A company that publicly presented a narrative of coffee equipment research and development, agricultural technology, and physical retail stores built its brand image through marathons, dinners, social events, and offline stores; participants were then directed to download an App, top up a designated wallet with USDT, select 'tasks' of different terms within the platform, and obtain additional rewards by introducing relatives and friends to join.
Viewed in isolation, a physical project, payment in virtual currency, and user referrals do not necessarily mean illegality.However, when the three are combined into a single high-return investment structure, determining the nature of the project cannot rest solely on what it 'sells,' 'which coin it uses,' or 'whether it has stores'; it is further necessary to ask: do the investment returns actually come from genuine operations, or from the funds continuously contributed by later participants?
Image source: screenshot of a publicly available ChainCatcher page
As of August 5, 2026, the Hong Kong police had received 255 reports related to Fun Coffee, involving losses of approximately HK$104 million; the Hong Kong police arrested six men and women, and the Macao Judiciary Police separately arrested two women. According to police disclosures, the project in question, under the name of developing multifunctional coffee equipment and coffee gene technology, among other things, required participants to transfer USDT to designated wallets and then select different investment plans within the App, with the platform claiming annualized returns of approximately 197% to 278%. The case remains under investigation, and whether the persons involved have committed crimes and their specific liability should ultimately be determined by the final findings of the judicial authorities.
A physical project can provide trust, but it cannot automatically prove the source of returns
What is distinctive about Fun Coffee is that it did not directly package itself as an exchange, an on-chain wealth management platform, or a token project, but instead built its investment narrative on coffee equipment, technological research and development, agricultural projects, and physical business operations.
On July 13, 2026, the Securities and Futures Commission of Hong Kong added the 'Fun Coffee GCM Project' to its list of suspicious investment products. Public information from the SFC shows that the investment arrangement involved the research, development, and sale of technology products or agricultural equipment such as a 'cold brew high-efficiency extraction system' and a 'food safety testing and traceability module,' and had been promoted to the public through marketing activities in Hong Kong, websites, and social media. It is noteworthy that the SFC classified it under 'other investments' rather than the 'digital token-related' category.
This classification precisely illustrates that whether a project constitutes a certain type of investment arrangement cannot be determined solely on the basis that participants used USDT for payment. The core focus of regulators remains: what participants contributed, how the project operator manages the funds, what rights participants obtained, and from which business activities the returns are generated.
Having physical stores, office premises, promotional activities, or even real products only shows that the project carried out certain business or marketing activities; it does not directly prove that such business can support the investment returns promised by the platform.
If a project claims that returns come from coffee equipment sales or technological research and development, it should at a minimum be able to explain: to whom the relevant products were sold, how much sales revenue there was, how costs and profits were generated, and why the rate of return could grow according to a fixed formula as the investment term lengthened and the top-up amount increased.
Marketing activities prove that a project 'has been seen,' which does not mean that operating profits are sufficient to support the returns it promises.
USDT is not an incidental detail in this case; it is the primary channel through which funds entered the project.
Although the Hong Kong Securities and Futures Commission classified Fun Coffee under "other investments," USDT is by no means an insignificant payment detail within the overall project structure.
According to police disclosures, participants were required to follow the platform's customer service instructions and transfer USDT to designated cryptocurrency wallet addresses; after completing the deposit, they would select investment plans such as "Set Sail," "Growth," and "Voyage" within the App. One such plan required a deposit of approximately 10,800 USDT, which, after being held for 10 days, would yield approximately 680 USDT in returns, corresponding to an annualized return of approximately 230%. The platform also featured deposit bonuses, referral rewards, and daily check-in mechanisms.
This funding structure involves at least four distinct stages:
Fund entry pathway:User purchases USDT → transfers to designated wallet → App displays account balance → platform calculates and displays returns
However, these four stages do not automatically form a complete investment loop.
On-chain records can prove that USDT was transferred from one address to another, but they cannot on their own prove which company controlled the receiving wallet, nor can they show whether these funds actually went into coffee equipment research and development, product sales, or agricultural projects. The principal and returns displayed in the App may also not necessarily equal the corresponding amount of USDT actually segregated or held by the project operator for each participant.
For a properly functioning crypto asset investment or payment arrangement, the project operator should at a minimum be able to clearly explain:
Key verification points for the project's funding structure
USDT can improve the efficiency of cross-border transfers, but it may also cause participants to overlook the most basic question: to whom exactly did they entrust their assets?
Bank transfers typically show the name of the payee or company, whereas a wallet address is merely a string of characters. If participants only confirm that "the coins have arrived" without verifying who controls the address, the counterparty to the contract, and the use of funds, a situation may arise where the on-chain transfer has been completed but the legal investment relationship remains unclear throughout.
“Tasks” in the App cannot replace genuine investment logic
Public reports indicate that some participants do not consider themselves to be investing; rather, they believe they are performing “tasks” through the App, becoming members, or helping the company promote its business, and thereby obtaining returns distributed by the platform. Some individuals even had acquaintances register on their behalf, operate their accounts and complete top-ups, and have limited understanding of the project's business and the method for calculating returns.
This “task-based” design tends to weaken participants' assessment of investment risk.
When a platform no longer uses traditional financial language such as “investment principal” or “fixed returns,” but instead uses expressions such as “tasks,” “deposits,” “membership rewards” and “check-in returns,” participants may mistakenly believe that what they receive is an activity subsidy, a platform benefit or a business revenue share.
However, legal and regulatory assessments generally do not look only at the name a project gives its product; they examine the actual economic structure. If participants are required to contribute property first, the project operator then manages it centrally, and returns are paid in accordance with an arrangement, the arrangement may still have the substantive characteristics of an investment arrangement even if the platform calls it “performing tasks,” “purchasing equipment shares” or a “membership plan.”
The Securities and Futures Commission of Hong Kong has stated that its list of suspicious investment products mainly covers arrangements that may have the characteristics of collective investment schemes or other financial products but are offered to the public without authorization, or are sold by unlicensed entities. The SFC also emphasizes that the list is an early risk warning and does not replace due diligence on a specific project.
In determining whether an arrangement constitutes a collective investment scheme, it is generally necessary to examine whether participants lack day-to-day control over the relevant property, whether funds or returns are centrally managed, and whether participants rely primarily on the operator's management of the project to obtain returns. The use of USDT, an App or the label “tasks” does not change the review of these substantive factors.
The risk of multi-level referral commissions is not as simple as “introducing a friend”
Another important structure in the Fun Coffee case is that participants could obtain additional rewards by introducing relatives and friends to join. Public reports indicate that the platform established an upline-downline commission mechanism, some “team leaders” managed hundreds of downlines, and some participants not only invested their own funds but also produced promotional content, organized teams, and assisted others in registering or making top-ups.
However, “receiving referral rewards” does not automatically mean participating in illegal or criminal activity.
Referral commissions, channel rewards and agency fees also exist in ordinary commercial promotion. What truly needs to be examined is whether the rewards come mainly from the sale of products and services or from funds paid by new participants; whether the project makes recruiting downlines the main condition for obtaining returns; and whether promoters continuously explain investment schemes, promise returns, assist with deposits, and receive tiered shares of downline investments.
Under Hong Kong's Pyramid Schemes Prohibition Ordinance, in determining whether an arrangement is a pyramid scheme, particular attention must be paid to whether new participants pay a participation fee and whether their payment is to a substantial extent induced by the opportunity to obtain returns through recruiting other participants. Even if a project also provides goods or services, this does not automatically exclude the relevant legal risks. Similar provisions exist in the PRC's Regulations on Prohibition of Pyramid Selling and in the crime of organizing and leading pyramid selling activities under the Criminal Law.
Therefore, distinguishing ordinary participants, promoters and project organizers cannot depend solely on how they are described in WeChat groups, nor solely on whether they have a formal employment contract; it must depend on what they actually did.
Key points in the liability review of different participants
People who likewise attended events and forwarded promotional information may bear completely different liability. Whether a person knew that the project had abnormalities must generally be determined by comprehensively assessing the time of participation, the information they possessed, the source of their returns, their internal authority, and their conduct after the project stopped withdrawals.
Regulatory warnings, police investigations and criminal convictions must be distinguished
Fun Coffee's inclusion on the CSRC's list of suspicious investment products shows that the project had attracted regulatory attention due to inquiries, complaints or suspicious characteristics, but this does not mean that the CSRC has already determined through judicial proceedings that all participants committed fraud.
Likewise, the fact that the police arrested relevant persons on suspicion of fraud does not mean that all arrested persons will ultimately be convicted. Criminal liability still requires assessment of whether false statements existed, the actual use of funds, whether the project had a genuine operating basis, the subjective knowledge of the persons involved, and the specific extent of their participation.
This point is especially important for Web3 projects. After a project shows risk signals such as inability to withdraw funds, high returns and tiered promotion, it cannot simply be assumed that all staff, event guests, agents and participants are the same subject of liability.
However, for project parties and promoters, a regulatory warning is by no means ordinary negative news that can be ignored. After a platform has been placed on a warning list, if the relevant persons continue to promise returns, solicit new participants, assist with deposits or downplay regulatory information, their subsequent conduct may become important facts for determining their subjective knowledge and degree of liability.
Lawyer's observations
What the Fun Coffee case exposes is not a single "virtual currency scam formula", but a composite project structure:
The narrative of a physical project serves to build trust, offline events serve to expand influence, USDT serves to complete the entry of funds, the App serves to display balances and returns, and tiered commissions drive participants to continue recruiting new participants.
When these elements appear individually, normal commercial scenarios may exist for each of them. But to determine their legal nature when combined, one must return to three most basic questions:
Where the money comes from, where the money goes, and what generates the returns.
For Web3 project teams, this case also serves as a reminder: crypto compliance does not arise only when issuing tokens, operating trading platforms or providing wallet services. As long as a real-economy industrial project uses USDT as a tool for fundraising and return settlement, it must simultaneously address wallet control, fund pooling, App-based bookkeeping, asset segregation, promotional commissions and the regulation of investment products.
What truly warrants caution is not that a project involves both "coffee" and "USDT" at the same time, but that when real-economy operations, on-chain funds and multi-tier promotion cannot form a verifiable commercial closed loop, technical tools may merely make an already opaque fund structure harder to identify.
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*This article is an original work of Mankun Law Firm and represents only the personal views of the author. It does not constitute legal consultation or legal advice on any specific matter. For reprinting and legal consultation, please contact our customer service:mankunlawyer
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