China's Digital Collectibles Fraud Case Exposes Crypto Fundraising Scheme: AI-Generated Assets and Platform Manipulation

A significant legal ruling from Shanghai’s First Intermediate People’s Court has shed light on an elaborate cryptocurrency fundraising fraud involving digital collectibles. The case against defendants Wang and Liu serves as a stark reminder of the evolving tactics employed in blockchain scams, particularly those leveraging artificial intelligence and unregulated trading platforms.

The Scheme: How AI Assets Became Investment Vehicles

The fraud mechanism was deceptively simple yet effective. Wang and Liu acquired AI-generated digital images for mere 2,888 yuan from third parties. These computer-generated files were then “uploaded onto a private blockchain” created by a third-party service, instantly transforming low-cost digital files into what appeared to be valuable blockchain-based collectibles. This process exemplifies how easily technology can be weaponized in crypto fundraising schemes.

The defendants subsequently issued between 7,888 and 16,888 digital collectibles on their platform, pricing them at 9.9 to 69.9 yuan per token. To potential investors, these assets seemed legitimate and valuable, backed by blockchain technology and the allure of digital ownership.

Creating False Credibility

To build trust with their victims, Wang and Liu employed multiple manipulation tactics. They distributed red envelopes through WeChat groups, fabricated claims about having overseas operations, and projected an image of substantial financial backing. The promised “half-price return with principal guaranteed” offered what seemed like risk-free investment opportunities—a classic hallmark of fraudulent schemes.

Their platform featured sophisticated mechanisms designed to entice continuous investment: “blind boxes” (randomized collectible packs), “synthesis” features, “airdrop” events, and “priority purchase” opportunities. Each mechanism was engineered to drive fresh capital into the system.

Market Manipulation and Secondary Trading

The most insidious aspect involved artificial price and volume manipulation. Wang and Liu engaged in wash trading—buying and selling collectibles among themselves on the secondary market to create the illusion of genuine market activity and organic investor interest. When victims finally attempted to liquidate their holdings, they discovered the market was artificially inflated and their assets virtually impossible to sell.

When desperate investors requested refunds, the operators simply blocked them, effectively trapping capital within the system.

Legal Consequences and Sentencing

The Shanghai First Intermediate People’s Court found both defendants guilty of fundraising fraud. The sentences reflected the severity of the scheme:

• Wang: Eight years and six months imprisonment, plus a 550,000 yuan fine
• Liu: Seven years and two months imprisonment, plus a 500,000 yuan fine

The court ordered confiscation of tools and equipment used in the crime, restitution to identified victims, and continued repayment obligations for any remaining balance.

Industry Implications

This case from October to December 2023 demonstrates why due diligence in crypto fundraising has never been more critical. The combination of AI-generated assets, blockchain technology, and sophisticated platform mechanics created a perfect storm for deception. What appeared technologically sophisticated was fundamentally a confidence scheme with traditional fraud mechanics.

For investors and regulators alike, the case underscores the necessity of understanding token economics, verifying asset authenticity, and recognizing that blockchain technology itself provides no protection against fraudulent schemes. As digital collectibles and tokenized assets become increasingly mainstream, distinguishing between legitimate blockchain innovation and elaborate crypto fundraising scams remains essential.