Special Disclaimer: This article is an original work by Attorney Shao Shiwei. It reflects only the author’s personal views and does not constitute legal advice or a legal opinion on any specific matter. For article reprints, legal consultations, or professional exchanges, please add: sswls66.
On February 9, 2025, the People’s Court Daily published a case titled “Investment in Overseas Virtual Currencies Is Not Protected by Chinese Law.” This case is one of the typical cases involving foreign-related commercial trials released by the Jiangsu Provincial Higher People’s Court.
However, in stark contrast to this legal warning are the all-too-common tales of sudden wealth in the crypto community. Just a couple of days ago, Attorney Shao heard from a friend that his acquaintance held 100,000 USDT on Binance and entrusted another person to manage futures contracts, earning the equivalent of RMB 30 million in one month. Although such stories are hardly surprising in the crypto circle, one cannot help but marvel at—and indeed envy—this individual’s extraordinary luck.
The investment threshold in the crypto asset sector is relatively high; for ordinary individuals, entrusting funds for wealth management or engaging in proxy investment are nearly the most common ways to participate. As the saying goes, “Leave professional matters to professionals.” So, what does this guiding case published by the court actually mean for those who trade crypto assets?
Using this case as a starting point, this article provides a detailed analysis and explores whether ordinary individuals can still invest in virtual currencies. If losses are incurred, can investors recover their principal through litigation? Finally, the article offers pre-investment risk prevention measures and mid-course response strategies for virtual currency investments, for readers’ reference.
1
A Lawsuit Lasted Four Years
Yet the RMB 5 Million Investment Was Never Recovered.
[Basic Facts]
Pan (a citizen of Singapore) was attracted by the purported high returns of virtual currency investments but had not found suitable opportunities. In October 2019, Pan was introduced to Tian (a Chinese citizen) through a mutual friend. The two quickly developed a rapport. Tian frequently introduced Pan to blockchain and virtual currency projects. Impressed by Tian’s extensive knowledge and eloquence, Pan soon placed trust in him, and they decided to jointly invest in virtual currencies to create their own “wealth myth.”
In November of the same year, Pan, Tian, and a third party entered into a cooperation agreement to jointly operate the “MFA Blockchain” project. Under the agreement, Tian was responsible for technical development and operations; Pan was responsible for upfront development costs and capital operations; and the third party was responsible for market liaison and community operations. Their respective equity interests were also specified. Pan transferred RMB 15.74 million to Tian for the purchase of MFA virtual currencies.
During the initial phase of the project, progress reports were frequent. Tian regularly sent Pan updates on the price appreciation of the virtual currencies, promising to return the full principal when the timing was appropriate and to pay substantial dividends.
However, as time passed and no return of funds materialized, Mr. Pan grew apprehensive and pressed Mr. Tian to repay the amounts. Initially, Mr. Tian evaded repayment by citing tight market conditions; after repeated demands by Mr. Pan, Mr. Tian repaid him a total of RMB 10.6 million in installments.
In September 2020,MEXC (a Singapore-based trading platform) delisted the MFA/USDT spot trading pair, the virtual accounts involved in the case were locked and unable to conduct transactions, resulting in a total loss of principal.No dividends were received, and the principal suffered substantial losses. Mr. Pan filed a lawsuit with the court, requesting that the court order Mr. Tian to return the remaining funds in accordance with the law.
[Court’s View]
This case was adjudicated at two levels: the Yancheng Intermediate People’s Court and the Jiangsu Provincial Higher People’s Court.
The Yancheng Intermediate People’s Court held that:
The purpose of the cooperation between the two parties was to invest in the “MFA Blockchain” project. The court found that both parties were aware that they were engaging in speculative trading of virtual currencies; therefore, the contract was void, each party bore its own losses, and Mr. Pan’s claim for the return of his investment was dismissed.
The Jiangsu Provincial Higher People’s Court held that:
Mr. Pan is a citizen of Singapore, and this case involves foreign-related elements. Under China’s Law on the Application of Laws, where matters involve China’s financial security and social public interest, the mandatory provisions of Chinese laws and regulations shall apply directly. Chinese laws and regulations prohibit investment in virtual currencies; therefore, investing in overseas virtual currencies and related derivatives violates the mandatory provisions of Chinese laws and regulations and contravenes public order and good morals. The cooperation agreement should be deemed void, and the losses arising therefrom shall be borne by the parties themselves. Accordingly, the appeal was dismissed and the original judgment upheld.
2
Attorney Shao Shiwei’s Commentary
Participants in the crypto community are likely familiar with Yancheng, Jiangsu, where the landmark PlusToken pyramid scheme case—often regarded as the largest case in the crypto sector—was adjudicated. In 2019, authorities in Yancheng, Jiangsu confiscated 314,200 bitcoins. What would their value be today?
Oh, we have digressed. Let us return to this civil case.
The courts at both instances did not uphold the claims of Mr. Pan, a Singaporean citizen. After four years of litigation, he still has not recovered his RMB 5 million investment.
Nationwide, there are in fact many cases involving entrusted investment in virtual assets. The adjudication approaches of courts in different regions across the country and the trial styles of different judges are familiar to Attorney Shao’s team. With respect to whether funds involved in entrusted investments in virtual assets should be returned, broadly speaking, the issues boil down towhether the contract is valid, how liability should be allocated among the parties, and how the funds should be adjudicatedthese several questions.
Why, then, was this case designated as a typical case? It is most likely because one of the parties, Mr. Pan, has a foreign-related status. After all, according to official reports, this case does not present any difficult or complex issues.
Friends in the crypto community who have consulted lawyers or independently reviewed relevant legal provisions should be aware that, under domestic policies, holding virtual assets is not unlawful in China, but investing in and trading virtual assets is undertaken at one’s own risk. What are the consequences of bearing such risk? Drawing on this case, Attorney Shao provides a step-by-step analysis in a question-and-answer format:
Q:Can oneengage in investment and trading of virtual assets in China?
A: If an institution, as the operating entity, receives funds from users, such activity will be characterized asan illegal financial activity, and the operational conduct carries significant criminal risk.For individual retail investors, the risks are borne by the investor, and the contract will generally be deemed invalid by the court.
Q: InChina, investing in virtual currencies,with risks borne by the investor, does this mean that there is no recourse for investment losses?？
A:Bearing the risks does not necessarily mean that the funds cannot be recovered.This involves the issue of allocation of liability. If the court determines that the investor bears significant fault, the amount of investment principal recoverable will be relatively small or even none. However, if the court finds that the party managing the investment also bears certain fault, the judgment on whether such party should refund the investment will naturally take into account the proportion of the amount to be refunded by such party.
As for how the court ultimately allocates liability among the parties in its judgment, it is necessary to present our arguments based on the facts and evidence of the case during the trial. In the absence of relevant evidence, it is crucial for the investor to provide a reasonable explanation to substantiate their claims. At this point, it is necessary for lawyers specializing in the Web3 industry to “educate” the judge on blockchain industry trading practices and customs, after all, in most cases, we cannot expect the judge presiding over your case to happen to be one who understands cryptocurrencies.
Q: InChina, if you invest in virtual currencies,I incurred investment losses. Can I file a lawsuit in court to recover my investment funds?？
Answer: It should be noted that, at present, the overall domestic stance in China toward trading and investing in virtual assets is negative and disapproving. This position is evident not only from domestic regulatory policies such as the "September 4 Announcement" and the "September 24 Notice," but also from judicial practice and reports by various state-affiliated media outlets.
However, based on cases handled by Mankun Law Firm, investors' claims for the return of funds do not inevitably result in dismissal, as seen in the Jiangsu court's guiding case referenced in this article. From a practical standpoint, there remains some room for successful outcomes.
For example, Attorney Mao Jiehao of our Commercial Practice Group recently represented clients in two cases, one resolved by judgment and the other by mediation, both achieving favorable results. Given the current domestic policy environment, which is generally unfavorable toward crypto asset regulation, these outcomes are noteworthy.
Question: Since the domestic policy environment is unfriendly toward crypto asset investment, is "going overseas" a viable workaround?
Answer:While going overseas is an option, the more critical factor is the prior agreement on jurisdiction for dispute resolution.
In the Yancheng court case, although investor Pan was a Singaporean citizen and the case involved foreign-related elements, why did Pan choose to litigate in a Chinese court? Based on practical experience (as there is no publicly available information on this specific point), Pan's reasoning may have been twofold: first, the agreement did not clearly specify the court of jurisdiction, and Singaporean courts declined to accept the case, leaving Pan to file suit in the Yancheng court, where the defendant was domiciled, thereby facilitating case acceptance; second, Pan may have considered that enforcing Tian's assets would be more difficult if he sued Tian in Singapore.
Jurisdictions such as Singapore and the Hong Kong Special Administrative Region of China are indeed more friendly toward blockchain and crypto assets compared to mainland China. If the litigationcould be heard in these jurisdictions, Pan might have had a better chance of recovering his investment funds.Regarding the enforcement of foreign judgments, please refer to the video below.
In practice, the procedures for enforcing foreign arbitral awards or judgments are inevitably more cumbersome. However, even with procedural complexities, obtaining an enforceable outcome is preferable to receiving an effective judgment that dismisses your claims.
It should be noted that jurisdiction over litigation or arbitration cases is not subject to the parties’ arbitrary choice; it requires clear agreement between the parties. Therefore, experienced lawyers will, before the parties decide to cooperate, help the parties anticipate all potential issues as far as possible and, based on the actual circumstances of the cooperative project, reasonably agree on the forum for future dispute resolution.
Unfortunately, in most cases, people only think of engaging a lawyer after a dispute has arisen, at which point they are somewhat at a disadvantage.
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From a legal professional’s perspective, there are several interesting points in the case discussed in this article. Let us examine the views of the Provincial Higher People’s Court on this case:
The Jiangsu Higher People’s Court held: Pan is a citizen of Singapore, and this case involves foreign-related elements. Under China’s Law on the Application of Laws, where matters involve China’s financial security and social public interests, the mandatory provisions of Chinese laws and regulations shall apply directly. Chinese laws and regulations prohibit investment in virtual currencies; therefore, investing in overseas virtual currencies and related derivatives violates the mandatory provisions of Chinese laws and regulations, contravenes public order and good morals, and the cooperation agreement should be deemed invalid. Any losses arising therefrom shall be borne by the parties themselves.
This is likely because Pan or his agent raised during the appeal that “this case involves foreign-related elements, and therefore Chinese law should not be applied as the basis for judgment.” Hence, the Jiangsu Higher People’s Court expressed the above opinion. However, Attorney Shao believes that there are still many issues in the Higher Court’s view that warrant further scrutiny. Let us look at the “Judicial Interpretation” section:
The judge stated that, pursuant to Interpretation I of the Law on the Application of Laws, Chinese laws and administrative regulations concerning financial security, such as foreign exchange controls, constitute mandatory provisions that shall apply directly.
—However, the text immediately goes on to state that “the cooperation agreement at issue involvesengaging in overseas virtual currency investment,” and this vague wording precisely indicates that the investment funds of Pan, a citizen of Singapore, were offshore funds and did not involve foreign exchange controls. Otherwise, if such a substantial amount had involved disguised buying and selling of foreign exchange and the case had been listed as a guiding case, it would not have omitted any mention thereof.
Therefore, the application of Interpretation I of the Law on the Application of Laws in this case is clearly insufficiently supported.
The judge noted that the Notice on Further Preventing and Disposing of Risks Related to Virtual Currency Trading and Speculation (the “924 Notice”) provides that business activities related to virtual currencies constitute illegal financial activities, are strictly prohibited, and shall be resolutely banned in accordance with the law; the provision of services by overseas virtual currency exchanges to residents within China via the internet also constitutes illegal financial activities. This case violated the mandatory provisions in China’s financial regulatory field.
—The court may have considered that the basis for applying Interpretation I of the Law on the Application of Laws was insufficient, and thus cited the September 24 Notice to strengthen its reasoning. However, the dispute in this case arose in September 2020; what relevance does the September 24 Notice, issued in September 2021, have? Moreover, in terms of hierarchical authority, the September 24 Notice is at most a normative document and should not have retroactive effect.
Although the September 24 Notice characterizes virtual currency-related business activities as illegal financial activities, this restriction targets the conduct of institutions such as virtual currency exchanges. While individual trading in virtual currencies is not encouraged in China, it has not been prohibited. The personal investment and trading activities of Mr. Pan and Mr. Tian do not rise to the level of engaging in “illegal financial activities.”
3
Past experience, if not forgotten, serves as a guide for the future.
That concludes the foregoing analysis. For participants in the crypto industry, the more important task is to draw lessons from prior cases involving others in order to mitigate their own legal risks. Accordingly, at the end of this article, Attorney Shao offers the following recommendations:
1. Before commencing cooperation
Maintain awareness of the need to execute contracts. It is essential to clearly set out the rights and obligations of both parties in writing and to include foreign jurisdiction clauses in the contract to provide clear guidance for potential dispute resolution.
If foreign jurisdiction can be agreed upon in writing, priority should be given to jurisdictions with mature judicial environments and abundant case law, such as Hong Kong and Singapore, to better safeguard one’s rights and interests.
2. When a dispute arises
In the absence of a written agreement on judicial jurisdiction, it is necessary to select an institution capable of accepting the case based on the specific circumstances and to formulate a reasonable litigation strategy.
If litigation must be pursued within mainland China, there is still a possibility of success. However, due to the current incompleteness of relevant laws and regulations in China, judicial outcomes are uncertain, and inconsistent judgments in similar cases are relatively common.
3. Engage specialized counsel
If specialized legal advice in the cryptocurrency field is obtained before project initiation, with appropriate risk management measures implemented—such as drafting detailed cooperation terms, selecting the forum for jurisdiction, and determining the applicable law—many detours can be avoided. For disputes that have already arisen, the industry experience of Web3 lawyers is crucial in formulating an appropriate litigation strategy. Counsel must comprehensively consider the background of the case, study the legal norms and guidance on crypto-related matters in different countries or regions, understand the local judicial environment and regulatory attitudes toward crypto assets, and assess how similar cases have been handled in that jurisdiction, thereby devising an optimal litigation strategy.
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