraising, financial fraud, and pyramid schemes.

real case scenario

Case number one:

In July 2017, Ding met Chen through a friend's introduction. Chen claimed that he could help Ding to invest in virtual currency, and recommended to Ding the Shamiao coin developed by Black Hole Company, and used the Shamiao coin to raise money. Bitcoin and Ethereum. The plaintiff transferred 344,000 yuan to the defendant and entrusted Chen to buy bitcoins. Chen said that after purchasing 26 bitcoins in total and exchanging them for 190,000 Shamiao coins, he sent the Shamiao coins to Ding's wallet.

After the 94 Announcement was released, Black Hole Company asked customers to return Shamiao coins, and returned the corresponding Bitcoin and Ethereum to customers. Ding returned the Shamiao coin to Chen's wallet and entrusted Chen to return it to the Black Hole Company. After receiving it, Black Hole returned 26 bitcoins to Chen, but Chen refused to return it to Ding.

Case 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 the exchange would issue virtual currency at the same time. Therefore, Li and Wang's company signed the "Financing Agreement", 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 delivered before, but the request failed.

Lawyer Analysis

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

Recently, the "National Court Financial Trial Work Conference Minutes (Draft for Comment)" (hereinafter referred to as the "Meeting Minutes") was released. Articles 83-88 of Chapter 3 of the meeting minutes deal with the main virtual currency disputes in practice and its processing rules. Article 84 of which stipulates the trial of entrusted investment virtual currency disputes, the content is as follows:

The parties agree in the contract that the trustor registers an account on the virtual currency trading platform in his own name and entrusts the trustee to engage in investment activities; or the trustor directly delivers the funds to the trustee, and the trustee in his own name or Where the investment management is actually carried out in the name of another person, it can be deemed that the two parties have established an entrusted investment contract. If the contract is signed after the release of the "Announcement on Preventing Financing Risks of Token Issuance" (September 4, 2017), the people's court should determine that the entrustment contract is invalid because the agency matters are illegal. As for the losses suffered by the client as a result, the cause of the entrusted matter may be considered as the main consideration in determining the degree of fault**, and the parties concerned shall share it.

The minutes of the meeting clearly stipulated the legal effect of the ICO entrusted investment contract ** (focus) **: ** With September 4, 2017 as the boundary, the contract signed before that is valid, and the contract signed after that The contract is void. **

As for the legal consequences of the invalidity of the contract, that is, whether the investment funds should be returned, the "Meeting Minutes" also clarified: share the client's losses according to the degree of fault.

This also corresponds to the legal consequences of contract invalidation in Article 157 of my country's "Civil Code", which is more fair and reasonable than the stipulation in the 94 Announcement that the client should bear its own risks.

Article 157 of the "Civil Code" After a civil juristic act is invalid, revoked, or determined to be ineffective, the perpetrator shall return the property obtained by the act; if it cannot be returned or it is unnecessary to return, it shall be compensated at a discounted price. The party at fault shall compensate the other party for its losses; if all parties are at fault, they shall bear corresponding responsibilities. Where the law provides otherwise, follow its provisions.

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

The first case is the effective judgment of the court in 2019. After the trial, the court believed that the entrustment contract between the two parties in this case complied with the legal provisions, so ** recognized the legal effect of the entrustment contract. **The entrusted matter is suspended for some reason, and the defendant should return the corresponding price. Since virtual currency does not have currency attributes and cannot be circulated in the market, it cannot be returned to Bitcoin. **【(2019) Hubei 0106 Minchu No. 2042】

In the second case, the client’s appeal was not supported by the court because the entrusted company was an overseas company and had been cancelled. **

In similar cases, if the trustor signed an entrustment contract with the trustee personally, and the trustee could not prove that he had performed the entrusted affairs, even if the entrustment time was after the 94 announcement, the court still** ruled that the trustee should bear the obligation of returning, However, interest losses are not supported. **【(2019) Su 12 Min Zhong No. 3024】

Therefore, although it is stipulated in the 94 Announcement, in practice, the court still considers the degree of fault of both parties, the burden of proof and other factors to comprehensively determine the sharing of responsibilities between the two parties. The "Meeting Minutes" should also refer to the tendentious practice of judicial practice, and make relatively clear and clear regulations, which guide a direction for future judicial practice and adjudication rules.