Given the overall negative attitude towards virtual currency and related transactions and investments in the domestic policies, many Key Opinion Leaders (KOLs) have shifted from domestic social media platforms such as Weibo, Zhihu, and Douyin to foreign platforms like Twitter and YouTube. According to incomplete statistics, in the first half of 2023, Chinese content related to the coin circle increased by 87% compared to the same period last year. Following the trends of Huangtui and Zheguitui, the coin circle has become another hot topic on Chinese Twitter.
By accumulating information over time and attracting a large following, most KOLs aim to monetize their traffic. Common ways for KOLs to monetize include paid knowledge, project promotion, referral commissions, and SocialFi.
Lawyer Shao has previously conducted legal analysis on the risks associated with KOLs engaging in paid knowledge-sharing (legal risks of virtual currency payment communities, what should be noted?), referral commissions (are referral commissions for coin circle KOLs legal business?), and SocialFi (are internet celebrities creating coins for fans to share dividends legal business? How do Friend.tech and Time Store leverage fan economy?). In practice, the most common issues arise from the risks associated with KOLs promoting projects. Lawyer Shao has handled numerous consultations related to KOLs and has also dealt with several criminal cases and criminal legal risk prevention cases involving KOLs.
Case Studies:
1. KOL promoting a virtual asset trading platform
The collapse of the virtual asset trading platform JPEX was seen as the “first criminal case involving the Hong Kong coin circle.” Several celebrities and internet celebrities had previously endorsed or promoted the platform. Celebrities and internet celebrities who had endorsed or promoted JPEX included Hong Kong artist Zhang Zilin, Taiwanese singer Chen Lingjiu, Hong Kong model Zhuang Simin, Hong Kong internet celebrity Lin Zuo, and YouTuber Chen Yi.
According to the JPEX official website, JPEX claimed to have obtained licenses in Canada, the United States, and Australia and was a licensed virtual currency platform. In July 2022, the Securities and Futures Commission of Hong Kong listed JPEX as an unlicensed company and a suspicious website and issued a warning statement on September 13 this year that none of JPEX’s physical stores had been licensed by the Securities and Futures Commission and had not applied for a license.
On September 18, 2023, the Hong Kong police announced that 8 people, including Hong Kong internet celebrities Lin Zuo and Chen Yi, were arrested on charges of conspiracy to commit fraud.
2. KOL pumping projects in the coin circle
The project XIRTAM introduced itself as the world’s first advanced non-KYC blockchain reputation-building system. XIRTAM aimed to create a free Play-to-Earn gaming world where players could participate without buying any entrance tickets. In March 2023, during the peak period of promotion by the project, there was a noticeable phenomenon of Chinese KOLs pumping the project. Influencers like Time, Momo, Crypto Compass, and Chongdi promoted the project heavily, urging retail investors to buy in. The project scammed over 2000 Ethereum through seed round investments, Dutch auctions, and public investments, deceiving thousands of people. The project later disappeared, and the token price plummeted by over 90% in a few hours.
Public information online shows that the XIRTAM project team has been arrested in Mianyang, Sichuan, while the main suspects, KOLs Time and Momo, have not posted any updates since May 3rd.
3. KOL publishing promotional tweets for project traffic
According to recent user consultations received by lawyer Shao (content slightly modified for user privacy), a certain KOL with 300,000 followers on social media received a direct message from a project team asking for promotion. The price for one tweet was 900 U, and the user posted 3 identical tweets for the project within two weeks, receiving a total of 2700 U.
Unexpectedly, the KOL received messages from fans claiming that the project recommended was a “pyramid scheme.” Many users had purchased high-yield financial products on the platform operated by the project, which was now inaccessible as the project team had disappeared.
Criminal Offenses KOLs May Face for Promoting Projects:
If a project is involved in criminal activities and a KOL plays a significant role in promoting and advertising the project, the KOL may be considered an accomplice and held criminally responsible. Common criminal risks include fraud, operating a gambling establishment, and pyramid schemes.
1. Fraud:
In April 2024, the decentralized gambling platform ZKasino was suspected of running away. Lawyer Shao had previously analyzed this case (→ “Did the $3.5 billion Web3 gambling platform ZKasino abscond with funds? Can domestic investors seek legal recourse?”). A few days later, individuals associated with the project were arrested by the Dutch Fiscal Information and Investigation Service on suspicion of fraud.
If the project’s fraudulent activities are confirmed, KOLs who promoted the project knowing the extent of the fraud may be considered accomplices to fraud based on their level of involvement and profit in the project.
2. Operating a Gambling Establishment:
In April 2024, a Weibo user claimed that participating in perpetual contract platform fee rebates and developing downlines as agents constituted complicity in operating a gambling establishment.
KOLs may only post referral codes for the platform or invite links below YouTube videos without engaging in the transactions of the contracts they promote. However, the platform’s system may bind individuals who enter the platform and transact through the links posted by KOLs, making the KOLs agents in the operation of a gambling establishment.
Under the law, participating in profit-sharing from gambling websites or acting as agents for gambling websites and accepting bets falls under the provision of “operating a gambling establishment” in Article 303(2) of the Criminal Law.
3. Organizing and Leading Pyramid Schemes:
For example, in the Plus Token 40 billion virtual currency pyramid scheme case handled in Yancheng, Jiangsu, the project claimed to provide digital currency value-added services and continuously engaged in pyramid schemes through the creation of the Plus Token wallet. The court found Chen and others guilty of organizing and leading pyramid schemes, with the individuals involved receiving sentences ranging from 2 to 11 years. According to recent consultations received by lawyer Shao, police across the country are continuing to arrest agents of the platform.
Under the law, individuals who undertake roles in promoting and training in pyramid schemes can be deemed organizers or leaders of pyramid schemes. Therefore, if the project promoted by KOLs is suspected of being a pyramid scheme, even if they claim not to be members of the project team, they may still be considered complicit in promoting a pyramid scheme.
In conclusion, since KOLs are referred to as “Key Opinion Leaders,” they naturally have a corresponding responsibility. Every word and action should consider the responsibility to their fans and the public. To minimize potential legal risks, KOLs must make careful decisions when collaborating with project teams. In legal terms, before entering into a partnership, a “due diligence” process should be conducted to investigate the background, operations, and potential risks of the prospective partner. Whether KOLs are physically present in China or abroad, they must prioritize criminal risks. After all, criminal jurisdictions worldwide have certain features of “long-arm jurisdiction.”
If it is difficult to determine whether project promotion may trigger legal risks, consulting a lawyer may be necessary.
