What criminal legal risks may be involved in enticing people to trade in cryptocurrencies and contracts?

Xiao Li was interested in investing and financial management and joined several cryptocurrency investment groups. Many so-called "trading mentors" in these groups shared their strategies. Initially, Xiao Li simply followed along, eventually earning considerable profits through cryptocurrency trading and contract trading. After making a profit, Xiao Li felt he had mastered the market. He began frequently sharing his investment returns in the group, quickly gaining the trust of many. He also learned that "trading mentors" could participate in a share of investment profits, offering substantial profits, so he decided to become one himself. These mentors typically share cryptocurrency market news and market information with users in WeChat and Telegram groups, adding potential investors as friends. Xiao Li imitated other "trading instructors," sharing market information on platforms like WeChat groups and Xiaohongshu, adding potential investors as friends, and directly accepting millions of yuan in user funds. Xiao Li and his users agreed to receive a 10% monthly commission, which would be rebated to Xiao Li. Initially, Xiao Li earned some money with his users, and his confidence grew, leading him to experiment with high-risk trading. However, a single margin call wiped out nearly all of the user's funds. To maintain their trust, Xiao Li used funds from new users to cover the profits of existing clients. This "rob Peter to pay Paul" model was unsustainable. News of the losses spread within the group, and many users began accusing Xiao Li of being a scammer. They pledged to file a police report, hoping the police would investigate and bring him to justice. Xiao Li felt terrified, but also wronged. He had helped others make money before, and this loss was due to market fluctuations. Due to the sheer volume of funds involved, he couldn't immediately come up with enough money to cover everyone's losses. Xiao Li was concerned: He had previously promised users a rate of return. If a user filed a police report claiming a principal-guaranteed return, what would be the criminal risks? So, is it a crime for a trading advisor to solicit users to trade cryptocurrencies and futures contracts? What specific crimes could this entail? Next, we'll examine the potential criminal risks associated with this "trading advisor" model, taking Xiao Li's situation into consideration.

1. Illegal Absorption of Public Deposits

In Xiao Li's lead-in model, he directly collected user funds by promising a 10% monthly rebate. Even if the user suffered normal investment losses, he could still be suspected of illegally absorbing public deposits by the police after reporting the case. The risk lies in: Xiao Li promised users principal and interest guarantees, and frequently sent screenshots of his profits to the social network.

The four characteristics of the crime of illegally absorbing public deposits are illegality, publicity, social nature, and inducement. If the perpetrator's behavior meets these four characteristics and the scale of funds reaches a certain amount, he will be convicted of the crime of illegally absorbing public deposits.

• Illegality: without the permission of the financial management department of the State Council or in violation of the national financial management regulations;

• Publicity: through public forms such as the Internet, television, and on-site promotion;

• Sociality: attracting funds from the general public, i.e., non-specific objects in society;

• Inducement: promising high returns, promoting that the currency will only rise and not fall, stable annualized rate of return, return of tokens of equal value to the principal within a certain period of time, promise of compound interest, stable dividend income, etc.

Without legal qualifications, Xiao Li frequently shared screenshots of his earnings in social media and publicly promised "monthly rebates" to entice others to transfer their money directly to him for investment, meeting the four characteristics of the crime of illegally absorbing public deposits.

[Similar Case Reference]

In the case of Wang Mou illegally absorbing public deposits [Case No.: (2021) Xin 4002 Criminal First Instance No. 124], Wang Mou, without approval, promoted high-return projects such as "Yingtai Virtual Stock," "CCL Virtual Currency," and "Poly Capital" to the general public, attracting investment through meetings, text messages, and other means. A total of 29 people invested approximately 4.94 million yuan. The court found that the illegality, publicity, social nature, and inducement of profit clearly constituted the crime of illegally absorbing public deposits, and sentenced him to five years and six months in prison. Xiao Li also engaged in another high-risk behavior that may be suspected of fundraising fraud. He remained unaware of the situation and used funds from new users to repay existing customers. This practice of robbing Peter to pay Paul could be considered "illegal appropriation." The elements of fundraising fraud are twofold: the intention to illegally acquire funds, and the use of fraudulent methods to illegally raise funds. Xiao Li, knowingly losing money, falsely claimed the project was operating normally and continued to collect funds from new investors, using the funds to pay rebates to existing investors. This behavior could easily be interpreted by judicial authorities as "illegal possession" and carries a high risk. The crime of fundraising fraud shares many similarities with the crime of illegally absorbing public deposits; the key difference lies in whether the individuals involved possess "illegal possession." According to Chinese law, the penalties for the two crimes differ. Because fundraising fraud involves the act of absconding with funds, it poses a greater threat to investors and has a more severe social impact. Therefore, the standards for filing a criminal case are lower and the penalties are more severe.

【Similar Cases】

In Chen’s fund-raising fraud case [Case No.: (2025) Wan 16 Criminal Final No. 12], Chen Xuwei and others set up a shell company and, under the guise of “virtual currency investment” and “equity appreciation”, promised users “expected monthly returns of more than 10%”. In fact, the investment projects suffered losses and the company mainly relied on new funds to repay the returns of old investors. The court held that Chen and others primarily returned investors' principal and interest by absorbing new investments, objectively implying that repayment was impossible. Furthermore, they evaded returning the funds, and Chen was found to have subjectively engaged in illegal possession. His actions met the elements of fund-raising fraud, and he was sentenced to nine years and six months in prison. Most users lack legal expertise and, when reporting a crime, simply claim, "I was scammed." While Xiao Li's actions would generally not constitute suspected fraud, fraud is a common offense in judicial practice involving virtual currencies and influencers. The core characteristic of fraud is that the perpetrator, with the intent to illegally possess property, fabricates facts or conceals the truth, causing the victim to dispose of property based on a misconception. If Xiao Li manipulates the market and creates false price fluctuations, then he is engaging in fraudulent activity. In judicial practice, "trading instructors" are often used as key figures to attract investors and create a sense of trust. They may initially allow investors to make a small profit, then induce additional investment, and ultimately manipulate prices through back-end operations to cause investors to lose all their money. Courts generally determine that such behavior constitutes fraud. For example, in the case of Yang and Zhou et al. [Case No. (2020) Wan 0603 Xing Chu 435], the gang used virtual currencies such as ICCT, SIT, and SDS as "investment guides" to tout the value and potential for appreciation, claiming they could lead investors to achieve wealth fission. When the victim's investment amount reached a certain target, the criminal group manipulated the virtual currency to plummet, creating the appearance of losses for the client, thereby defrauding the victim of their property. The individuals involved were sentenced to fixed-term imprisonment ranging from three to six years.

4 Attorney Shao’s Tips

According to the 924 Notice, no unit or individual may engage in illegal financial activities without approval, including helping others invest in stocks, cryptocurrencies, contracts, and absorbing public funds in disguised forms.

Investing on your own is a personal act, but once you invite others to play together, operate their accounts or directly collect their funds for investment, especially if you promise your friends or community returns or principal protection, then it is no longer a simple investment. Once others report losses to the police, they will be suspected of crimes such as illegal absorption of public deposits and fundraising fraud.

Special Statement: This article is an original article by Attorney Shao Shiwei. It only represents the personal views of the author and does not constitute legal advice or legal opinions on specific matters.