Abstract:You merely invested in a Web3 project and invited friends and relatives to join in order to make some money. After the project collapsed, you reported the case to the police, only to be criminally detained yourself—this is not a story, but a real occurrence. This article will explain: why you may not perceive your actions as operating a pyramid scheme, yet the law may deem you an organizer; which roles (team leaders, lecturers, agents) are most susceptible to liability; and what you should prioritize doing at present. If you or your family members are facing similar circumstances, after reading this, you will at least understand: what lies ahead and what type of attorney you should engage.
Keywords:Crime of organizing and leading pyramid scheme activities; virtual currencies; criminal defense; release on bail pending trial; defense for mitigation of punishment
Special Disclaimer:This article is an original work by Attorney Shao Shiwei. It represents solely the personal views of the author and does not constitute legal consultation or legal advice regarding specific matters. For article reprints, legal consultations, or professional exchanges, please add contact: sswls66.
Main Text
I simply wanted to earn more money. I was not necessarily pursuing immense wealth, but merely hoped to have more funds and improve my quality of life.
A friend told me that he had invested in a project and made significant profits. I asked him about the project, and he said it was Web3 and blockchain. It sounded very new and professional, but his explanation was simple: you put money in, receive daily returns, and can invite friends to join. The more people you invite, the greater your share of the profits.
I reflected on this. Indeed, people around me had made money through this. Moreover, they had genuinely purchased cars and moved into larger houses.
I was tempted.
Subsequently, I introduced several friends to the project. I believed this was a positive act, as everyone could profit from a good project together. They did not actually understand what Web3 was, but they trusted me. Since I stated that I was investing, they followed suit.
Later, problems arose with the project, and withdrawals became impossible. I reported the case to the public security authorities, hoping the police would help recover the funds for myself and my friends.
As a result, the police detained me, stating that I was suspected of the crime of organizing and leading pyramid scheme activities.
I was bewildered.
Such situations are not uncommon in pyramid scheme cases. Many individuals genuinely do not realize the legal implications of the conduct in which they are participating.
I Author of this article: Attorney Shao Shiwei
1
Why do ordinary investors fail to realize they are participating in pyramid schemes?
Web3 pyramid schemes differ significantly from traditional pyramid schemes.
Regarding traditional pyramid schemes, due to years of anti-fraud education in China, many people possess a certain degree of alertness. Some individuals may even be aware internally that it is a pyramid scheme but remain willing to participate—because they have calculated that if they can recruit enough downlines, they can make profits before the collapse. This reflects a mindset of active risk-taking; they know where the risks lie.
However, Web3 is different. Terms such as blockchain, real-world assets (RWA), DeFi, public chains, and mining rigs carry an inherent aura of "professionalism" and "cutting-edge technology" for outsiders. When project promoters provide a well-produced whitepaper and a seemingly complex technical roadmap, ordinary individuals lack the capacity to question them. They merely think: "With such professionalism, the project promoters must be exceptional."
More importantly, the myth of sudden wealth in Web3 has genuinely occurred. It is not a legend; real people nearby have indeed purchased cars and houses. Upon witnessing this, ordinary individuals harbor only a simple thought:If others can profit, why can't I?？
Project promoters capitalize on this point. They need not invent new narratives; they merely replicate a previously verified success story, telling you, "We are the next hundredfold coin!" In one sentence, they transform a new concept incomprehensible to ordinary individuals into an opportunity they can understand, verify, and believe they can join.
2
Why do virtual currency investors actively help project promoters recruit downlines?？
After entering the scheme, investors gradually understand the project's incentive mechanism—it is not merely about investing their own money, but also inviting friends to join. When friends enter, the investor receives corresponding commission rebates.
However, from the perspective of ordinary individuals, this has no connection to pyramid schemes.
Because such models are exceedingly common. Invitation-based cashback on e-commerce platforms and referral commissions on exchanges—which app does not have them? Ordinary individuals have encountered too many such promotional mechanisms. Therefore, when Web3 projects employ similar tactics, their initial reaction is not "this is a pyramid scheme," but rather "this is a normal promotional activity."
This is also the most concealed aspect of Web3 pyramid schemes—they package the act of recruiting individuals into familiar daily scenarios.
Moreover, early investors quickly receive returns. They are unaware that these funds are actually circulating principal from later participants; they only know that money has genuinely arrived in their accounts. Consequently, they begin recommending the project to their closest relatives and friends.
From their perspective, this is not recruiting downlines. It is enabling family and friends to seize a money-making opportunity together.
Project promoters certainly do not use terms like "recruiting downlines." They state that this is about co-building a community, disrupting traditional finance, and pursuing a great cause of achieving financial freedom. The act of recruiting is packaged as "inviting family to join a wealth feast," endowed with a sense of nobility. Ordinary individuals not only fail to perceive any issue but may even feel anger when questioned: "You do not understand; this is the trend of the future."
A deeper psychological factor is also at play. Once an individual has invested their own money and brought relatives and friends into the scheme, they can no longer admit it is a fraud. Admitting it is a fraud means acknowledging that they are not merely victims, but also those who dragged others down. To protect their self-esteem and salvage what has already been invested, they must believe in the project's legitimacy more firmly than anyone else.
Furthermore, such projects deliberately foster a sense of belonging. Communities, teams, and regions—investors are not merely investing in a project; they are joining a circle, meeting a group of "like-minded" individuals, and even developing their own identity: "I am a team leader of such-and-such community," or "I am a regional manager." When an individual's social relationships and self-identity are bound to the project, leaving is not merely a matter of financial loss, but of losing a group of "insiders." This sense of belonging is one of the reasons they continue to hold on until the end.
Therefore, from the perspective of ordinary investors, their experience is never a story of "entering a pyramid scheme." It is a story about hope, trust, and the desire not to disappoint those around them. Only in the end do they discover they have walked into a trap designed from the outset.
3
How does the law determine the criminal liability of ordinary investors?
However, from the perspective of judicial authorities, investigators are not concerned with whether you were deceived into participation. Rather, they focus on verifying the specific role you played within the project.
The logic of investors and the logic of the law are two distinct frameworks.
The investor's logic is: "I trusted this project, I invested my money, and I introduced friends, but I did not make profits. I am also a victim."
The law's logic is: "What was this person's role and division of labor within the organization, and what specific actions did they take?"
From the viewpoint of judicial authorities, any individual who played a key role in the establishment and expansion of the pyramid scheme organization may be deemed an organizer or leader.
Specifically, if an individual's role in the project was not merely that of an ordinary investor, but rather a team leader responsible for managing and developing downlines; a community lecturer explaining to newcomers how the project works; someone who conducted roadshows for the project promoters and introduced the project on stage; a regional agent managing multiple layers of subordinates; or someone who assisted the project promoters with operations, planning, or promotional content...
Then, legally, this person's status is no longer merely that of an "investor," but one of the "organizers."
Even if they lost money. Even if they still believe they were deceived.
Many may perceive this as unfair. However, legal provisions differ from common sense.
4
Conclusion
Web3 itself is not a scam. Blockchain technology and decentralized finance genuinely exist, and there are numerous projects in this industry that are genuinely operational. However, precisely because this field is sufficiently new, complex, and incomprehensible to ordinary individuals, it has become the most suitable shell for packaging scams.
For ordinary individuals, prior to investing, it is necessary not only to assess whether a project can generate profits, but more importantly, to determine its legality. Static returns, dynamic returns, and recruitment commissions—once a project exhibits these characteristics, regardless of how cutting-edge its packaging may be, it remains essentially a pyramid scheme. Participants face not only financial losses but also potential criminal risks.
Recommended Reading
Arrested for Virtual Currency Pyramid Schemes: The Four Common Types of Involved Projects
