From "suspected fraud" to non-prosecution: how lawyers reconstructed the characterization of the case and the evidentiary logic.

Introduction | When emerging business models encounter traditional criminal law

Over the past two years, cases involving virtual assets, NFTs and digital collectibles have gradually evolved from early-stage administrative compliance risks into a high-incidence area of criminal risk.

In practice, a large number of cases are directly characterized as "fraud" at the initial stage of case filing. However, as a case enters the stages of evidentiary review and analysis of the constituent elements, it is often found that:beneath the surface, there remains considerable room for a defense.

This article takes a criminal case involving an NFT digital collectibles platform handled by Mankun Law Firm as a sample, systematically reviewing the entire process of the case from the dispute over characterization and the deconstruction of evidence to the final obtaining of a non-prosecution decision, and distilling from ita reusable and transferable practical methodologyfor the reference of legal colleagues.

 

The debate over the characterization of the case: is it "fraud" or "uncontrolled promotion"?

(I) Basic facts: a failed marketing campaign triggers criminal case filing

In 2022, a digital collectibles platform, in order to increase sales, launched a marketing campaign and publicly promoted it as follows:

"Revenue from collectible sales will enter a prize pool and be distributed according to rules; the amount in the prize pool is expected to be no less than RMB 1 million."

After the event concluded, affected by changes in the market environment and sales falling short of expectations, the actual distributable prize pool amounted to only tens of thousands of yuan. Some users who had invested relatively large amounts believed that the platform had engaged in deceptive conduct and consequently filed complaints and reports in a concentrated manner.

After the public security authorities became involved, they opened an investigation on suspicion of the crime of fraud.

(II) The lawyers' preliminary assessment: three key signals distinguishing this case from typical fraud

After systematically reviewing the case file and sorting out the facts, the legal team quickly identified three characteristics of this case that are clearly different from traditional fraud cases:

  • The commercial activity genuinely existed

The platform was not an empty-shell operation; the digital collectibles had lawful sources, were genuinely issued, and were tradable, and the platform maintained actual operating status both before and after the incident.

  • The promotional language was ambiguous, but the project itself was not fabricated

The promotions used forward-looking, expectational expressions such as "estimated," but did not fabricate projects, rules, or profit models that did not exist.

  • The consequences were serious, but this looks more like commercial overreach than illegal possession

The users' losses objectively existed, but considering the overall pattern of conduct, the subjective state of the actors was closer to excessive optimism about market judgment rather than an intent to illegally possess others' property.

Based on the above assessment, the legal team reached a core characterization conclusion on the case:

This case is closer to "risk arising from uncontrolled promotion" than to "fraud-type crime."

This determination became the starting point and logical cornerstone of all subsequent defense work.

 

Core defense strategy: do not become entangled in the 'result,' but instead break down the 'constituent elements'

In cases involving virtual assets and digital collectibles, the defense can easily fall into emotional arguments over 'whether money was defrauded.' However, under the logic of criminal review,what truly plays a decisive role is not the result itself, but whether the constituent elements are fully proven by evidence.

Based on this understanding, the legal team focused all its work on the following three legal issues—

This is also a 'core breakdown path' that we have repeatedly used in similar cases.

(1) Was there 'an intent to illegally possess'?

Focus of the defense

Were the funds involved illegally possessed, transferred, or disposed of by individuals?

Evidence organization path

  • Obtain and present the platform's genuine operating records spanning one year, including continuous investment in manpower, technology, servers, and other areas;
  • Provide complete corporate account fund flow records to prove that sales revenue was mainly used for platform operations, and that there were no instances of personal squandering, withdrawal, or concealment of funds;
  • Present the objective fact that the platform continued to advance subsequent operations, user communications, and compensation arrangements after the event concluded.

Conclusion

All objective conduct points to a "purpose of continued operation" rather than a "purpose of illegal possession."

This step directly undermines the foundation for establishing the crime of fraud.

(2) Was there deceptive conduct involving "fabricating facts or concealing the truth"?

Focus of the defense

Was "expected to be no less than RMB 1 million" a false promise or an expression of commercial expectation?

Evidence organization approach

  • Obtain the platform's earlier market analysis materials to prove that the "RMB 1 million" figure was a forecast based on the market enthusiasm at the time and was not fabricated out of thin air;
  • Compare similar marketing activities in the industry during the same period to show that the "expected" wording has a certain prevalence in the industry;
  • Emphasize that the existing evidence cannot prove that, at the time of promotion, the person in charge knew that the amount was absolutely impossible to achieve.

Conclusion

This conduct is more consistent with exaggerated promotion or improper promotion at the civil or administrative level, and has not yet reached the evidentiary standard required for criminal fraud, namely 'fabricating facts that fundamentally do not exist.'

(3) Were user losses directly caused by the 'deceptive conduct'?

Focus of the defense

Did users purchase the collectibles because they were laboring under a mistaken understanding, or based on a comprehensive assessment of the collectibles' value and market risks?

Evidence organization approach

  • Point out that the user agreement expressly warned of price volatility and market risks associated with digital collectibles;
  • Present the fact that some users continued to participate in transactions in the later stages of the campaign even when the prize pool amount was clearly insufficient, reflecting the existence of speculative factors;
  • Argue that sharp changes in market conditions were an important external cause of the losses.

Conclusion

It is difficult to establish a complete criminal-law causal chain:

'deceptive conduct → mistaken understanding → disposition of property → illegal possession.'

User losses resulted from the combined effect of multiple commercial and market factors.

[Further Reflections] The boundary between criminal fraud, administrative illegality and civil fraud

The substantive dispute in this case turns on the application of the principle of restraint in criminal law. The lawyer's core task is to accomplish a precise "migration of legal characterization":

  • Criminal fraud: fabricating fundamental facts with the intent of illegal possession;
  • Administrative illegality (false advertising): exaggerated or misleading statements made to facilitate a transaction;
  • Civil fraud: untrue statements that cause the counterparty to fall into a mistaken understanding.

Successful criminal defense often does not consist in denying the problem, but in placing the problem back onto the legal track that should properly apply.

 

The golden stage and the winning moves: methodology at the review-for-prosecution stage

(1) Why is the review-for-prosecution stage a "golden window"?

When the lawyer becomes involved, the case has already been transferred to the procuratorate. This stage has three notable advantages:

  • The investigation file has essentially been fixed, allowing a comprehensive assessment of the evidentiary structure;
  • The prosecutor is still at the stage of independent review and formation of inner conviction;
  • There remains substantive room to adjust the characterization of the case.

The core value of counsel lies in providing a logically coherent case analysis framework that differs from the Indictment Opinion.

(II) Tactical focus: restructuring the order of evidentiary assessment

After reviewing the case file, it was found that the investigative authority exhibited a tendency to "emphasize results over motive and emphasize testimonial evidence over objective evidence."

Accordingly, the defense strategy shifted toward a systematic restructuring of the evidentiary framework:

  • First, argue whether the subjective purpose is established;
  • Second, use objective evidence such as fund flows and operational records to counter testimonial evidence based on a "feeling of having been defrauded";
  • Finally, assess the loss outcome and interpret it in the context of the market environment.

This adjustment is, in essence, guiding the prosecutor to "recalculate" the case using a different logic.

(III) Key tool: a non-prosecution opinion that "can be directly adopted"

The value of the Non-Prosecution Legal Opinion submitted in this case lies not in its length but in its drafting approach:

  • Each factual allegation corresponds to a specific evidence page number;
  • Each legal conclusion returns to an analysis of the constituent elements;
  • For every industry-specific point of dispute, a path to resolution is provided that avoids criminalization.

The purpose of this opinion is not merely to persuade, but to reduce the judgment cost for the prosecutor in making a non-prosecution decision.

(IV) Closing the risk loop: follow-on handling after non-prosecution

Non-prosecution is not the end point. The legal team simultaneously assists the client in completing extended risk management:

  • At the administrative level: with respect to the promotional wording issues, prepare rectification plans and defense arguments in advance;
  • At the civil level: formulate tiered user communication and compensation contingency plans to prevent conflicts from spilling over into group litigation.

Truly effective risk resolution should achieve:criminal interdiction, administrative mitigation, and civil absorption.

 

Case outcome: moving toward non-prosecution after two remands for supplementary investigation

Through sustained, professional communication, this case was twice returned by the procuratorate for supplementary investigation.

The "remand for investigation" itself already indicated that the original characterization and evidentiary structure could hardly support prosecution.

Ultimately, the procuratorial authority, pursuant to Article 175, Paragraph 4 of the Criminal Procedure Law, lawfully made a non-prosecution decision on the ground that "the evidence is insufficient and the conditions for prosecution are not met."

 

Three Core Takeaways for Legal Professionals

  • Cases in emerging fields are essentially "battles over characterization"

What lawyers must contest is which legal narrative framework a case is placed into.

  • The elements of an offense are the clearest battle map

Rather than becoming entangled in the facts and emotions, it is better to organize evidence around the elements of the offense.

  • The review and prosecution stage is the central battlefield that shapes the direction of a case

A high-quality legal opinion drafted from the prosecutor's perspective is often the decisive factor.

 

[Empowering Fellow Practitioners | From Individual Case Experience to a Replicable System]

In handling such cases, the remark we hear most often from fellow practitioners is:

"We roughly know the direction, but we don't know which step to start from, nor how the evidence should be presented."

On this basis, Mankun Law Firm has systematically distilled the practical experience from this case and multiple similar cases into a replicable, actionable methodology, and is launching:

"Crypto and Digital Asset Criminal Law Practice Training Camp"

Dates: January 30–31

Location: Zhengzhou, Henan

Core course content:

Full-process simulation: key milestones from case filing, arrest approval and return for supplementary investigation to non-prosecution

⚖️ Strategic coordination and risk isolation across criminal, administrative and civil proceedings

Evidence offense and defense system: how to build a closed loop of evidence favorable to the defense

Delivery work model: case intake analysis process, document templates and communication checklists

Our goal is simple:

to ensure that the next time you face a criminal case involving frontier technology, what you hold in your hands is not anxiety, but a proven, ready-to-use case-handling methodology.

 

About the Lawyer

Xu Qian，Partner at Mankun Law Firm.Partner at Mankun Law Firm, with sixteen years of experience in legal practice. Since entering the profession, the partner has focused on criminal defense, corporate legal counsel, and criminal-civil intersection matters, and possesses a solid theoretical foundation in law and extensive experience in criminal defense in cases involving new economic crimes, new types of internet crimes, and financial crimes. Committed to providing clients with professional and efficient legal support and safeguarding their lawful rights and interests.

Duan Zeyu, Executive Director of the Compliance Research Institute at Mankun Law Firm. Holds a bachelor's degree with a double major in International Media and Education from Brown University in the United States and studied at Tsinghua University School of Economics and Management; holds a master's degree in Educational Technology from Columbia University in the United States. Has previously taught as a volunteer in Japan, served as a financial advisor at the Canadian Imperial Bank of Commerce, and has UI/UX programming experience in New York. With a rich cross-national background and proficiency in seven languages, the individual is able to efficiently handle international compliance and risk management matters, and focuses on compliance strategies and practices in the Web3, new economy, and blockchain fields.

 

About Mankun

Mankun Law Firm was established in 2015 and is a boutique law firm in China focused on the Web3.0 new economy and deeply engaged in the blockchain industry. Members of the Mankun team possess uniquely diverse industry backgrounds, coming from well-known legal service institutions, state judicial organs, internet technology companies, crypto assets institutions, blockchain industry think tanks, and other organizations.

Based on a profound understanding of the new economy, continuous attention to and research on policies and regulations, and extensive practical experience, the Mankun team is adept at providing, from the perspectives of business models and legal practice, comprehensive legal services to new economy enterprises in Web3.0, blockchain, AI, NFT, digital collectibles, crypto funds, crypto payments, DeFi, real-world assets (RWA), GameFi, and other fields, including commercial architecture design, project investment and financing, transaction planning, business compliance, resolution of complex civil and commercial disputes, criminal risk prevention and risk management, and criminal defense.

Mankun Law Firm is headquartered in Shanghai and has branch offices in Hong Kong, China, Silicon Valley in the United States, Shenzhen, Hangzhou, Zhengzhou, Chengdu, and other locations. In response to the global compliance development needs of Web3.0 industry clients, Mankun has established local offices in major global crypto finance cities and selected local professional blockchain service partners to provide clients with professional legal and compliance services with global breadth and China depth.