US DOJ Announces Four Cryptocurrency-Related Fraud Prosecutions

In line with its function as a frontrunner within the investigation and enforcement of offenses involving cryptocurrencies and different digital property, on June 30, 2022, the US Division of Justice (DOJ) introduced 4 separate enforcement actions associated to cryptocurrency-related fraud and different misconduct, that are summarized under.¹ Notably, all 4 prosecutions contain alleged cross-border wrongdoing within the digital asset house prosecuted pursuant to long-standing fraud-based statutes.

The Enforcement Actions

These enforcement actions replicate the DOJ’s continued deal with a wide range of cross-border wrongdoing within the digital asset house.

Cash Laundering and Wire Fraud: In United States v. Le Ahn Tuan, the DOJ charged a Vietnamese nationwide with conspiracy to commit wire fraud and cash laundering in connection together with his alleged function in finishing up a fraudulent funding scheme involving the “Baller Ape” Non-Fungible Token (NFT).² The DOJ alleges that the defendant and his co-conspirators launched a fraudulent funding program that claimed to offer traders with a possibility to buy Baller Ape NFTs, however after traders transferred their cryptocurrency to the defendant and his co-conspirators, the defendant and his co-conspirators ended the funding program prematurely and stole the traders’ property.³ Thereafter, the defendant allegedly engaged in “chain-hopping,” which entails, amongst different issues, changing one kind of cryptocurrency to a different to disguise the supply of the funds and might represent a type of cash laundering.⁴
Securities Fraud, Wire Fraud, and Worldwide Cash Laundering: In United States v. Emerson Pires, et al., the DOJ charged Brazilian and US nationals with conspiracy to commit securities fraud, wire fraud, and worldwide cash laundering in reference to a “international cryptocurrency-based Ponzi scheme.”⁵ The defendants are alleged to have promoted their cryptocurrency funding platform by, amongst different issues, misrepresentations a few proprietary buying and selling bot and their capacity to generate assured returns and operated a Ponzi scheme that paid earlier traders with cash obtained from later traders.⁶ The DOJ additionally alleges that the non-US defendants laundered traders’ funds by a international cryptocurrency alternate. The DOJ touted its use of blockchain analytics to help the investigation.⁷
Securities Fraud: In United States v. Stollery, the DOJ alleges {that a} US nationwide dedicated securities fraud by an preliminary coin providing (ICO) for a cryptocurrency funding platform.⁸ Amongst different issues, the defendant is alleged to have made misrepresentations in regards to the platform’s purported buyer base, together with a number of well-known American corporations and monetary establishments such because the Federal Reserve.⁹ To hold out the scheme, the defendant allegedly created a brand new cryptocurrency token, BAR, which he claimed would permit “holders . . . [to] share in [the platform’s] future earnings and in appreciation within the worth of the BAR digital property.”¹⁰ The DOJ alleges that the defendant “obtained roughly $21 million within the type of numerous digital property, resembling Ether and Bitcoin, and money from dozens of traders positioned in at the least 18 states, together with California, and overseas, who bought BAR.”¹¹
Commodities Fraud and Wire Fraud: In United States v. David Saffron, the DOJ charged a US nationwide with conspiracy to commit commodities fraud, wire fraud, and associated fees.¹² The defendant and his co-conspirators are alleged to have obtained at the least roughly $15 million in investor funds by fraudulently selling numerous cryptocurrency buying and selling applications, together with a program to purportedly commerce choices contracts on numerous cryptocurrencies and fiat currencies by an unregistered commodity pool.¹³ The defendant and his co-conspirators additionally claimed to make use of a man-made intelligence (AI) buying and selling bot, which they represented might execute 17,500 transactions per hour on numerous cryptocurrency exchanges and would frequently generate between 500% to 600% returns.¹⁴

Takeaways

The DOJ’s lately introduced enforcement actions recommend a number of key parts to the company’s enforcement strategy.

Regulation by Enforcement: The DOJ famous that even in mild of the “relative novelty of digital foreign money,” the company is “dedicate[d] to utilizing each accessible instrument to guard customers and traders from fraud and manipulation.”¹⁵ These newest enforcement actions replicate the company’s rising efforts, in cooperation with the Securities and Alternate Fee, Commodity Futures Buying and selling Fee, and different federal businesses, to manage misconduct within the digital asset house, however the absence of particular laws and regulatory steering on these points.
Public-Non-public Partnerships: The actions additionally replicate the function that the non-public sector can play within the enforcement of cryptocurrency-related fraud. As mentioned above, due to the “novelty” of digital property as an rising know-how, unhealthy actors can to hunt to depend on the popularity of distinguished corporations and monetary intuitions to offer their fraudulent schemes with an “look of legitimacy.”¹⁶ Right here, the DOJ pressured that these actions “exemplif[y] the significance of public-private partnerships” and the company’s “sturdy relationships with trade companions,” which yielded “data resulting in [the] investigation and supreme indictment[s].”¹⁷
Cross-Border Enforcement: The actions are notable of their worldwide attain, with two of the actions involving transnational schemes and focusing on defendants positioned exterior of the USA. This may increasingly replicate the DOJ’s broader recognition that “legal schemes involving digital property” are sometimes “transnational [in] nature.”¹⁸ Accordingly, the DOJ has emphasised that “[c]ross-border collaboration is essential” to an efficient framework for detecting, investigating, and prosecuting legal exercise involving digital property.¹⁹