Case analysis: Is giving away mining machines for free a crime?

Editor’s note: The original title is “Case Study: Giving away mining machines for free is also a crime?!”

As the country promotes "new infrastructure", the use of financial technology and digital finance to organize and lead pyramid schemes has become more popular. During this period, some participants believed that as long as they "spread sugar" and "give away mining machines for free" and do not charge money, they would not commit a crime. This idea is naive. Today, we will use a classic mining machine case to help everyone understand the law.

Basic facts

In 2016, Zhang and others who were familiar with the field of virtual currency decided to start a business and raise money for "Xingxing Coin". In the early stage, they attracted miners to join by giving away mining machines and coins. The platform gave away mining machines without any fees except registration, which was completely free.

In addition to mining with mining machines, veteran miners can also post links to certain star coins through social platforms such as WeChat groups to attract others to register; after others register through the link, the veteran miners can receive commission rewards of certain star coins earned from offline mining by these new miners.

New miners who are recommended to join can also receive mining machines and tokens for free; and attract others to register through token links, and obtain commission rewards based on a certain star currency obtained from offline mining.

Although the "coins" obtained from mining can be traded with each other for cash, the relevant income can only be withdrawn after the mining machines and tokens are actually purchased offline.

Judgement

For the judgment result, please refer to the Judgment No. (2017) Yue 5202 Criminal First Instance 397.

The court ruled that the participants in this case were sentenced to fixed-term imprisonment and fined to varying amounts. The core member Zhang received the highest sentence, and was eventually sentenced to:

Sentenced to eight years' imprisonment and a fine of RMB 2 million.

The other participants were sentenced to prison terms ranging from two years to six years and eight months, and fined between RMB 10,000 and RMB 300,000.

Judgment points

In this case, the mining machine was obtained completely free of charge; the tokens mined by the mining machine were also obtained completely free of charge. The completely free behavior meets the "four characteristics" of pyramid scheme crimes, and the main consideration is whether the donated mining machines, tokens and other items can generate property benefits.

(1) The eligibility and entry fee for joining are not only determined by whether a certain amount of money must be paid upon joining; it also examines whether other funds need to be paid or paid in disguise after free joining.

(2) Hierarchy

Through the review of the substantial profit standards; if there is a layer of interest relationship, it may be identified as a level of pyramid scheme.

(3) Temptation

Only the possibility of profit is considered; the statement that there are risks and possible losses does not prevent the establishment of inducement.

(4) Group remuneration

The standard is property benefits; even if the feedback is in the form of free gifts, it can still be used as the basis for determining remuneration.

Controversy

First, must the entry fee be paid before registration? The entry fee means paying membership fees and entry fees to the organization in order to obtain certain qualifications and status. In this case, registration and entry are completely free, and only the withdrawal process is charged and the team is paid. The remuneration is calculated by collecting fees from others; it can still meet the requirements for the establishment of pyramid schemes.

Second, whether giving away mining machines for free constitutes property interests.

Free tokens and mining machines can be freely traded and redeemed, and can be identified as property interests. Therefore, the act of giving away coins and candies can be identified as rewarding and tempting behavior. Only when the candies cannot be redeemed at all and are just "playing house" within the system, can the act of giving candies not be identified as property interests.

Short conclusion

Adding mining machines and issuing coins for free may also constitute a crime. As long as there is an act of paying the team with the investment funds of the downstream, it can constitute the crime of organizing and leading pyramid schemes under Article 224 of the Criminal Law.

Link to this article: https://www.8btc.com/media/577640
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