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Dalian authorities warn of crypto and metaverse scams amid China’s crackdown

Chinese financial watchdogs and police in Dalian, a city in the northeastern Liaoning province, released a notice on February 20, 2024, urging investors to beware of “illegal fundraising activities” disguised as lucrative investment opportunities involving cryptocurrency and the metaverse.

The notice, issued by Dalian’s securities regulator and six other authorities, stated that “unscrupulous individuals” have orchestrated scams through online platforms such as WeChat groups to lure investors into downloading illegal apps and purchasing illegitimate cryptocurrencies. Such behaviors could lead to suspected illegal fundraising, fraud and other criminal activities, according to the authorities.

The notice also reminded the public of the existing regulations and policies regarding cryptocurrency and related activities in China, which have been tightened in recent years as part of the country’s crackdown on crypto-related fraud amid a ban on crypto trading.

In September 2017, the People’s Bank of China (PBOC) and six other departments jointly issued a notice prohibiting all types of token issuance financing activities, pointing out that token issuance financing “is essentially a kind of unauthorized illegal public financing behavior, suspected of illegally selling token tickets, illegally issuing securities, illegal fundraising, financial fraud, pyramid schemes and other illegal and criminal activities”.

In May 2021, the China Internet Finance Association, the China Banking Association, and the China Payment and Clearing Association jointly issued a notice on preventing the risks of virtual currency trading speculation, stating that “from the perspective of China’s existing judicial practice, virtual currency trading contracts are not protected by law, and the consequences and losses caused by investment transactions are borne by the relevant parties themselves”.

In September 2021, the PBOC, the Supreme People’s Court and eight other departments jointly issued a notice on further preventing and disposing of the risks of virtual currency trading speculation, clarifying that conducting legal currency and virtual currency exchange business, virtual currency exchange business, acting as a central counterparty to buy and sell virtual currency, providing information intermediary and pricing services for virtual currency trading, token issuance financing and virtual currency derivatives trading and other virtual currency related business activities are suspected of illegally selling token tickets, unauthorized public issuance of securities, illegal operation of futures business, illegal fundraising and other illegal financial activities; overseas virtual currency exchanges providing services to residents in China through the Internet also belong to illegal financial activities; at the same time, it reiterated that any legal person, unincorporated organization and natural person investing in virtual currency and related derivatives, violating public order and good morals, the relevant civil legal acts are invalid, and the losses caused by this are borne by themselves.

According to Article 25 of the Regulations on Preventing and Disposing of Illegal Fundraising, the losses caused by participating in illegal fundraising shall be borne by the participants themselves. The notice urged the public to be vigilant, enhance their risk prevention awareness and identification ability, establish a correct investment concept, consciously stay away from “virtual currency” trading speculation, illegal fundraising and other illegal financial activities, and prevent personal property from being damaged. If they have participated in them, they should withdraw as soon as possible.

The notice was signed by the Office of the Leading Group for Disposing of Illegal Fundraising in Dalian, the Dalian Public Security Bureau, the Dalian Market Supervision and Administration Bureau, the Dalian Branch of the PBOC, the Dalian Supervision Bureau of the National Financial Supervision and Administration Commission, the Dalian Securities Regulatory Bureau, and the Dalian Communications Administration Bureau.

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