The Mankun Law Firm legal team represented a client in a case involving fraud in virtual currency investment. The client invested over RMB 500,000 to purchase project tokens, but the project collapsed and the token value dropped to zero within a short period. In the early stages, the case faced obstacles in civil case initiation, suggestions to seek jurisdiction elsewhere when reporting the crime in a different location, and repeated refusals by local police stations to accept the report. Ultimately, after reorganizing the facts and evidence, the lawyers assisted the client in prompting the public security organs to formally initiate a criminal investigation, resulting in the issuance of a Notice of Case Initiation.
Situations similar to this are very common in the crypto assets industry, but victims often find it difficult to complete the process of reporting the crime and initiating an investigation. This article aims to analyze why cases involving fraud in virtual currency investments are difficult to initiate, where the difficulties lie, and why a breakthrough for criminal investigation initiation was achieved in this instance.
Why Investment Losses Are Initially Difficult to Treat as Fraud
The client was an early participant in the Web3 industry. Around 2018, he encountered a project heavily promoted by key opinion leaders (KOLs) in the crypto circle.
In its external promotions, the project was packaged as a token project relying on advanced Internet of Things (IoT) technology from a well-known internet company, with its development prospects described in highly favorable terms. Based on his trust in the promoter and expectations regarding the project’s technical background, the client sequentially invested over RMB 500,000 to purchase the project’s tokens.
Problems arose quickly.
Within just one month, the project collapsed, the token price rapidly dropped to zero, and the client’s investment was almost entirely lost. Upon reflection, he realized that the most critical issue was not that “the token price fell,” but that the person who had urged him to invest was not merely a KOL recommending the project from the sidelines.
Upon inquiry, it was found that Person A was the actual controller of the entity issuing the tokens involved in the case.
This distinction in identity is crucial.
If a KOL merely receives promotion fees and exaggerates the merits of a project, the case may certainly entail legal liability, but it would be highly difficult to directly initiate an investigation for fraud. Judicial authorities typically first ask: Is this an investment failure, false advertising, a civil dispute, or was there an intent of illegal possession from the outset?
However, if the promoter is simultaneously the actual controller of the project’s issuing entity, yet deliberately conceals this relationship during promotion to create the illusion of an “independent third-party recommendation,” and this is combined with facts such as fabricating the technical background, influencing investment decisions, and receiving investment funds, the nature of the case is no longer merely “losing money on buying tokens.”
This constitutes the first breakthrough point that allowed the subsequent criminal complaint to proceed.
Why the Civil Path Was Initially Blocked
The client initially hoped to recover the funds through a civil lawsuit.
This choice was natural. The money was paid via RMB bank transfers, with the majority going directly into Person A’s personal account. From the perspective of an ordinary party, since the other party received the money and the project failed, at the very least, the money should be returned.
After the lawyers became involved, they also explored the path of unjust enrichment from a civil perspective: If Person A used a personal bank account to receive transfers without a legal basis, the client could claim restitution.
However, this is precisely where the difficulty in cases involving virtual currencies lies.
Under the current regulatory and judicial practice context, transactions, investments, and token issuance financing related to virtual currencies are not fully accommodated by the logic of ordinary civil transactions. When many courts encounter keywords such as “purchasing tokens,” “virtual currency investment,” or “project tokens dropping to zero,” they first consider statements in regulatory documents regarding assumption of risk, illegal financial activities, and violations of public order and good morals.
In this case, the case filing window rejected both online and on-site applications for case initiation based on similar understanding.
This does not mean that the victim necessarily lacks rights, nor does it mean that the case is thereby concluded. It indicates that if the case continues to be framed as an ordinary dispute over virtual currency trading, the procedural entry point itself may be blocked.
Therefore, the case must return to the more core question: Was this a property crime featuring a deception structure from the very beginning?
The Key to Criminal Investigation Initiation Is Not “Tokens Dropping to Zero,” But the Deception Structure
When many victims report crimes, they tend to focus on the outcome: “I lost 500,000, the project collapsed to zero, and the other party caused me significant losses.”
However, criminal cases cannot rely solely on the result of losses.
For fraud, what matters is not merely whether the victim lost money, but whether the perpetrator, through fabricating facts or concealing the truth, caused the victim to fall into mistaken belief and dispose of property, ultimately resulting in property loss.
After reorganizing this case, the three matters that truly needed to be clarified to the public security organs were as follows.
First, what identity did Person A present to the outside world?
If Person A were merely an ordinary promoter, the case would resemble a failed investment recommendation or a dispute over promotional liability. However, the materials indicated a deeper relationship between Person A and the token issuing entity; his status as the actual controller was inconsistent with the image of a “third-party recommender” portrayed in external promotions.
Second, did Person A’s concealment of his identity affect the client’s judgment?
In virtual currency projects, the reasons why investors are willing to trust a project often depend not only on the whitepaper but also on who is endorsing it, who is recommending it, and whether the recommender is independent. If the recommender actually controls the project but packages himself as a neutral recommender, the victim’s judgment regarding the project’s authenticity, use of funds, and conflicts of interest will be influenced.
Third, did the project promotions contain false content sufficient to influence investment decisions?
In this case, the project was promoted as relying on advanced IoT technology from a well-known internet company. However, if the so-called technical background did not exist, or at least did not correspond to the actual project, this is no longer merely a market judgment error, but potentially the fabrication of facts.
Only when these facts are connected does the case shift from “investment loss” to the criminal complaint logic of “obtaining property through concealment of identity and fabrication of project background.”
Why the Notice of Case Initiation Was Finally Obtained After Three Police Stations
After clarifying the criminal path, Mankun lawyers assisted the client in revising theCriminal Complaint, reorganized the relevant evidentiary materials, and reported the case to the police station in the jurisdiction where Person A’s company was located.
This process was not smooth.
The first two police stations refused to accept the case, citing reasons such as the registered address and actual place of business of the involved company not being within their jurisdiction. During communications, some handling officers also directly expressed views such as: “Virtual currency transactions are not protected by law, and buyers and sellers bear the risks themselves.”
The third police station initially held the same attitude.
At this point, merely repeatedly emphasizing that “the client lost a lot of money,” “the project collapsed,” or “virtual currencies also have value” would hardly change the initial reaction of the handling authority. This is because what the public security organs truly need to determine is whether the case has clear clues of criminal facts and whether it can be distinguished from ordinary investment losses and market risks.
The focus of the lawyers’ communication was placed on the distinction between Person A and ordinary crypto circle KOLs.
Ordinary KOLs promoting projects may involve issues such as exaggerated promotion, benefit transfer, civil compensation, or even administrative regulatory problems. However, if Person A in this case was simultaneously the actual controller of the project’s issuing entity, yet concealed this relationship from investors, and then influenced investment decisions by fabricating the project’s technical background while receiving investment funds, this provides a factual basis for further evaluation as the crime of fraud.
This is the core reason why the case could be pushed toward investigation initiation: It is not about labeling all virtual currency investment losses as fraud, but about clearly explaining the specific deception structure, fund flows, identity relationships, and loss results in this particular case.
Ultimately, after internal discussion, the public security organ decided to accept the case and formally issued a Notice of Case Initiation. The case thereby entered criminal proceedings.
What Should You Do If You Encounter a Virtual Currency Investment Scam?
When such cases enter practical handling, the true difficulty usually lies not in writing a complaint, but in first extracting the case from the shell of “investment loss.”
If you only tell the handling authority, “I bought a token, the project dropped to zero, so the other party committed fraud,” it is easily interpreted as market risk. Especially against the backdrop of strict regulatory attitudes toward virtual currency transactions and inconsistent standards in civil adjudication, handling personnel will first be wary: Is this an investor, after suffering losses, attempting to convert transaction risks into a criminal complaint?
However, if the materials can demonstrate that, before the investor made payments, the other party had already concealed key identities, fabricated the project’s technical background, created the illusion of endorsement by an independent third party, and that this information directly influenced whether the investor made payments, the case will have a different direction for review.
Therefore, the first step in cases of fraud in virtual currency investments is not to rush to label the case as fraud, but to first examine whether there are deceptive acts that can be evaluated under criminal law.
This judgment must at least rest on several specific facts: Whether the recommender and the project promoters are the same interest entity; whether the receiving account is a personal or corporate account; which contents in the project promotions can be falsified; how the investment funds flowed after entering the account; and whether, before and after the project collapse, the other party continued to recruit people, transfer funds, lose contact, or fabricate new reasons to delay.
If these facts are not clearly explained, the case is likely to stall at “investment failure.” Only if these facts can be linked together is it possible to advance the case from a general crypto-related dispute into the discussion of criminal complaints.
If you or your family encounter similar issues of fraud in virtual currency investments, do not rush to simply ask, “Can an investigation be initiated?” More importantly, organize the facts and evidence first.
At a minimum, prepare the following types of materials:
First, transfer records. These include bank statements, payment vouchers, receiving accounts, the identity of the payee, and communication records corresponding to each payment.
Second, promotional materials. These include the project whitepaper, website pages, community announcements, KOL recommendation content, live stream recordings, WeChat Moments posts, chat screenshots, and specific statements regarding technical background, partners, and return expectations.
Third, materials on identity relationships. Efforts should be made to prove the exact relationship between the recommender, the payee, the project company, and the token issuing entity. The breakthrough in many cases lies precisely in the fact that “the other party is not an ordinary intermediary, but the actual controller or core interest holder of the project.”
Fourth, communication materials after the project collapse. These include how the other party explained the situation, whether they promised refunds, whether they delayed, whether they lost contact, and whether they continued to raise funds from others.
Fifth, records of previous rights-protection efforts. These include materials for civil case initiation, receipts for crime reports, communication records with police stations, lawyer’s letters, and platform complaint records.
The more complete the materials, the greater the opportunity to clarify the case as “obtaining property through deception” rather than “investment loss.” If the facts themselves do not support fraud, adjustments can be made early to determine whether there are still civil paths, claims for unjust enrichment, restitution due to contract invalidity, platform complaints, or other remedies.
Conclusion
What is truly worth reviewing in this case is not the result that “losses from virtual currency investments can also lead to investigation initiation,” but the reorganization of facts prior to initiation.
Even with the same outcome of losing money on token purchases, the trajectory of cases can be completely different. Some are merely high-risk investment failures, some are closer to civil restitution or unjust enrichment disputes, and others may gradually reveal clues of fraud crimes in the project packaging, concealment of identity, collection of funds, and subsequent disposal.
The key to pushing for criminal investigation initiation in this case lay not in making virtual currencies themselves sound overly complex, but in clearly explaining Person A’s true identity, the content of project promotions, the payment pathways, the process by which the investor formed mistaken beliefs, and the distinction between promotion by ordinary KOLs and the concealment of identity by the project’s actual controller.
This is also where professional intervention is most needed in cases involving virtual currencies. What handling authorities need to see is not an emotional statement of losses, but a factual structure that can be reviewed: Who said what, who received the money, who controlled the project, which contents were untrue, and how these untrue contents influenced the investor’s payments.
If you or your family have already encountered issues such as fraud in virtual currency investments, project collapses, tokens dropping to zero, refusal to accept crime reports, or rejection of civil case initiation, it is advisable to first organize transaction records, promotional materials, identity relationships, payment pathways, and existing rights-protection processes. Whether a case can proceed as a criminal complaint does not depend on the four words “virtual currency,” but on whether specific facts can prove that this was not a simple investment failure, but a deception and disposition of property that can be evaluated under the law.
(Case information in this article has been anonymized as necessary. It is provided solely for discussion of legal risks and reference for case-handling approaches, and does not constitute legal advice for any specific case.)
