A criminal-civil cross analysis of a cryptocurrency leverage trading case
The wool party can be found everywhere in the financial circle, and the cryptocurrency circle is no exception. Initially, users used the spreads of various exchanges to move bricks for arbitrage, and gradually developed to use the spreads of spot and futures for arbitrage profit, and recently, with the rise of defi, the zero-jerk mode of digging and selling has been hotly sought by players. In the past, the wool party either gleaned the project party or other leeks. Today LiuLu discusses with you a case of a user gleaning the exchange and analyzes the legal facts of it. The purpose of this article is to discuss the boundary between crime and non-crime in the cryptocurrency world, and the case mentioned is also a fabrication, so it is purely coincidental if there are similarities.
A user engaged in leveraged trading on a small exchange, found that the coin price of some coins on the exchange were not associated with large exchanges and the trading depth was poor. A account, due to the huge financial advantage of high leverage and the lack of depth of the transaction, so that the price of a currency instantly pulled up several times or even dozens of times, A account due to the pressure of high leverage, in the process of pulling the plate a little and blocked easily burst, but even if A account burst, because most of the funds are leveraged to borrow coins, so the user only lost the principal part of the A account, to achieve a huge profit B account.
The usual rules, the opening paragraph throws out the viewpoint, Liu Lu believes that the user’s behavior is only a reasonable use of trading rules, not suspected of criminal offenses. To clarify this issue, we need to consider three dimensions: first, why the exchange was gleaned, second, whether the user’s behavior is consistent with the criminal composition of the relevant crime, and third, how to defend the rights of the exchange that was gleaned.
First, why are exchanges being gouged?
- If the exchange does not operate illegally, it is impossible to be weeded. Here we will not explore whether the existence of the exchange conforms to the relevant laws, but only analyze the illegality of the operation of the exchange in this case. As we all know, the exchange’s profit “should be” the fees generated by the user’s trading process, whether it is spot trading or futures trading, whether it is buying or selling, the exchange can charge the user high fees, and in leveraged trading the exchange can also charge borrowing fees, etc., which is a “stable profit”. However, some exchanges are not satisfied with this and make profits by doing counterparty trading with users, which is the fundamental reason why they are “weeded”. To put this into perspective, an example is needed. Suppose x-coin, in the head exchange such as firecoin, ok, coinan, etc., its current price is $1, the pending sell order may be $1.001 with 200 orders, $01.002 with 100 orders, $1.003 with 500 orders, the depth of the transaction is better. And in the small exchange, the same x coins, the current price is still $1, but the pending sell orders may be $1.01 with 5 orders, $1.07 with 3 orders, $1.10 with 15 orders, the transaction depth is poor, the point is, in order to create a false trading boom, these only pending orders, most of them are the exchange robot swipe orders, that is, the exchange did the user’s counterparty, if these pending orders are If these are real user pending orders, then the way described in the case can only glean the wool of other users, but not the exchange.
In the “Announcement on Preventing the Risks of Token Issuance and Financing” of the seven ministries and commissions, it is clearly stipulated that from the date of this announcement, any so-called token financing trading platform shall not engage in the exchange business between legal tender and tokens or “virtual currencies”, shall not buy and sell or act as a central counterparty to buy and sell tokens or ” The exchange in this case is a violation of 94% of the law. The exchange in this case violated Notice 94 by participating in the transaction as a central counterparty, and was eventually weeded out.
- If the exchange has risk control measures in place, it is unlikely to be woolly. Risk control costs money, and the more the head of the exchange, the more prominent the risk control will be, some small exchanges often in order to save costs, risk control measures and personnel security is not enough, by people using the rules to pull the wool. In the case of the modus operandi, for example, if it is a large head exchange, there will be an immediate warning message and robots will automatically swipe orders to increase the depth of the transaction. It is difficult to manipulate the coin price with the volume of funds of the users, not to mention pulling the coin price up several times or even tens of times. Some of the smaller exchanges with a robust style will pay a fee to the head exchange in order to prevent users from controlling the price of the coin for profit, and both sides agree to share the trading pairs, so that they can make up for the lack of trading depth on the smaller exchanges. Of course, the lack of trading depth is beneficial to small exchanges in some ways. If small exchanges want to attract customers, lower transaction fees are the main selling point, but do low fees necessarily mean that users can take advantage? No, not really. For example, if the coin price of x-coin is $1, the fee on a large exchange is three thousandths, which means that you need to pay $3 fee to trade $1,000, while many small exchanges claim that the fee is three ten thousandths and only $0,3 fee is needed to trade $1,000. However, because of the difference in transaction depth, if you buy x-coin on a large exchange, it may be traded at $1.001, but on a small exchange, it may only be traded at $1.01, or even $1.1. In small exchanges, it seems that users save on fees, but the price of the coin is too high, and the overall calculation is definitely a loss for the user, which is why some small exchanges are not willing to share trading pairs with large exchanges.
Second, why does the user’s behavior not constitute a crime?
- The user’s behavior does not meet the criminal composition of theft. According to Article 264 of the Criminal Law of the People’s Republic of China, the crime of theft refers to the theft of public and private property for the purpose of unlawful possession, a large amount or repeated theft, burglary, theft with a murder weapon, pickpocketing of public and private property. The object of this crime is the ownership of public and private property. The object of infringement is the state, collective or personal property. The user’s behavior does not constitute the crime of theft for the following reasons: First, the user’s behavior is not theft. Theft is usually secret, the original intention is also secret theft, the Supreme People’s Court on the trial of theft cases on the specific application of the law of the interpretation of “theft” as “secret theft”, the general theory of Chinese criminal law that theft requires secret Theft, that is, the perpetrator believes that the victim did not find out and obtained for the secret theft. The exchange in question adopts a 24-hour trading mode and accepts users to participate in transactions. As users subjectively believe that any of their actions are under the surveillance of the exchange, they do not belong to “secret theft”. Second, the digital currency in question does not belong to public or private property in the sense of criminal law. In several criminal judgments, it is believed that although virtual digital currency belongs to the protection of criminal law, it does not belong to public and private property in the sense of criminal law, and there are obvious differences between virtual digital currency and tangible property such as money and intangible property such as electricity and gas. The theft of virtual digital currency is generally regarded as a crime of illegal access to computer information system data. Thirdly, this case is different from the previous theft of digital currency by hacking technology, so even if the user has realized the act, it does not meet the criminal composition of the crime of theft due to the lack of theft, and should not be held criminally responsible for the crime of theft.
- The user’s behavior does not conform to the criminal composition of the crime of illegal access to computer information system data. According to Article 285 of the Criminal Law of the People’s Republic of China, unlawful acquisition of computer information system data refers to the violation of state regulations, intrusion into computer information systems in areas other than state affairs, national defense construction, cutting-edge science and technology, or the use of other technical means to acquire computer information systems. system or use other technical means to obtain the data stored, processed or transmitted in the computer information system, the circumstances are serious. However, there are obvious differences between this case and other cases of hackers stealing money by technical means, mainly: First, the user’s behavior does not meet the element of “acquisition”. “Acquisition” includes stealing from other people’s computer information systems, such as direct intrusion into other people’s computer information systems, secretly stealing data stored in other people’s computer information systems, and also includes fraudulent acquisition from other people’s computer information systems. The user’s behavior is a normal trading behavior, reasonable use of trading rules, so it does not meet the non-acquisition crime in the form of “acquisition” elements. Second, the user’s behavior does not meet the “intrusion” element. In the transaction process cited in the case, the user did not have any intrusion into the server, did not modify the k-line and transaction data, so it does not meet the “intrusion” element in the non-acquisition crime. Third, the user’s behavior does not meet the element of “using other technical means”. “Other technical means” refers to “intrusion” other than other means of crime, with underwriting, the user cited in the case of pulling the disk way, does not involve any intrusion into the system and other technical means, is entirely the use of financial advantage to pull the disk, to put it bluntly is “There is a view that the user is using the leverage rules to borrow coins from the exchange and use the exchange’s money to pull the disk, but the criminal law does not specify this method as “by other technical means”, as a bottom-up provision. The term “by other technical means” should never be interpreted broadly. Of course, if the user’s operation is placed in the stock market, it is a typical “rat position” behavior, and it is very likely to be held criminally responsible for suspected securities-related crimes. “The company’s main goal is to provide the best possible service to its customers, and to ensure that the company is able to meet the needs of its customers.
By the way, in several articles, Liu Lue talked about the fact that some exchanges, in order to make illegal profits, adopt modifying k-lines, pinning robots to swipe orders, etc., which should be considered as “other technical means” for non-acquisition crimes, and this means behavior takes advantage of the remote and non-contact technical characteristics of exchanges as digital currency trading platforms This is similar to the above-mentioned “fraudulent acquisition from another person’s computer information system”, which is an illegal acquisition of computer information system data. This effect is similar to the above-mentioned “cheating from another person’s computer information system”, which falls under the category of “other technical means” for the crime of illegal access to computer information system data. If the exchange is not held criminally liable, then the user should not be held criminally liable for woolgathering, otherwise it becomes a case of “only the state officials are allowed to set the fire, not the people are allowed to light the lamp”, which is against the principle of equality in the application of criminal law.
Third, how should an exchange that has been wool-gathered defend its rights?
According to Liu, how to characterize this case of a user pulling the wool from the exchange, or to explore the nature of the transaction involved. The essence of the case is leveraged trading, and in the process of leveraged trading, the exchange will set out the User Agreement and the Leverage Rules for the user, and the user can only carry out leveraged trading by checking and agreeing to the above agreement and rules, that is to say, before leveraged trading, the exchange has told the user what can and cannot be done, and as long as the user does not violate the agreement and rules set out by the exchange, he should not be held liable. At the same time, the User Agreement and the Leverage Rules are both standardized form terms and conditions, and the applicability of the unfair terms in them should be determined by the court’s decision. Even if the user’s behavior has caused losses to the exchange, the exchange is fully capable of fighting for legitimate rights and interests through civil litigation in accordance with the rules of the agreement.
The “User Agreement” and “Leverage Rules” of each exchange in the cryptocurrency circle are roughly the same, and the key provisions of the case are exemplified as follows: “1. In order to maintain the order and security of the transaction, the exchange has the right to close the corresponding transaction order in case of malicious sale or purchase that disrupts the normal order of the market. 2. In the event that you cause damage to any third party, you shall independently bear all legal liability in your own name and shall ensure that the Exchange does not incur losses or additional costs as a result. If you are suspected of violating the relevant laws or the provisions of this Agreement and the Exchange suffers any loss, or is subject to any claim by any third party, or is penalized by any administrative authority, you shall indemnify the Exchange for the losses and expenses incurred, including attorneys’ fees, as a result. 3. Agreement on Forced Closing of Positions. When the total assets in your leveraged account on this website are less than 110% of the actual borrowed currency limit, this website will have the right to forcefully buy or sell all assets in your leveraged account in accordance with the real-time order price on this website in order to return the borrowed currency limit. If the price fluctuation is so drastic that the system cannot forcibly close the position, or if the borrowed coin amount and related coin interest cannot be returned even after forcibly closing the position, or if it leads to other losses of this website, this website has the right to continue to recover from you, or if you transfer digital assets to this leveraged account at any time, this website has the right to repay the previous borrowed coin amount and related coin interest with such digital assets, or compensate other losses. If the repayment is still not possible, the repayment will be advanced through the risk reserve, and the right to recover the remaining principal and interest funds will be reserved for life. 4. When the platform system forcibly closes the position of the leveraged token account to repay all the token assets borrowed by the user to the platform, if there is a loss of the principal assets lent to the user by the platform due to the penetration of the position, and the remaining tokens in the user’s leveraged account after closing the position are not enough to repay the user’s token borrowed assets to the platform If the user does not return to the platform the token lending assets lost through the transaction within the specified time, the platform has the right to sue for compensation from the district court of the user’s location, and the user’s outstanding assets owed to the platform during the period from the initiation of the lawsuit to the user’s final compensation shall be paid to the platform at 18% annual interest rate penalty interest on the outstanding token assets.”
In response to the above rules, LiuLu gives an example to briefly explain, for example, I top up 10,000 usdt and open five times leverage, which is equivalent to borrowing 40,000 usdt from the platform, so that my account will have 50,000 usdt, and if the account falls below 44,000 usdt during the operation, the platform will force to close the position, which means my principal will be gone. However, if the price fluctuation is drastic leading to the worn out position, the account may only have 20,000 usdt left, which is equivalent to the platform losing 20,000 usdt and the corresponding interest, the platform requires me to top up and return it within a certain period of time, or I can top up the operation in the account later, the platform can first deduct the money I owe for repaying the platform advance on its own, if I no longer top up the account to this worn out position, the platform can go to court If I stop topping up this account, the platform can sue me in court for repayment of the principal and interest incurred from the borrowed tokens.
According to the above brief introduction of the User Agreement and Leverage Rules, combined with the situation cited in the case, it is easy to see that the user pulled up the price of the coin through the A account, even at the risk of bursting the position, making the B account profitable, for which the exchange can fully recover its losses by suing the A account to repay the principal and interest on the borrowed coin. By searching the relevant jurisprudence, there are also many courts that have upheld the exchange’s claim to sue users for reimbursement of losses caused by leveraged trading through positions.
On the basis of the above question, let’s explore, if the exchange sues user A, to what extent should user A be liable for compensation? According to LiuLu, according to the User Agreement and the Leverage Rules, User A should be liable within the scope of the principal and interest of the borrowed currency, but should not be liable for other losses of the Exchange. It is foreseeable that the exchange may have suffered significant losses due to A’s actions, but as mentioned above, the losses were caused by the illegal participation in trading as a counterparty of the user. In the end, if the exchange does not participate in trading as a central counterparty, how can it be gleaned by users?
Posted by:CoinYuppie，Reprinted with attribution to:https://coinyuppie.com/is-it-a-criminal-offense-for-bullishness-to-pull-the-wool-from-the-exchange/
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