[Exclusive] Court Rules Multi-Level Marketing Involving Only Bitcoin and Mining Rights as 'De Facto Monetary Transactions'

Multi-level Cryptocurrency Mining Company 'Omniatech' First Investor
Exchanged Virtual Currency Instead of Actual Money
First Trial: "Can Be Considered Monetary Transaction Under Door-to-Door Sales Act" Guilty Verdict

[Image source=Yonhap News]

[Asia Economy Reporter Kim Daehyun] A ruling has been issued convicting a multi-level marketing (MLM) seller who only exchanged virtual currency and mining rights, not actual money, on the grounds that it was effectively a monetary transaction. This case involves an investment damage incident amounting to about 9 billion KRW related to the MLM virtual currency mining company "Omniatech."

According to the court on the 7th, Judge Joo Jin-am of the Seoul Central District Court Criminal Division 15 sentenced A (60, male), who was indicted for violating the Door-to-Door Sales Act and the Act on the Regulation of Conducting Fund-Raising Business without Permission, to one year in prison with a two-year probation in the first trial yesterday. He was also ordered to perform 120 hours of community service.

Previously, A was prosecuted for conspiring with the chairman of Omniatech and others in 2018, using a multi-level marketing organization to sell "Bitcoin mining rights" and receiving virtual currency worth tens of billions of won from numerous victims.

A was the so-called "first investor" of Omniatech, which was established overseas in August 2017. He recruited investors by stating, "Omniatech installs mining machines in various countries to mine Bitcoin. If you purchase mining rights, you can mine Bitcoin equivalent to 7-8.5% of the purchased product price every month for life." In this process, A received 273.4 Bitcoins and 2,098.5 Ethers as payment for mining rights sales and other fees. Although Omniatech was declared bankrupt in June 2019, most investors did not recover the virtual currency they invested.

During the trial, the key issue was whether transactions involving mining rights conducted with virtual currency, without actual money changing hands, could be considered monetary transactions under the Door-to-Door Sales Act. A and his defense argued, "The defendant was merely a multi-level marketer and cannot be regarded as having the same status as the management. It cannot be said that 'investment funds' were received through transactions involving mining rights. We ask for a meticulous and strict interpretation of the law." The prosecution demanded a three-year prison sentence for A.

The first trial convicted A. Judge Joo stated, "The defendant did not describe mining rights or Bitcoin as independent goods unrelated to monetary value during the investment explanation." He added, "Considering that the investors' profits were explained in terms of monetary value, it can be seen as a disguised transaction of goods and effectively a monetary transaction." He also emphasized, "The acts of receiving or paying Bitcoins from investors were not about the Bitcoins themselves independent of monetary value but rather about the monetary value of Bitcoins."

Judge Joo considered that A mentioned during the investment explanation that "If you invest 1 million KRW, you get a basic return. If you invest 100 million KRW, you basically receive 240 million KRW annually," and that Omniatech's investment materials showed various allowances in fixed dollar amounts rather than Bitcoin quantities.

Judge Joo pointed out, "Investors did not receive the Bitcoins they initially provided back, but understood that they would receive their share of the Bitcoins mined monthly, resulting in investment returns far exceeding their principal." He added, "(Omniatech) is presumed to have conducted so-called 'Ponzi-like operations' by actually receiving Bitcoins contrary to their promises."

He further explained, "Omniatech was a foreign company with foreign management, so it inevitably needed domestic collaborators to attract investors. The defendant, from shortly after the company's establishment, consulted with the management to hold investment briefings domestically and start domestic operations." He added, "Investors also perceived the defendant as the Korean general manager, Korean person in charge, or Korean representative."