Blockchain + Artificial Intelligence? Beware the red line of pyramid schemes


With the popularity of concepts such as the metaverse and artificial intelligence, many criminal gangs have engaged in various illegal activities using “new concepts” such as the metaverse, artificial intelligence, high technology, and blockchain since 2010. Illegal fund-raising, pyramid schemes, and money laundering are the “main forces” among them. The Sa team briefly introduces the “pyramid scheme crime” based on a previous case involving blockchain and artificial intelligence (case number: (2019) Gan 0723 Xingchu 142).

01 Case Introduction

The Token platform involved in this case claimed to be a “decentralized intelligent financial wallet” and an investment platform, under the banner of “perfect application of artificial intelligence + blockchain + big data + finance” and other slogans. The operation mode of the platform is that investors register an account on the downloaded Token platform software by entering an invitation code (i.e., the recommender’s ID number), establish a certain wallet, and then transfer the digital currency purchased from a certain website into the wallet. The wallet’s financial income can be withdrawn at any time and cashed out on a certain website to achieve wealth appreciation.

Its income model is: First, the static income of the platform coin (i.e., TSY) deposit status. If the investment amount is more than 500 US dollars (equivalent to digital currency), the daily income is 0.3%-0.8%, and the monthly income is 10%-20%. Also, there is a daily check-in bonus of one in ten thousand to five in ten thousand. Second, the dynamic income refers to the investment income of the developed people, which is divided into two parts: 1. The direct income of the promotion app link income, and investors are divided into multiple levels, each level can enjoy 100%-5% of the lower-level personnel’s income. 2. Each level charges 15%-5% of the lower-level personnel’s income according to the team’s performance as management income.

In December 2018, the defendant, Zhong, invested in the Token platform after being introduced by someone. He first developed his family and people around him to invest, arranged two main lines of Zhang and Wang offline, actively promoted and promoted the Token investment platform using the company’s office space, organized personnel to participate in training courses and sharing sessions, played the platform’s promotional video, and his stepdaughter Zhang, daughter-in-law Deng, and Wang and others lectured on the registration, purchase, sale, and promotion of the platform. At the same time, multiple WeChat groups were established to promote the platform, and people were encouraged to develop offline to invest in the platform. In addition, they also used the guise of intelligent financial management to promote the investment of personnel. Before the platform closed, Zhong was the highest level. He developed the Token platform by pulling people and team rewards, and developed 46 personnel in 10 levels, involving an amount of 2,235,637 yuan.

02Reasoning and Judgment

The court held that the defendant, Zhong Moumou, under the guise of investing in the Token platform, requested investors to purchase a fixed amount of currency to obtain membership and formed a hierarchy in a certain order. Directly or indirectly, the number of developed personnel was used as the basis for compensation income, inducing participants to continue to develop others to participate, defrauding property, disrupting the economic and social order, and his behavior has constituted the crime of organizing and leading pyramid schemes, which should be punished according to law. Finally, it was determined that he constituted the crime of organizing and leading pyramid schemes and was sentenced to two years in prison and a fine of 70,000 yuan.

03Case Analysis-What is the crime of organizing and leading pyramid schemes

The crime of organizing and leading pyramid schemes refers to the behavior of organizing and leading pyramid schemes, which requires participants to pay fees or purchase goods and services to obtain membership qualifications under the name of marketing products, providing services, and other business activities. And form a hierarchy in a certain order, and directly or indirectly use the number of developed personnel as the basis for compensation or rebate, induce or coerce participants to continue to develop others to participate, defraud property, and disrupt economic and social order pyramid selling activities.

Whether it constitutes the crime of organizing and leading pyramid schemes, whether it is in theory or practice, depends on whether the activities involved by the perpetrator belong to pyramid selling activities. In this determination, whether it involves the metaverse, artificial intelligence, or high-tech is actually not important. In practice, the latter often serves as a gimmick to lure other people to participate in pyramid schemes. Although it is nominally a metaverse project or artificial intelligence project, it actually does not have any metaverse or artificial intelligence content, or although artificial intelligence or metaverse elements or related research results exist in the activity, the perpetrator uses the research results as formal activity content, and its essence is still a scene where pyramid selling activities occur. In this case, Zhong Moumou belongs to the second type of situation. Although he has related projects on artificial intelligence and blockchain and uses related APP, in fact, this content and APP are not the core content of his activities and income. He uses the APP and platform model to carry out actual pyramid selling activities, which ultimately disrupt the economic and social order and constitute the crime of organizing and leading pyramid schemes.

Final Thoughts

Pyramid schemes have significant criminal law risks, and any new project’s promotion or marketing activities may involve the possibility of criminal suspicion because of the potential involvement of pyramid schemes. However, the Sajie team would also like to remind everyone that pyramid schemes also have significant administrative punishment risks. Whether it is a team-based pyramid scheme or a criminal “fraud-based” pyramid scheme, it is, in fact, an administrative illegal act clearly defined in the “Regulations on the Prohibition of Pyramid Selling.” Friends, please pay attention to the risks of pyramid selling and operate legally and in compliance.

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