Chinese Court Upholds Conviction in 77.76 Million Yuan Virtual Currency Theft via Backdoor Fraud

A Chinese court in Hubei province has upheld a conviction of a criminal involved in a virtual currency theft case, sentencing him to prison for fraud that caused losses of approximately 77.76 million yuan. The case, which involved the use of a "backdoor" in a decentralized cryptocurrency platform to manipulate data and siphon users’ assets, was adjudicated after a two-instance legal process. The defendant, He, along with four others, was sentenced to fixed-term imprisonment ranging from three to thirteen years and fined between 20,000 and 300,000 yuan. The second-instance court rejected He’s appeal, affirming the initial judgment [1].

The operation, which spanned August 2017 to 2020, began with He and an associate establishing a technology company. They developed a decentralized exchange platform where users could trade cryptocurrencies without intermediaries. To build investor trust, the platform underwent a security audit in September 2020. However, the audit did not detect a hidden "backdoor" in the platform’s code, which He and others used to alter the price of a token called "D coin" and covertly exchange it with users’ virtual assets. Between October and November 2020, the group exploited the backdoor to artificially inflate "D coin" prices, swap users’ holdings, and transfer the stolen assets to He’s account. After each transaction, they reset the "D coin" price, rendering users unable to withdraw their funds [1].

The scheme affected 103 victims, who collectively lost over 77.76 million yuan in virtual currency. The Yumen County Procuratorate in Hubei filed public charges against He, his co-conspirators, and three others in September 2024. The court accepted the prosecution’s allegations and delivered the sentences in March of this year. The legal proceedings highlight the Chinese judicial system’s increasing focus on cryptocurrency-related crimes, particularly those involving technological manipulation of platforms [1].

The case underscores the risks associated with decentralized platforms, where vulnerabilities can be exploited to defraud users. The use of a backdoor—a hidden function allowing unauthorized control—exposes gaps in security audits and the potential for bad actors to manipulate smart contracts or trading mechanisms. While the platform initially passed a professional security audit, the deliberate omission of the backdoor in the assessment process illustrates the importance of transparent and rigorous verification in blockchain projects.

The Hubei court’s decision to uphold the original conviction signals a firm stance against fraud in the cryptocurrency sector. The sentences reflect a judicial emphasis on deterring technological crimes that exploit user trust and financial assets. The fines imposed further align with China’s broader regulatory framework, which has increasingly targeted illegal fundraising and data security violations in the digital economy.

The incident also raises questions about the accountability of individuals involved in platform development. The prosecution included not only He but also his collaborators, including a hired developer (Du), who were found complicit in designing and executing the fraudulent scheme. This outcome aligns with China’s legal approach to holding all participants in a criminal network liable, regardless of their specific roles [1].

The case serves as a cautionary example for both investors and developers in the cryptocurrency space. For investors, it highlights the need to scrutinize the security and transparency of platforms before committing assets. For developers, it underscores the legal and ethical responsibilities associated with managing code that controls user funds. The Hubei court’s ruling reinforces the principle that technological sophistication does not exempt perpetrators from legal consequences, particularly when it facilitates large-scale fraud.

Source: [1] [title1BlockBeats News] [url1https://www.theblockbeats.info/en/flash/304471]