Brick Mover Sentenced for Fraud! Taiwan Ton Ecosystem Member Receives Five Years Probation, Highlighting Regulatory Gaps in Virtual Asset Management Companies

In April of this year, the Taoyuan District Court in Taiwan issued a verdict on a cryptocurrency fraud case under the guise of "brick-moving," in which the well-known developer of the Taiwan Ton ecosystem, Zou Beichen, was sentenced. This case highlights the rampant and poorly managed cryptocurrency asset management companies in Taiwan, underscoring the fact that Taiwan's regulatory oversight of Virtual Asset Service Providers (VASPs) still lags behind international standards.

Outward Profit Guarantee, Trouble Caused by Brick-Moving Company

According to a court ruling, on October 3, 2017, Zou Beichen, Wang Tingyou, and other partners jointly established "Block Future Co., Ltd." The company mainly engaged in customer-operated virtual currency trading and mining machine sales. After the company was established, Zou Beichen was responsible for writing a brick-moving program, which was used to track price differences between various virtual currency exchanges and conduct arbitrage trading by buying low and selling high.

Zou Beichen's brick-moving program was designed to profit from price differences by buying and selling virtual currencies between different exchanges. However, Zou Beichen, knowing that the program could incur losses due to factors such as network delays, time differences in trading, and price fluctuations during operation, still assisted the company in outwardly claiming that the program guaranteed profits.

Fraud Method: Fabricating Internal and External Accounts, Misleading Users into Believing They Are Making Money

Falsifying Accounts to Conceal Losses, Eventually Exposed

According to the court ruling, at Wang Tingyou's direction, Zou Beichen designed a set of internal and external account systems and performance amortization programs to conceal the actual losses incurred during the operation of the brick-moving program. This system presented customers with false virtual currency holdings, averaging out daily trading losses with profits from other trading days to create a false daily profit illusion. Eventually, Block Company was unable to sustain the false profit illusion and disclosed the truth on June 1, 2018.

Disseminating False Information to Customers: Guaranteeing Profits

Zou Beichen was responsible for the technical maintenance of the company's website and, at Wang Tingyou's direction, assisted in publishing false messages guaranteeing profits. These messages were publicly available on the company's Q&A page, misleading numerous investors into believing that the brick-moving program had "no risk of losses," leading them to invest.

Defense's Attempt to Exonerate with Disclaimer, Court Disbelieves

Wang Tingyou's defense argued that the victims had agreed to the "Terms of Use," which stated "no profit guarantee," believing that the victims understood the possibility of losses when using the service. The court found the "Terms of Use" to be convoluted and full of grammatical errors, clearly translated directly using software, and with the Q&A page explicitly stating no losses would occur, the court did not believe the defense.

Court Ruling and Subsequent Developments

In court, Zou Beichen admitted his actions, detailing the operation of the brick-moving program and its risks of losses. His testimony was corroborated by multiple witnesses, including other partners and engineers of the company. Their testimonies showed that Zou Beichen had explicitly mentioned the risks of the program during internal meetings but, under Wang Tingyou's direction, still outwardly guaranteed profits.

• The court ultimately found Wang Tingyou guilty of aggravated fraud and sentenced him to four years and six months in prison.

• Zou Beichen was sentenced to two years in prison but received a five-year probation for confessing to his crimes and reaching settlements with multiple victims. The court considered Zou Beichen's clean criminal record, active compensation to victims, and believed there was no risk of reoffending, thus granting probation.

While Wang Tingyou in this case paid the price for his wrongdoing, Zou Beichen, who received probation, turned over a new leaf. In the following years, he founded the blockchain technology company FDC Technology, co-founded the cryptocurrency asset management company DeFITs, and is now the founder of the well-known Taiwanese Ton ecosystem development company TonFura If the telephone booth, supported by incubator TONX and venture capital TONcoin.Fund.

Ongoing Turmoil in Taiwanese Virtual Asset Management Companies Highlights VASP Supervisory Gaps

Since the incident in 2018, Taiwan has seen numerous issues with virtual asset management companies, including Ponzi schemes, improper operations leading to losses, fund misappropriation, and inadequate custody. Compared to current VASPs such as exchanges and currency traders, virtual asset service providers have stricter supervision and penalties; however, virtual asset management companies engaging in fundraising and investment promotion remain unregulated, leaving investors vulnerable.

FATF Considers Virtual Asset Management Companies as VASPs, Taiwan Focuses Only on Exchanges and Currency Traders

The definition of VASPs by Taiwan's Financial Supervisory Commission aligns with the Financial Action Task Force's (FATF) definition, which should include virtual asset management companies like those in the aforementioned case. However, Taiwan's regulatory scope currently only covers "exchanges and currency traders," obligating them to pass anti-money laundering declarations to operate. Virtual asset management companies providing financial services are not regulated, allowing operators to take risks and causing harm to investors.

FATF's VASP Definition	Taiwan's FSC VASP Definition
1. Exchange between virtual assets and fiat currency 2. Exchange of one or more forms of virtual assets 3. Transfer of virtual assets 4. Custody and/or management of virtual assets or tools for controlling virtual assets 5. Participation and provision of financial services related to the issuance and/or sale of virtual assets by issuers	1. Exchange between virtual currencies and New Taiwan Dollar, foreign currencies issued by mainland China, Hong Kong, or Macau. 2. Exchange of virtual currencies. 3. Transfer of virtual currencies. 4. Custody, management of virtual currencies, or provision of related management tools. 5. Participation and provision of financial services related to the issuance or sale of virtual currencies.

This case serves as a reminder of the many risks in the cryptocurrency market, urging investors to be cautious with their investments. Perhaps at that time, due to the industry still being in its early stages, young startups were unsure how to cautiously provide services, leading to disasters. Now, with more mature regulation and industry practices, it is believed that investors can confidently engage in the crypto asset market in a more secure environment.