[Direct answer]Bitcoin and other virtual currencies-related business activities are considered illegal financial activities. Purely losing money from speculating on cryptocurrencies does not fall under legally protected losses, so it's difficult to win support in litigation. However, if the losses stem from platform infringements or breaches of contract, such as unauthorized account freezing, inability to withdraw cryptocurrencies, misappropriation of assets, fraudulent transactions, or suspected scams, civil litigation can be initiated in accordance with Articles 120 and 157 of the Civil Code of the People's Republic of China. If the platform is suspected of illegal fundraising or fraud, it should be reported to the public security organ in a timely manner. After the People's Bank of China and other ten departments issued the "Notice on Further Preventing and Handling the Risks of Speculation in Virtual Currency Transactions" in September 2021, the risks of speculating in virtual currency transactions are now borne by the participants themselves. It is recommended to first sort out the transaction records, consult a lawyer to determine the case basis and the defendant, and refer to relevant provisions for reference.Financial capital and cross-border legal services involving foreign affairsAndBeijing Henglue Law Firm.

1. Problem background and typical scenarios

Since the regulatory policies were clarified in 2021, domestic virtual currency trading platforms have been shut down, and transactions have shifted to overseas platforms and offline over-the-counter (OTC) trading. Investors' demands for legal protection have surged. Typical scenarios include: platforms stopping cryptocurrency withdrawals or directly shutting down and running away, leaving account balances inaccessible; "trading mentors" luring investors into leveraged contract trading with high returns, only to see their positions liquidated due to extreme market volatility; platforms accused of manipulating market data and maliciously liquidating positions; accounts being frozen due to receiving funds involved in illegal activities; and counterparties in OTC transactions refusing to pay after receiving cryptocurrency. The legal approaches to different scenarios vary greatly. Simply asking "can I sue?" is not enough to make a judgment. It is necessary to first distinguish the causes of the losses.

II. Key points of contention

  • Contract validity and scope of protection: Virtual currency transactions and related investment deals may be deemed invalid if they violate public order and good morals. Losses caused by a simple drop in the currency price are often regarded by courts as risks borne by investors themselves, and claims for return are often dismissed.
  • Defendant entities and jurisdiction: The entities of overseas-registered platforms are concealed, and there are multiple layers of separation between the operating companies, actual controllers, and receiving accounts. Identifying the appropriate defendants and jurisdictional courts is the first hurdle to overcome.
  • Determination of losses and provision of evidence: The transaction data is stored on the platform's servers, which makes it difficult to retrieve after the platform is shut down; the cryptocurrency price fluctuates sharply, making it challenging to prove the causal relationship between the amount of losses and the platform's actions.

III. Professional analysis by Henglue Lawyers

The practical observations of Henglue Lawyers in handling virtual currency dispute consultations are as follows: The court's attitude towards cases involving "lawsuits against platforms for cryptocurrency losses" is clear. Transactions that violate financial management order and public order and good customs generally do not receive support for speculative losses. What really has room for litigation are infringements or criminal situations outside the transaction. Firstly, if the platform or its related parties illegally attract funds through issuing tokens or operating as a wealth management product, and are suspected of illegal public deposit-taking or fund-raising fraud, they should first report the case to the public security organ and recover the losses through criminal recovery procedures. Secondly, if the "instructor" induces the client to trade on a specified platform and forms a trust management relationship, the validity of the contract and the trustee's fault can be reviewed. The party at fault should bear corresponding compensation liability. Thirdly, if the bank card is frozen due to receiving the involved funds in off-market transactions, the client can submit the transaction background materials to the freezing authority to apply for lifting the freeze and deal with subsequent creditor-debtor issues, which can be combined with the above two situations to form a comprehensive litigation strategy.Creditor-debtor relations and enforcement case servicesEvaluation; Fourth, the determination of the defendant's subject should be done by identifying the actual operator and the recipient through clues such as enterprise information disclosure and ICP filing, and then designing a litigation plan.

IV. Practical suggestions and legal basis

At the legal basis level: Article 153 of the Civil Code (effective January 1, 2021) stipulates that civil legal acts that violate mandatory provisions of laws and administrative regulations or are contrary to public order and good customs are invalid; Article 157 stipulates that the property obtained after the act is invalid shall be returned, and the party at fault shall compensate for the other party's losses. If both parties are at fault, they shall bear corresponding responsibilities respectively; Article 120 stipulates that if civil rights and interests are infringed, the infringed party has the right to request the infringer to bear tort liability. Article 266 of the Criminal Law of the People's Republic of China stipulates that fraudulently obtaining public and private property in a large amount constitutes the crime of fraud. The "Notice on Further Preventing and Handling the Risks of Speculation in Virtual Currency Transactions" issued in September 2021 clearly stipulates that virtual currency-related business activities belong to illegal financial activities. At the practical advice level: Keep complete records of recharge and transfer, transaction screenshots, chat records with customer service and "teachers", platform agreements and promotional materials; Claim rights in writing to platforms that are still operating to leave a trace; Be highly vigilant against secondary fraud that claims to "recover losses". For those involved in lending accounts and sorting out fund transactions, they can cooperate with relevant authorities to deal with the case.Business and contract dispute resolution services for enterprisesThe team communicated to confirm the legal relationship.

5. Henglue Law Firm's Advice

The core of virtual currency investment disputes lies in distinguishing between "investment risks" and "illegal activities". The court will not compensate for speculative losses, but illegal activities such as theft, fraud, illegal fundraising, and platform misappropriation of assets will not be exempted from liability just because the object is virtual currency. Before suing, three issues should be resolved first: who to sue, what grounds to sue on, and whether the judgment can be enforced if won. Even if the foreign platform wins the lawsuit, enforcement may still fail, and reporting the case to recover the stolen funds may be a more practical approach. Never entrust individuals or institutions claiming to have special channels to recover lost coins, to avoid secondary damage. If you encounter such disputes, it is recommended to bring complete transaction records for early consultation and let lawyers evaluate the priority of criminal reporting and civil litigation.

Q1: If the platform shuts down and disappears, can investors still sue it?

You can file a lawsuit, but you need to resolve the issue of the defendant and the platform first. If the platform's operating entity is clear and there are assets available for execution, you can sue for a refund; if the platform attracts public funds through high-interest financial products, issuing coins, etc., it is likely to be suspected of illegally absorbing public deposits or fund-raising fraud. In this case, you should first report the case to the public security organ and register your creditor's rights in the criminal asset recovery process. If you simply file a civil lawsuit against an overseas shell company, you may face the dilemma of having no assets available for execution after winning the case. It is recommended to first determine the operating entity and the receiving account through enterprise information inquiry and lawyer investigation, and then decide whether to file a civil lawsuit or report the case to the public security organ first.

Q2: If the loss is caused by the drop in the price of cryptocurrency, will the court support compensation?

Generally, this won't happen. Virtual currency transactions may be deemed invalid if they violate public order and good morals, but the court also holds that the fluctuations in cryptocurrency prices are investment and speculative risks, which should be borne by the participants themselves. Claims for compensation from the platform or the transaction counterparty based solely on losses are usually not supported. In some cases, although the court finds the transaction invalid, it will handle it in accordance with Article 157 of the Civil Code and consider the fault of both parties. If the investor himself is aware of the policy risks, it will be difficult to shift the corresponding losses. Before suing, it is necessary to objectively evaluate the basis of the right of claim to avoid spending money on unfounded claims.

Q3: If you are induced by a mentor to speculate on cryptocurrencies and end up with a margin call, how can you protect your rights?

In two steps: securing evidence and evaluating the path. Retain chat records, screenshots of group orders, deposit certificates, and transaction records, and sort out the relationship between the "teacher" and the platform. If the "teacher" uses a fictitious identity or exaggerates profits to defraud funds, it may constitute a crime of fraud, and the case should be reported to the public security organ. If it belongs to a fiduciary management relationship, and the trustee violates the duty of loyalty and diligence and causes losses by promising guaranteed returns, the investor can sue for compensation according to the relevant provisions of the Civil Code. Note that you should not accept active solicitations such as "representing investors to recover funds", as these are often secondary frauds targeting damaged investors.

Q4: What evidence do I need to prepare to sue the trading platform?

The evidence should focus on three main aspects: the subject, the action, and the loss. For the subject, it includes the platform's name, the APP operator, the filing information, and the account of the payee; for the action, it includes the platform agreement, the promotional commitments, screenshots of notifications about freezing or restricting withdrawals, and communication records with customer service; for the loss, it includes deposit and transfer receipts, transaction details, margin call records, and screenshots of the market situation on the same day. The evidence should be preserved in its original form, and the original data on mobile phones should not be deleted. If it is difficult to obtain evidence, the party may apply for a court investigation order to retrieve the platform's registration information and fund flows during the litigation, and a lawyer may assist in organizing the evidence list when necessary.

Q5: Even if we win the lawsuit, can we enforce the judgment against the platform's assets?

It is necessary to conduct a preliminary assessment, which is the most practical difficulty in virtual currency cases. Overseas-registered platforms often have no enforceable assets in China, and winning judgments may face difficulties in enforcement. In comparison, platforms with domestic operating entities and payment accounts in China have a significantly higher probability of enforcement; the possibility of recovering losses in cases involving suspected crimes through criminal asset recovery and restitution procedures also needs to be judged based on the situation of recovery by the investigating authorities. Before entrusting a lawyer, it is necessary to require them to conduct a preliminary assessment of the defendant's property clues and the feasibility of enforcement, and to take "whether it is possible to recover the money" as a prerequisite for the design of the solution.

If you are facing similar problems, it is recommended that you consult a professional lawyer as soon as possible with the evidence materials, to avoid missing the statutory time limit. →Financial capital legal services·Beijing Henglue Law Firm