A ruling handed down by the U.K. High Court on Oct. 12 could mean that about 16,000 Chinese fraud victims recover only what they originally put in, plus interest, from one of the biggest crypto money laundering cases ever recorded.
At issue are 61,000 BTC that British police confiscated back in 2018. The decision may shut the door on what was the victims’ strongest path to sharing in Bitcoin's price gains over the years since.
English law loses out to Chinese law
According to Mr. Justice Turner, the question of whether the investors hold ownership rights over the confiscated cryptocurrency has to be determined under Chinese law.
It may look like a technicality, but it carries real weight. The investors had pinned their hopes on English property law, under which they could trace their funds all the way to the Bitcoin those funds were used to buy. Had that tracing approach succeeded, the victims might have been able to lay claim to the crypto itself, rather than simply seeking to get back their original stake.
Turner came down on the side of British prosecutors, finding that the overwhelming majority of the fraudulent statements, investment agreements, payments and early Bitcoin purchases were connected to China.
A question still left open
This should not be seen as a definitive defeat for the investors. Whether they hold any ownership rights at all remains undecided by the court; the judgment only settles which country’s law will be used to answer that.
The coins’ ultimate destination therefore remains up in the air, though the picture now looks different. Under the legal framework Turner selected, the investors might be limited to recovering their initial investment plus interest, a figure far below a slice of a multi-billion-dollar Bitcoin hoard.
A Ponzi scheme dating back to 2014
The story begins with Qian Zhimin, a Chinese citizen who also goes by Yadi Zhang. Qian set up Tianjin Lantian Gerui Electronic Technology in 2014 and used the company to operate a network of fraudulent investment schemes.
Between 2014 and 2017, the firm lured investors by promising lucrative returns from digital currencies, senior care services and other ventures. According to court filings, investors entered into 128,409 investment agreements totaling roughly 40.23 billion yuan, or about $5.9 billion at current approximate exchange rates.
Some 34.1 billion yuan of that sum was paid back out to certain investors. That is the hallmark of a Ponzi scheme: money from newer participants is used to pay earlier ones, which helps the operation appear legitimate.
From Huobi purchases to a British police raid
Some of the funds were used by Qian to acquire Bitcoin. Investigators determined that over 100,000 BTC had been bought through an account on the crypto exchange Huobi between June 2014 and June 2017.
British police carried out raids in October and November 2018 on properties connected to Qian and her co-conspirator Jian Wen, confiscating electronic devices and private keys linked to the crypto. The investigation ultimately resulted in the seizure of more than 61,000 BTC.
British prosecutors and the Chinese investors are now battling over who has a claim to those coins. With this ruling, the prosecutors have gained the upper hand, and the investors’ claims will be assessed under Chinese law.