Roughly 16,000 Chinese fraud victims may walk away with their original money plus interest, and nothing more, from one of the largest crypto money laundering cases on record. That’s the likely effect of an Oct. 12 ruling from the U.K. High Court.
The ruling concerns 61,000 BTC that British police seized in 2018. And it may close off the victims’ best route to a share of Bitcoin's price gains since then.
Chinese law decides, not English law
Mr. Justice Turner ruled that Chinese law must be applied to decide whether the investors have ownership rights over the seized cryptocurrency.
That sounds procedural. It isn’t. The investors had been counting on English property law, which would let them trace their money through to the Bitcoin that was bought with it. If that tracing argument had worked, the victims could potentially have claimed the crypto itself instead of just trying to recover what they put in.
Turner sided with British prosecutors. He said the vast majority of the fraudulent statements, investment agreements, payments and initial Bitcoin purchases had a Chinese connection.
The question the court hasn’t answered
Don’t read this as a final loss for the investors. The court still hasn’t ruled on whether they have ownership rights at all. It has only decided which country’s law will settle that question.
So the fate of the coins is still unresolved. But the outlook has changed. Under the framework Turner chose, the investors may only be able to collect their initial investment plus interest, and that’s a much smaller number than a share of a multi-billion-dollar Bitcoin stash.
A Ponzi scheme that started in 2014
The case starts with Chinese citizen Qian Zhimin, also known as Yadi Zhang. In 2014, Qian formed Tianjin Lantian Gerui Electronic Technology and used it to run a web of fraudulent investment schemes.
From 2014 to 2017, the company drew in investors with promises of profitable returns in digital currencies, senior care services and other areas. Court filings show investors signed 128,409 investment agreements worth a total of around 40.23 billion yuan, about $5.9 billion at current approximate exchange rates.
Of that total, 34.1 billion yuan went back out as payouts to some investors. That’s how a Ponzi scheme works: early participants get paid with later participants’ money, which keeps the whole thing looking legitimate.
From Huobi to a British police raid
Qian used part of the money to buy Bitcoin. Investigators found that more than 100,000 BTC was purchased between June 2014 and June 2017 through an account on the crypto exchange Huobi.
In October and November 2018, British police raided properties linked to Qian and her co-conspirator Jian Wen. They took electronic devices and private keys tied to the crypto, and the investigation ended with the seizure of more than 61,000 BTC.
Those coins are now the subject of a fight between British prosecutors and the Chinese investors over who can claim them. After this ruling, the prosecutors are ahead, and the investors’ case will be decided under Chinese law.
