Can I protect my rights after losing $1 million in a virtual currency exchange due to liquidation of contracts?

The world of emerging technologies such as Web3.0 and blockchain is exciting, and new fields inevitably bring new wealth opportunities. Some people who enter new fields do so for ideals, to change the world; while others seek a glimpse of the shadow of wealth and want to become the “big shots” that some people admire as soon as possible.

Pursuing wealth is not a “political mistake”. Some of the progress in human history has also been made by people who only wanted to pursue wealth. However, accumulating wealth in the right way is definitely the “politically correct” way. For example, when playing contracts on a virtual currency exchange, you must know how to “protect your rights correctly” in order to minimize your losses.

Lawyer Liu encountered such a case: a Chinese client, introduced by a friend, played contracts on a certain virtual currency trading platform, and his cumulative liquidation losses were as much as 1 million US dollars. The client suspected that he was cheated. In this case, can the client protect his rights?

The answer is of course: yes! But you need to know the correct way to protect your rights. This requires us to talk about the following aspects:

0 1 Determine the attributes of the exchange

The premise of safeguarding rights according to law is that Chinese law has jurisdiction over the disputes involved, so it is crucial to determine the attributes of the exchange.

After various regulations such as the “Notice on Guarding Against Bitcoin Risks” (Document No. 289), “Announcement on Guarding Against Risks of Token Issuance and Financing” (Announcement No. 9.4), “Notice on Further Guarding Against and Dealing with Risks of Virtual Currency Trading Speculation” (Notice No. 9.24) were issued, it has become a consensus that the currency circle goes abroad. If the exchange is registered in other countries or regions, Chinese law cannot be enforced, and the difficulty of safeguarding rights will increase.

If the exchange is registered in China, the probability of successfully safeguarding rights will be higher. Generally speaking, the registration location of the exchange can be determined by checking the introduction on the exchange’s official website, the website IP address, and the description of the exchange in the “Service Agreement” when registering a trading account.

0 2 Determine if Chinese mainland law can be applied

For exchanges registered in China, the application of Chinese law is, of course, given priority. For exchanges overseas or exchanges that explicitly specify foreign legal jurisdiction in the “Service Agreement” (taking the European and Italian “Service Agreement” as an example, which stipulates that relevant disputes shall be arbitrated by the Hong Kong International Arbitration Center and governed by the laws of the Hong Kong region), the principle is based on the agreement, but the jurisdiction of the courts on the mainland of China cannot be completely ruled out.

According to Article 272 of the Civil Procedure Law of China, in property rights disputes, if the defendant does not have a domicile in China but the contract is signed or performed in China, or the defendant is represented by an organization in China, the court with jurisdiction can be the place where the contract is signed, the place where it is performed, the place where the tort occurs, the domicile of the representative organization, etc.

The above-mentioned “place of performance” of course includes the place of residence of the payer (victim); the “place where the tort occurs” also includes the place where the tort occurs (also the place of residence of the victim). In other words, even for overseas exchanges, it does not necessarily exclude the application of Chinese law.

However, it is an undeniable fact that many courts have a natural tendency to exclude cases involving virtual currencies, mainly because of the lack of legal basis. In addition, even if the victim obtains a favorable judgment against an overseas exchange or other institution or individual, how to enforce the judgment is a difficult reality to overcome (the legal attribute problem of overseas + virtual currency).

0 3 Three Steps to Protecting Rights

In view of the above-mentioned difficulties in protecting rights, we have specifically proposed the “Three Steps to Protecting Rights” to help victims better protect their rights.

Anyone who knows a little about virtual currency exchanges knows that in recent years, the so-called “coin circle going abroad” is only a matter of moving servers overseas for some institutions, some teams symbolically “employ” some overseas agents (the actual boss is still in China), and some team members do not need to physically go overseas.

In normal market risks, playing contracts and losing money, most rational people can only accept it; but if someone (even the exchange is involved) sets up a trap and cuts the leeks, if the leeks still swallow their anger, wouldn’t it be true that “there is not a single man among them”? If you are unsure whether you have been cut into leeks, you can consult a professional lawyer.

Protecting your rights requires courage, determination, and wisdom. If you happen to possess the latter (the “wisdom” part can be entrusted to professional lawyers), you can follow the steps below:

Step 1: Determine the information of relevant personnel such as the actual controllers, agents, and bank account holders of the non-compliant exchanges (hereinafter referred to as “rights holders”). Based on our team’s experience, victims, especially “veteran victims” (those who have been victimized for a long time and have suffered significant losses), can generally accurately identify the rights holders, including but not limited to their names, contact information, office addresses or even home addresses, ID numbers, etc. If there is no such information, lawyers can be entrusted to sort out relevant evidence and retrieve it.

Step 2: Contact the rights holders for negotiation. Before starting this step, victims need to organize relevant evidence materials, including trading account information, trading records, identity or subject information of exchanges and rights holders, chat/call records (especially evidence of shouting, inducing trading, etc.) In practice, strong victims or collective rights holders can generally put pressure on the rights holders and they are willing to compensate the victims for part of their losses; if the rights holders are also strong, or the amount of compensation does not meet the victims’ expectations, it is necessary for professional lawyers to intervene. In our actual cases, lawyers have more targeted and professional negotiations with rights holders, and the demands put forward by lawyers are more valued by rights holders. In practice, there are many cases where lawyers intervene in rights negotiations to help victims recover 50% or even all of their losses.

Step 3: Initiate litigation (criminal charges, civil lawsuits). In the case where negotiation has not made effective progress, victims should promptly initiate litigation procedures, prioritizing criminal charges and supplementing with civil lawsuits. Based on the evidence materials in step 2, victims should consider fraud, illegal fund-raising, illegal absorption of public deposits, illegal operations, aiding and abetting criminal activities on information networks, illegal use of information networks and other charges to file criminal charges with the local public security organ. In practice, some rights holders will contact victims to negotiate refunds after the public security organ accepts the charges, even before formal registration. After registration, if rights holders want to obtain a chance for lenient treatment, they will generally actively refund to obtain the victims’ forgiveness. However, if the public security organ does not register, victims can only go through the civil lawsuit procedure, which generally takes a longer time and has a lower probability of obtaining compensation than criminal charges, and there is also the possibility of not being accepted by the court.

Whether it is a criminal prosecution or a civil lawsuit, we do not recommend that the victim engage in DIY. After all, judicial activities require high professional knowledge and practical experience. Judicial relief is generally based on the principle of “not considering the same thing twice”: once a criminal prosecution or a civil lawsuit is not accepted or rejected, the judicial relief procedure is basically terminated. Therefore, it is best to seek professional legal guidance in the third step of safeguarding rights.

0 4 Conclusion

Cryptocurrency myths are often created by the wealth accumulated by countless retail investors. Investment is risky, and it should be kept in mind that this is even more true in the cryptocurrency market. Of course, if you must try, please be sure to keep in mind the risk warnings in this article to lay a solid foundation for future safeguarding rights.

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