A Shanghai court ordered a partial refund after ruling a token fundraising contract illegal, citing violations of Chinese financial regulations.
Token Fundraising Faces a Major Setback in a Shanghai Court Judgment
The Shanghai High Court published details on Wechat Monday about a crypto-related case highlighting the legal complexities of virtual currency activities in China. The Songjiang District People’s Court ruled on a contract dispute between an agricultural development company, referred to as Company X, and an investment management firm, identified as Company S.
The dispute centered on an agreement for token issuance and fundraising, which the court found to be in violation of Chinese financial regulations. Despite Company X paying 300,000 yuan ($41,398) for services including the creation of a white paper, Company S failed to issue the tokens, citing additional development costs outside the agreed scope.
The court deemed the blockchain agreement invalid, stating that token issuance financing constitutes illegal public fundraising in China. Both parties lacked authorization to issue tokens, rendering their agreement a violation of mandatory legal provisions. The judgment emphasized that such activities disrupt financial order and carry risks of financial fraud and other crimes. As a result, the court ordered Company S to partially refund 250,000 yuan to Company X, holding both parties at fault for the invalid contract.
Several Chinese courts have ruled that virtual currencies like bitcoin are considered property under the law, recognizing their economic value and ability to be owned and transferred. These rulings typically distinguish between the status of virtual currencies as property and their prohibition in financial transactions. While China’s regulatory stance strictly bans the use of virtual currencies for trading, fundraising, or payment due to concerns over financial stability and illegal activities, courts have acknowledged their property-like characteristics in specific contexts.
The Songjiang District People’s Court focused on the legality of the financial activities tied to token issuance and fundraising, ruling that the contract violated financial regulations. Activities like token issuance are classified as illegal public financing under Chinese law, rendering the agreement between Company X and S Company unenforceable. The court’s ruling suggests that whether virtual currencies are recognized as property is irrelevant to the validity of agreements involving unlawful activities.
Source: Bitcoin
