Given the overall negative attitude of domestic policies towards virtual currencies and related transactions and investments, many Key Opinion Leaders (KOLs) have shifted from domestic social media platforms such as Weibo, Zhihu, and Douyin to foreign platforms like Twitter, YouTube, etc. According to incomplete statistics, in the first half of 2023, Chinese-language content in the cryptocurrency circle increased by 87% compared to the same period last year. Following the trend of Yellow Twitter and Political Twitter, the cryptocurrency circle has become another top stream on Chinese Twitter.
Attracting a large following through consistent content creation and then monetizing the traffic is the main goal for most KOLs. Common monetization methods for KOLs include paid knowledge sharing, project promotion, commission-based referrals, SocialFi, etc.
Attorney Shao has previously conducted legal analysis on the risks associated with KOLs engaging in paid knowledge sharing (What legal risks should be considered in virtual currency paid communities?), commission-based referrals (Are commission-based referrals by cryptocurrency KOLs legal business?), and SocialFi (Is it legal for internet celebrities and KOLs to issue coins for fans to share dividends? How do platforms like Friend.tech and Time Store leverage fan economy?). In practice, the most common risks arise from the promotion of projects by KOLs. Attorney Shao has handled numerous consultations related to KOLs and has dealt with many criminal cases and risk prevention cases involving KOLs.
Case Studies
1. KOL promoting a virtual asset trading platform
The JPEX virtual asset trading platform bankruptcy incident was considered the first criminal case in the Hong Kong cryptocurrency circle. Several celebrities and influencers promoted the platform. Celebrities and influencers who endorsed or promoted JPEX included Hong Kong artist Julian Cheung, Taiwanese singer Chen Ling Jiu, Hong Kong model Chong Simin, Hong Kong influencer Lin Zuo, and YouTuber Chen Yi.
According to the JPEX website, JPEX claimed to have licenses in Canada, the United States, and Australia, as a licensed virtual currency platform. In July 2022, the Hong Kong Securities and Futures Commission listed JPEX as an unlicensed company and suspicious website, issuing a warning statement on September 13 this year that none of JPEX’s physical stores were licensed by the Securities and Futures Commission, nor did they acquire a license.
On September 18, 2023, the Hong Kong police announced the arrest of eight individuals, including Hong Kong influencers Lin Zuo and Chen Yi, on charges of conspiracy to commit fraud.
2. KOL promoting projects in the cryptocurrency 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 purchasing entry tickets. During the peak promotion period starting in March 2023, there was a noticeable trend of Chinese KOLs promoting the project. Influencers such as Time Store, Silent, Crypto Compass, and Chongdi extensively promoted the project, urging retail investors to buy in. The project fraudulently raised over 2000 Ethereum through seed round investments, Dutch auctions, public investments, deceiving thousands of people. The project later disappeared, and the token price dropped over 90% within hours.
According to publicly available information, the XIRTAM project team has been arrested in Mianyang, Sichuan, and the main suspects, KOLs Time Store and Silent, have not posted any updates since a tweet on May 3.
3. KOL publishing promotional tweets for projects
In a recent user consultation received by Attorney Shao (content slightly adapted for user privacy), a KOL with 300,000 followers on social media received a private message from a project team asking for promotion. The price for one tweet was 900U, and the user published three identical tweets for the project team in two weeks, receiving a total of 2700U.
Unexpectedly, the KOL received messages from fans stating that the project previously promoted was a “Ponzi scheme.” Many users had invested in high-yield financial products on the platform operated by the project team, which is currently inaccessible as the project team has gone missing.
Legal Risks for KOLs promoting projects
If the project team is involved in criminal activities and KOLs play a significant role in promoting and advertising the project, KOLs may be considered accomplices and face criminal liability. Common criminal risks include fraud, operating a gambling den, and pyramid schemes.
1. Fraud
In April 2024, the decentralized gambling platform ZKasino was suspected of exit scamming, and Attorney Shao had previously analyzed the case (→ “Did the $3.5 billion Web3 gambling platform ZKasino run away with the money? 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 fraudulent actions of the project team are confirmed, KOLs who promoted the project while being aware of the fraud, and based on their involvement and profit from the project, may be charged with complicity in fraud.
2. Operating a gambling den
In April 2024, a Weibo user claimed that participating in perpetual contract platform fee rebates and acting as an agent to develop downlines constitutes complicity in operating a gambling den.
KOLs may only publish promotional codes for the platform or invite links in YouTube videos without engaging in transactions on the promoted platform themselves. However, the platform system binds individuals who enter the platform through links shared by KOLs and conduct transactions in the background, making KOLs agents in operating a gambling den.
According to the law, individuals who “participate in profit-sharing from gambling websites” or “serve as agents for gambling websites and accept bets” fall under the definition of “operating a gambling den” in Article 303, paragraph 2 of the Criminal Law.
3. Organizing and leading pyramid schemes
For example, the Plus Token 40 billion virtual currency pyramid scheme case in Yancheng, Jiangsu, where the project team created the Plus Token wallet under the guise of providing digital currency value-added services and engaged in continuous pyramid schemes. The court convicted individuals, including Chen, of organizing and leading pyramid schemes, sentencing them to 2-11 years in prison. According to recent consultations received by Attorney Shao, law enforcement agencies nationwide are still arresting agents of the platform.
According to the law, individuals who undertake promotional and training responsibilities in pyramid schemes can be considered organizers and 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 implicated in promoting activities related to pyramid schemes.
In conclusion, as “Key Opinion Leaders,” KOLs naturally bear corresponding responsibilities. Every word and action should consider accountability to fans and the public. To mitigate potential legal risks as much as possible, KOLs must make careful decisions when collaborating with project teams. In legal terms, it is essential to conduct due diligence before entering into partnerships, which involves investigating 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 a certain degree of extraterritorial jurisdiction.
If it is challenging to assess whether project promotion may lead to legal risks, it is advisable to consult a lawyer when necessary.
