When Meme Coins Turn into Predatory Schemes: Examining a Major Fraud Case and Its Legal Implications

The cryptocurrency world recently confronted an unsettling reality when a university student, Yang Qichao, was sentenced to 4 years and 6 months for orchestrating a token scam that obliterated investor funds almost instantly. With one buyer losing 49,978.4 USDT in a matter of seconds—investing 50,000 USDT only to recover 21.6 USDT—this case has ignited fierce debate about where the line between market risk and criminal deception truly lies.

The Anatomy of a Flash Harvesting Attack

The mechanics were brutally simple: after listing and adding liquidity to the BFF meme coin, the developer executed a coordinated drain the moment retail buyers entered. The token price collapsed to near-zero, wiping out investor capital in what amounts to a sophisticated rug pull disguised as legitimate contract operation.

The legal complexity emerged during the second instance hearing on May 20, 2024. The defense argued a controversial position: since the platform’s smart contract code was verifiable on-chain, not falsified, and all parties were aware risk-takers, could this truly constitute fraud under criminal law? The question exposed a fundamental tension that the entire community is grappling with—does consent to participate in high-risk speculation absolve the creator of responsibility when intentional manipulation occurs?

Why “Technical Transparency” Is No Defense Against Fraud

This case dispels a dangerous myth circulating through crypto communities: that meme coin skeptics are simply being overly cautious about doubt meme projects. The reality is far more nuanced.

Three critical legal principles emerged from this controversy:

Subjective intent overrides platform permissions. Even if a smart contract technically permits liquidity withdrawal, criminal intent combined with material harm remains criminal. The code’s legality doesn’t sanitize the developer’s malicious intent.

On-chain verifiability provides no immunity. Transparent contract addresses and immutable transaction records cannot exonerate predatory behavior. If the design mechanism traps retail investors through intentional deception, it remains fraud regardless of blockchain’s verification capabilities.

Risk tolerance is not a liability waiver. That market participants accept volatility and potential losses does not justify developers harvesting capital through manipulated collapse. Criminal law protects property rights across all participant categories.

Identifying the Red Flags Before Losing Everything

How can investors navigate an increasingly doubt-laden meme coin landscape? Several warning indicators demand immediate caution:

Unprotected liquidity pools. If liquidity can be withdrawn instantly without time-locks, the project structure is built for extraction, not sustainability.

Retained developer permissions. Developers maintaining ability to mint tokens, modify transaction taxes, or alter contract parameters hold backdoors that enable harvesting operations at their discretion.

Name mimicry and branding deceit. Projects adopting names of established protocols while operating completely different contract codes represent a form of identity fraud.

Hype without substance. Excessive marketing coupled with absent audits, vague whitepapers, and undisclosed teams typically signals short-term extraction schemes designed to profit quickly before collapse.

Orchestrated trading patterns. Concentrated volume spikes at specific moments, apparent whale coordination, and erratic price volatility across timeframes characterize pump-and-dump operations.

Practical Recovery and Evidence Preservation

When investors discover they’ve purchased into a predatory token, action must be immediate and systematic:

Compile comprehensive documentation—transaction hashes, price charts at multiple timeframes, contract snapshots from blockchain explorers, all community communications, and chat records. Nothing is trivial.

Engage multiple enforcement channels simultaneously: local law enforcement complaints, platform reports, and formal evidence preservation through notarization services to establish legal timestamps.

Coordinate with other affected investors through official channels only, avoiding informal groups that may exploit victims a second time or compromise legal proceedings.

Maintain transparency with investigators. Clarify the source of invested capital and cooperate fully with any inquiries to avoid complications that could undermine legitimate claims.

The Regulatory Reckoning

The era of crypto’s regulatory Wild West has definitively ended. For both retail participants and protocol developers, regulatory scrutiny and criminal prosecution now represent tangible consequences rather than theoretical risks.

The uncomfortable truth that this case illuminates is that meme coins—by their speculative nature and community-driven dynamics—create the perfect incubation environment for predatory schemes. The legal boundary between acceptable risk and criminal fraud now hinges not on technical code properties but on developer intent and actual harm inflicted.

Compliance and ethical operation represent the only sustainable path forward. The regulatory red line exists; crossing it through even the most sophisticated technical mechanisms guarantees accountability. The sickle may appear sharp, but criminal law remains sharper.