Recently, a friend in the circle asked: Is it illegal fund-raising to help relatives and friends invest in virtual currency?
Before answering this question, we need to understand the following three issues:
(1) Can individuals invest in virtual currencies?
(2) Can they help others invest in virtual currencies?
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(3) What is illegal fund-raising?
0 1 Can individuals invest in virtual currencies?
From the “Notice on Preventing Bitcoin Risks” (hereinafter referred to as “Document 289”), the “Announcement on Preventing Token Issuance and Financing Risks” (hereinafter referred to as “9.4 Announcement”), to the “Notice on Further Preventing and Dealing with Risks of Virtual Currency Trading Speculation” (hereinafter referred to as “9.15 Notice”), the regulatory attitude towards personal investment in virtual currencies is more cautious, but it is not prohibited.
Taking the 9.15 Notice as an example, the regulatory authorities only reminded investors of the legal risks of investing in virtual currencies and the legal consequences of violating the law: “Any legal person, non-legal person organization and natural person investing in virtual currencies and related derivatives, if it violates public order and good customs, the relevant civil legal acts are invalid, and the losses caused thereby shall be borne by themselves; those suspected of disrupting financial order and endangering financial security shall be investigated and dealt with by relevant departments in accordance with the law.”
That is to say, as long as investors do not violate public order and good customs, do not disrupt financial order or endanger financial security, they can invest in virtual currencies within the current legal framework.
0 2 Can they help others invest in virtual currencies?
Entrusting others to invest and accepting entrusted investments for others is a very common financial management behavior today. In practice, the entrusted financial management contract between natural persons for investing in securities such as stocks and futures is generally considered valid as long as there are no promises of capital preservation, income guarantee, etc. Can this judicial practice be applied to virtual currency investment?
Article 84 of the “Minutes of the National Court Financial Trial Work Conference (solicitation draft)” issued by the Supreme Court in 2023 provides clear provisions for the handling of disputes over entrusted investments in virtual currencies: “If both parties agree in the contract that the principal person registers and opens an account on the virtual currency trading platform in his own name and the trustee engages in investment activities; or the principal person directly hands over the funds to the trustee, and the trustee engages in investment management in his own name or actually borrows someone else’s name, the parties can be deemed to have entered into an entrusted investment contract. For contracts signed after the “Announcement on Preventing Token Issuance and Financing Risks” (September 4, 2017) was issued, if the agency matters are illegal, the people’s court should determine that the entrusted contract is invalid. The cause of the occurrence of the entrusted matter can be used as the main consideration factor to determine the degree of fault, and the parties shall bear it jointly.”
Simply put, before the announcement on September 4, 2017, entrusting others to invest in virtual currency could be regarded as an entrusted investment contract; after September 4, entrusting others to invest in virtual currency is not legally recognized. Therefore, helping others invest in virtual currency after September 4th carries certain legal risks, but the law does not expressly prohibit entrustment and commissioning of virtual currency investment.
Will this constitute illegal fund-raising?
According to Article 2 of the “Regulations on the Prevention and Treatment of Illegal Fund-Raising,” illegal fund-raising requires the following three conditions to be met at the same time:
(1) Absorbing funds without the permission of the State Council’s financial management department or violating national financial management regulations;
(2) Promising to repay principal and interest or providing investment returns;
(3) Absorbing funds from non-specific objects.
In the field of criminal law, illegal fund-raising mainly manifests as crimes such as illegal absorption of public deposits and fund-raising fraud. According to Articles 1, 2, and 7 of the “Interpretation on the Specific Application of Laws in the Trial of Criminal Cases of Illegal Fund-Raising” issued by the Supreme People’s Court in 2022, illegal absorption of public deposits and fund-raising fraud require the following conditions to be met at the same time:
“(1) Absorbing funds without legal permission from relevant departments or borrowing legal forms of operation;
(2) Publicly promoting through networks, media, promotion meetings, flyers, mobile phone messages, etc.;
(3) Promising to repay principal and interest or providing returns in the form of currency, goods, equity, etc. within a certain period of time;
(4) Absorbing funds from the public, which refers to the society’s non-specific objects.
Not publicly promoting and absorbing funds from specific objects among family and friends or within the unit does not constitute illegal absorption or disguised absorption of public deposits.”
Through the above two provisions, we know that one of the basic requirements for illegal fund-raising is “absorbing funds from non-specific objects”, and even the “Interpretation” specifically stipulates that absorbing funds from family and friends is not illegal absorption. Therefore, absorbing funds among family and friends for investment is generally not considered illegal fund-raising.
0 4 Conclusion
In summary, it is generally not enough to constitute illegal fund-raising to absorb funds only from specific objects (such as relatives, colleagues, etc.) without publicly promoting them to the society . At the legal level in the field of virtual currency, China’s current attitude towards individual investment in virtual currency is not encouraged but not prohibited. Although assisting friends and relatives to invest in virtual currency by natural persons does not constitute illegal fund-raising, it is not entrusted wealth management and has certain legal risks. This is mainly reflected in the fact that there are no clear legal rules for arbitration after disputes occur.
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