An in-depth analysis of the 5 “traps” of NFT digital collections

Source: Red Star News

With the development of the digital economy, "digital collections" and "virtual currencies" have become the "wealth password" for some investors, and they also contain hidden risks. Some criminals use the issuance of "digital collections" as a "cover" to engage in illegal fund-raising, fraud and other illegal activities. Red Star News reporters have noticed that some local public prosecutors and law departments have announced criminal cases involving "digital collections."

In this regard,Mankiw Law Firm Directors Lawyer Liu Honglin and Lawyer Liu Zhengyao accepted an interview with Red Star News and analyzed what was officially considered illegal fund-raising or fraud. Five characteristics of criminal casesand believe that publicizing such cases can remind consumers to rationally understand the collection value of digital collections.

Five criminal cases involving digital collections

1. Using gimmicks such as dividing a prize pool of no less than 3 million to attract people into the game

In November 2022, Red Star News reported that "digital collections involved The first criminal case! Suspected of defrauding more than 2.65 million yuan of funds. Lawyer: Avoid hitting legal red lines when selling digital collections." The article mentioned that the Suiyang Branch of the Public Security Bureau of Shangqiu City, Henan Province announced a case of suspected fraud on an online platform, and the public security agency has filed a criminal case. The case involved a digital collection platform, and eight criminal suspects suspected of fraud were arrested on the spot. This case was the first criminal case involving digital collections announced by an official department at the time. In March 2024, Red Star News learned from people familiar with the case that the case was still under trial after entering the judicial process.

In this case announced by the Suiyang Branch, the police investigated and found out according to law: the criminal suspect Ban, together with Bi Moutao, Qi Mousi, and Ban A certain Yuan and others used the online treasure house APP platform to sell virtual cartoon pictures, using the gimmick of dividing a prize pool of no less than 3 million, regular repurchases, cash rewards, physical rewards, etc., and were suspected of defrauding more than 2.65 million yuan of funds.

Mr. Li, the victim of the Suiyang case, is a digital collection enthusiast. He purchased digital collections on multiple platforms at the same time, and was also active in a multi-digital network. A community of collectors. Among the digital collections Mr. Li purchased, some platforms allowed him to make money, while others caused him to lose money due to falling prices. According to Mr. Li, after a user purchases a certain amount of collections on the platform, if the price of the collection is lower than the purchase price, the user will lose money. In Mr. Li's words, the difference between Zangbaoge and other platforms that made him lose money is that "other platforms are still operating, but the management staff of Zangbaoge cannot be contacted and 'ran away with money.'"

2. Open the secondary market and use "rat positions" to cash out and make profits

According to Red Star News reporters, the Shushan Branch of the Hefei Municipal Public Security Bureau cracked a fraud case under the guise of issuing "digital collections" and arrested seven suspects, involving more than 2 million yuan. Through investigation, police from Shushan Branch discovered that the platform company is actually a fraud group under the guise of issuing and trading "digital collections." It falsely claimed that the "digital collections" it issued were "masterpieces," but in fact they came from some ordinary people. The works of painters, or even pictures taken directly from the Internet and copied, have no collection value or actual value, and cannot be applied to any scene. The company's operations team used price intervention and wanton speculation to create the illusion of hunger marketing by grasping insider information, promising repurchases, limited issuance and other deceptions, inducing investors to rush to buy, and exaggerating "digital collections" in the secondary market opened by the platform. value, taking advantage of investors' psychology of "chasing the market price" to encourage transactions between investors.

After the price of the collection is quickly raised, the platform company will "airdrop" the remaining shares to its own account, pretending to be an investor. The picture is posted at a high price to achieve high cash out, and at the same time closes the selling channel for other investors, achieving the purpose of defrauding investors of their money.

The Shushan Branch Police have arrested 7 people including the person in charge of the platform company, programmers and customer service staff, and verified that there are more than 100 client users, with a total loss of more than 2.5 million yuan. , the company illegally made more than 400,000 yuan. The criminal suspects involved in the case have been subject to criminal coercive measures, and the case is under further processing.

3. Inflating trading volume to create the illusion that trading is hot and there is room for appreciation

In November 2023, the Shanghai High Court announced a fund-raising fraud case involving "digital collections" that was heard by the Shanghai Minhang District People's Court (hereinafter referred to as the "Minhang District People's Court"). In this case, in June 2022, the defendant Zhang came up with and discussed with the defendant Liu to set up a "Tonggu Platform", using blockchain technology to package pictures purchased at low prices or downloaded for free from the Internet into "digital Collection" was sold on the platform, falsely claiming that the platform was jointly created with official cultural associations and jointly released in cooperation with multiple museums. The platform has also set up some special rules to open the secondary market for trading, and it also buys and sells itself, inflating the trading volume and price, creating the illusion that trading is hot and there is room for appreciation.

After a wave of operations, the "Tonggu Platform" attracted more and more attention, and Zhang and Liu also made huge profits. After receiving users' After receiving the money, the two people successively withdrew the money and divided the stolen money. At the end of September of the same year, the two saw that their goal was achieved. In order to evade the revenue commitment and legal liability, Zhang stopped renewing the server and the "Tonggu Platform" was closed, causing users to be unable to withdraw cash and view the "digital collections."

According to the Minhang District People's Court, the platform absorbed funds from thousands of users totaling more than 1.34 million yuan, causing victims to lose a total of more than 410,000 yuan. During the trial of the case, the two defendants have withdrawn all illegal gains. The court held that the defendants Zhang and Liu used fraud methods to illegally raise funds for the purpose of illegal possession, and the amount was relatively large. They both constituted the crime of fund-raising fraud and were a joint crime. The principal culprit Zhang was sentenced to three years in prison, suspended for three years, and fined 100,000 yuan for the crime of fund-raising fraud; the accomplice Liu was sentenced to two years and six months in prison, suspended for three years, and fined 100,000 yuan. Ten thousand yuan.

4. Arrange multiple salesmen to create successful personas to deceive WeChat friends

In a case announced by the People's Procuratorate of Louxing District, Loudi City, Hunan Province, the procuratorate announced a verdict in a fraud case involving investment in digital collections to obtain high rebates. In less than a month in 2022, Li Moumou arranged for many people to serve as salesmen and added friends to create a successful persona. Li Moumou purchased a certain digital collection used for fraud, and asked a salesperson to register an account on the purchased digital collection investment platform. He recommended the platform to his WeChat friends, promoted the platform as risk-free and highly profitable, and attracted investment from WeChat friends. If you want to wait until the time is right, you will close the platform and take the investors' funds as your own. The court sentenced Li Moumou and seven others to prison terms ranging from two years and two months to three years and ten months for the crime of fraud.

5. Someone set up a black platform to cheat money and was sentenced to twelve years in prison

In a case announced by the Shenzhen Intermediate People's Court on January 17, the court held that when hearing the case, Chen, as the sole actual controller of Company A, built a platform involved that did not have the corresponding qualifications, and the offering was not reciprocal. "Digital collections" of art and collection value use deceptions such as exaggerating the value, promising "guaranteed repurchase" and "gifting physical objects" to cause customers to misunderstand the payment of funds. Later, the secondary market was opened for users to circulate and trade, and they intervened and speculated by raising prices, etc., and used customers' "chasing the price" mentality to keep the market hot and collect funds. Chen continued to withdraw money from the platform involved in the case for personal consumption and debt repayment, and closed the platform, causing customers to be unable to withdraw cash and view the collection, resulting in the harmful consequences of being unable to refund all the victims' losses at the time of the crime. It can be determined that Chen had the purpose of illegal possession.

The court held that Chen fabricated facts, concealed the truth, and defrauded others of a huge amount of property, and his behavior constituted the crime of fraud. Taking into account the circumstances such as confession and punishment, Chen was sentenced to 12 years in prison for fraud and fined 55,000 yuan. The judgment has taken effect.

Five tricks for digital collection scams

Lawyer Liu Zhengyao It is pointed out that illegal fund-raising in my country's criminal law includes the crime of illegally absorbing public deposits and the crime of fund-raising fraud. Among the crimes involving digital collections, those that are officially recognized as illegal fund-raising or fraud usually involve the following characteristics:

The first is false propaganda and promises of appreciation. When selling digital collections, some digital collection platforms will claim that the products can appreciate in value, such as 30% or more, or promise guaranteed repurchase, such as The issue price of this digital collection is 999 yuan. The platform promises that when the market price of this digital collection falls below the issue price in the future, the platform will recover the issue price.

The second is false on-chain. Digital collections are unique and can be truly on-chain. The so-called digital collections released by some platforms do not. It is truly on the chain and cannot be found on the blockchain after consumers purchase it.

The third is rat warehouse or pull-for-profit behavior. Some digital collection platforms claim to sell 1,000 digital collections, but in fact they only sell them to external parties. 400 copies were obtained, and perhaps 600 of them are still on the platform. In the later stage, the platform used various publicity to build momentum in the secondary market. For example, there were 1,000 people in the consumer group, and 700 to 800 of them were internal accounts of the platform. Through the interaction between the accounts, it created the illusion that a certain collection was very popular. As a result, the price of a certain collection was increased, and then all 600 copies held by the platform were sold at a high price. The platform made a large profit, and the price of the sold digital collection fell rapidly.

Fourth is additional issuance. The platform announced that in order to increase the collection value of digital collections, it will only sell 1,000 digital collections, but the circulation in the market But 2,000 copies came out.

Fifth, the digital collection paintings sold on the platform are claimed to be painted by a famous artist, but in fact the platform is just a random painter, which does not meet the requirements. Its IP value.

In the above criminal cases,the defendants were sentenced to different degrees of severity. Liu Zhengyao believed that the main reason was based on the amount of money involved. Sure. Liu Zhengyuan mentioned that there are three levels of sentencing for fraud crimes: the first level, the amount of fraud is 3,000 to 10,000 yuan (provinces across the country can set standards within this range based on their economic development, public security conditions, etc. , the standard for filing a case in Jiangsu, Zhejiang, Shanghai, Guangdong, Shenzhen and other areas is 6,000 yuan), which belongs to the "large amount" stipulated in the criminal law and can be sentenced to fixed-term imprisonment of less than 3 years, criminal detention, and surveillance; in the second level, the amount of fraud is 30,000 yuan to 100,000 yuan (most areas set it at 100,000 yuan), which falls under the "huge amount" stipulated in the criminal law and can be sentenced to fixed-term imprisonment of not less than 3 years but not more than 10 years; in the third level, the amount of fraud exceeds 500,000 yuan, which falls under the stipulations of the criminal law. If the amount is "especially huge", the person may be sentenced to fixed-term imprisonment of more than 10 years or life imprisonment.

Liu Honglin, chief lawyer of Shanghai Mankiw Law Firm, said thatthe person in charge of the digital collection platform involved in criminal crimes will proactively refund the amount of the crime. , then this behavior is an important factor to consider in terms of conviction and sentencing.

Some criminal cases mentioned that platforms have opened secondary markets. Liu Zheng reminded that the primary market refers to the market for sales and is the platform For transactions with users, the secondary market means that the platform has opened a consignment market. All users can buy and sell on the platform. Transactions can be conducted between users and between users and the platform. The opening of the secondary market does not necessarily constitute a crime, but the opening of the secondary market will make it easier for the platform to engage in illegal activities such as fund-raising fraud, and the risk will be greater for users. Lawyer Liu Zhengyao further explained that in the secondary market, some platforms will pretend to be buyers or sellers to participate in transactions in the market. Such accounts are large in size, and it is easy for the platform to harvest other companies in this way. of ordinary users.

How to detect digital collection scams

1. Confirm the eight qualifications of the platform before purchasing

Faced with the endless number of digital collection trading platforms, Liu Zheng wants to remind users before purchasing digital collections , you can check the qualification requirements of the platform on the Internet, including:

1. Legal and valid business license;

2. ICP filing and licensing of platform websites;

3. Registration is required to open a website;

4. EDI license required to open the secondary market;

5. Blockchain information services required for digital collections to be uploaded to the chain. Filing;

6. Art business unit filing;

7. Internet culture business license Certificate;

8. Auction operation approval certificate.

2. Digital collections must have real intellectual property rights

In addition, Liu Zhengyao mentioned that the issuer or the IP party cooperating with the platform needs to have real intellectual property rights for the digital collections issued. Even if the platform uses AI-generated images to cast, attention must be paid to the AI ​​platform's ability to generate images. Intellectual Property Rights Statement. Currently, most platforms do not authorize or transfer any intellectual property rights to users. Before purchasing such digital collections, users can search for relevant information on the relevant partners' external publicity websites or accounts to check whether it is a genuine cooperation.

Mankiw lawyer suggests

In practice, often Will be asked whether the defrauded funds involved in the criminal case of digital collections can be recovered. Liu Zhengyao said that the property recovered by the judicial authorities can be returned in accordance with the law, but in practice it is difficult to recover the full amount. The user's investment money, for example, if the user's investment money is squandered by a criminal suspect, is generally returned in proportion to the user's investment at the time of purchase.

Liu Honglin further reminded that if the platform is judged to be suspected of fraud, then users need to report the case as soon as possible and provide relevant experience, evidence, and The company's basic information and other materials queried on the Internet are used as evidence for reporting the case, and a written criminal complaint is made with the assistance of a lawyer. In addition, Liu Honglin believes that the rights protection methods adopted by some users are unreasonable and will bring unnecessary trouble to themselves. Liu Honglin said that some users also post the personal information of the person in charge and employees of the digital collection issuing company in WeChat groups or It appears on the public account that such behavior may be suspected of infringing on citizens' rights to privacy, reputation, etc.

Relevant departments have announced typical cases and specific circumstances of crimes, which has certain enlightenment significance for the entire digital collection market. Liu Honglin believes that publicizing such cases can remind consumers to rationally understand the collection value of digital collections. In addition, it is also a positive guide for issuers of digital collections, which can provide risk warnings for certain operating models and external publicity content of the issuing platform.

In order to strengthen risk prevention, Liu Honglin believes that regulatory agencies need to have a guiding standard in terms of access qualifications, and officially issued guidance documents involving compliance business qualifications , which is valuable for industry development. Secondly, for disputes between consumers and platforms, regulatory authorities need a reasonable response mechanism, and the rights and interests of both parties need to be protected.