[2] Virtual currency investment fails, illegal contract is invalid

Compiled from: Shandong High Court, Tancheng Court
 
Through an online acquaintance, Kang remitted 69,500 yuan to an unknown Chen, intending to purchase Tether (USDT), but was unsuccessful. Can Kang recover his investment?

[1] Image source from the internet; if infringement occurs, please delete!
 

Through an intermediary, Kang recharged digital currency—Tether (USDT)—online. Kang transferred 69,500 yuan to Chen's China CITIC Bank account, intending to purchase 10,000 Tether (USDT). Later, it was confirmed that Kang's account did not receive the corresponding Tether (USDT), while Chen claimed that the 10,000 Tether (USDT) had been transferred to the designated account via the intermediary.
 
The Tancheng Court held that Kang directly remitted the involved funds into Chen’s account, and Chen received the corresponding funds. According to the principle of privity of contract, Kang, through his actions, indicated an intention to contract with Chen and fulfilled his contractual obligations to Chen. Chen should also fully, prudently, and directly perform his own obligations and be responsible for the results of contract performance. As for Chen’s claim that the virtual currency was transmitted through an intermediary, this should be considered a personal entrustment matter unrelated to Kang. The subject matter of the transaction was virtual currency. According to the "Announcement on Preventing Risks of Token Issuance Financing" issued on September 4, 2017, by the People's Bank of China, the Central Cyberspace Affairs Commission, the Ministry of Industry and Information Technology, the State Administration for Industry and Commerce, the China Banking Regulatory Commission, the China Securities Regulatory Commission, and the China Insurance Regulatory Commission, virtual currencies like Tether are essentially unauthorized and illegal public financing activities. No organization or individual may illegally engage in token issuance financing activities. The contractual relationship between the parties is invalid for violating public order and good customs such as financial security and market order. Kang, by violating legal prohibitions and engaging in illegal virtual currency transactions, bore some fault for the contract’s invalidity and failed to exercise high caution regarding his investment risks, casually remitting funds to an unfamiliar Chen. He should bear some losses. Based on the degree of fault of both parties, it was determined that Chen should return 60% of the investment amount, i.e., 41,700 yuan. After the judgment, the parties appealed, and the Linyi Intermediate People's Court issued a second-instance judgment, dismissing the appeal and upholding the original judgment.
 
 
Civil Code of the People's Republic of China
Article 153
Civil juristic acts that violate mandatory provisions of laws and administrative regulations are void.
 
Article 157
After a civil juristic act is void, revoked, or determined to have no effect, the property acquired by the actor as a result of the act shall be returned. If return is impossible or unnecessary, compensation shall be made at a discounted price. The party at fault shall compensate the other party for the damages incurred. If both parties are at fault, they shall bear corresponding liability.
 
 
[1] The author's perspective
In China, any so-called token financing trading platform must not engage in the exchange of legal tender with tokens or virtual currencies, must not buy or sell tokens or virtual currencies or act as a central counterparty in such transactions, and must not provide pricing, information intermediary, or other services for tokens or virtual currencies. Virtual currencies like Tether are not issued by monetary authorities, do not possess the attributes of legal tender such as legal compensation and compulsion, do not have the same legal status as currency, and cannot or should not circulate or be used as currency in the market. Investment transactions in virtual currencies are not protected by national law. Therefore, the public should be highly vigilant about the risks of token issuance financing and transactions, remain rational, bear investment risks on their own, and be cautious to avoid being deceived.