As soon as the announcement of the launch of (π) pi coin on the currency circle exchange was released today, it aroused heated discussions among media people and currency circle practitioners. In the subconscious of many people in the currency circle, participating in pi coin is a pyramid scheme. How to judge whether pi coin belongs to pyramid scheme? What are the legal risks of participating in pi coin? I will share my views with you through this article.
my country's determination of the crime of organizing and leading pyramid schemes
Article 224 of my country's Criminal Law stipulates that whoever organizes or leads pyramid schemes under the guise of business activities such as promoting sales of goods and providing services, requiring participants to pay fees or purchase goods or services to obtain membership, and forming levels in a certain order, directly or indirectly using the number of people developed as the basis for remuneration or rebates, inducing or coercing participants to continue to develop others to participate, defrauding property, and disrupting the economic and social order, shall be guilty of organizing and leading pyramid schemes.
Combined with the provisions of the "Opinions of the Supreme People's Court, the Supreme People's Procuratorate and the Ministry of Public Security on Several Issues Concerning the Application of Law in Handling Criminal Cases of Organizing and Leading Pyramid Selling Activities" (hereinafter referred to as the "Opinions"), the following four aspects should be noted in judging whether it constitutes the crime of organizing and leading pyramid selling activities.
1. The profit model of the project
Pyramid selling activities are mainly obtained through participants paying threshold fees or purchasing goods and services. In other words, participants can participate by paying the entry fee directly. For the purchased goods or services, this model often requires costs far exceeding the real value of the goods themselves. For example, the purchase of virtual goods such as brick-moving dogs and NFTs of plus tokens at high prices is not for a certain purpose, but to obtain membership through this model.
2. Level and number of people in the project
Article 1 of the Opinion stipulates that if there are more than 30 people participating in pyramid schemes within an organization and the level is above level 3, the organizers and leaders shall be held criminally liable. In other words, pyramid schemes need to meet the requirements of a three-level, 30-person hierarchical relationship.
The identification of organizers and leaders: mainly includes those who initiate, plan and manipulate MLM activities; those who bear management, coordination and other responsibilities; those who bear publicity, training and other responsibilities; those who have been criminally punished for organizing and leading MLM activities, or those who have been administratively punished for organizing and leading MLM activities within one year, and who have directly or indirectly developed more than 15 people at the third level or above to participate in MLM activities; and other persons who play a key role in the implementation of MLM activities, the establishment and expansion of MLM organizations.
Therefore, only organizers and leaders of MLM activities that meet the above requirements will be held criminally liable, and general participants will not constitute a crime.
3. Project remuneration and rebate logic
Article 5 of the Opinions stipulates that if the organizer or leader of a pyramid scheme develops personnel and requires the developed personnel to develop other personnel to join, thus forming a relationship between upper and lower lines, and calculates and pays the upper line remuneration based on the sales performance of the lower line, and seeks illegal profits, this is a "team remuneration" type pyramid scheme.
Pure "team remuneration" type pyramid scheme activities that are aimed at selling goods and based on sales performance for remuneration will not be treated as crimes.
Formally, it adopts the "team compensation" method, but in essence it belongs to the pyramid selling activity of "using the number of developed personnel as the basis for compensation or rebate", which constitutes the crime of organizing and leading pyramid selling activities.
4. Whether the project has the purpose of defrauding property
The essence of pyramid selling is to defraud, to obtain the property of participants for the purpose of illegal possession. Pyramid selling activities are not really profitable by selling goods or providing services, but need to continuously recruit offline people to increase the scale of the organization to maintain the project.
Article 3 of the Opinion defines the identification of defrauding property: The organizers and leaders of pyramid schemes who fabricate or distort national policies, fabricate or exaggerate business, investment, service projects and profit prospects, conceal the true source of remuneration and rebates, or use other fraudulent means, and carry out the acts stipulated in Article 224 of the Criminal Law, and illegally profit from the fees paid by participants in pyramid schemes or the fees for purchasing goods and services, shall be identified as defrauding property.
Therefore, whether Pi coin belongs to the pyramid scheme crime stipulated in my country's criminal law should be determined mainly based on the situation of the project itself and through the above four aspects.
What are the legal risks of participating in Pi coin?
If Pi coin is determined to constitute the crime of organizing and leading pyramid schemes, there will be the following legal risks for exchanges to list the coin and retail investors to participate.
1. There may be criminal risks when the exchange lists (π) Pi coin
After Pi is identified as a pyramid scheme, the exchange listing Pi coin is equivalent to providing a secondary market for trading and cashing out. The exchange's announcement of the listing and the listing of new coins may also include financial management, trading competitions and other activities, which may be identified as playing a role in promoting pyramid schemes, and will constitute a joint crime of organizing and leading pyramid schemes.
The business personnel of the exchange and other major participants who are responsible for communicating with the Pi coin project party for the launch are very likely to be implicated.
2. Retail investors' participation in (π) Pi coin investment is not protected by law
In the case (2020) Su 0481 Minchu No. 147 heard by the People's Court of Liyang City, Jiangsu Province, in 2017, the defendants Zhang and Qian introduced a mobile phone software called π to the plaintiff Ma, which has functions such as product trading and financial management between registered members. After the plaintiff Ma registered, the defendant Wu transferred 134,250 yuan to purchase 3,000 π coins. Later, the plaintiff and the defendant Qian had a dispute over the π software and sued the court, requesting the three defendants to return the investment.
Finally, the court determined that the payment made by the plaintiff to the defendant Wu was caused by the transaction between the plaintiff and the defendant Wu in π coins. π coins are online virtual currencies traded between internal accounts of registered members of the π platform. They do not have the same legal status as currency and cannot and should not be circulated and used as currency in the market. Although the plaintiff's investment and trading of online virtual currencies are personal freedoms, they should not be protected by law. The investment risks arising therefrom should be borne by him.
For those who participate in virtual currency pyramid schemes, in addition to being subject to criminal penalties for suspected crimes of organizing and leading pyramid schemes, many investors also want to recover their losses through civil litigation. However, they are basically dismissed because the currency-related investment behavior is not protected by law and the pyramid scheme activities of the project involve criminal offenses and are not within the scope of civil cases.
Therefore, investors need to be more careful, carefully identify and invest cautiously when participating in such projects.
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