US DOJ Announces Four Cryptocurrency-Related Fraud Prosecutions

According to 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 beneath.¹ Notably, all 4 prosecutions contain alleged cross-border wrongdoing within the digital asset area prosecuted pursuant to long-standing fraud-based statutes.

The Enforcement Actions

These enforcement actions mirror the DOJ’s continued give attention to quite a lot of cross-border wrongdoing within the digital asset area.

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 supply traders with a chance 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 means of, amongst different issues, misrepresentations a couple of proprietary buying and selling bot and their skill 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 means of a international cryptocurrency change. 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 means of an preliminary coin providing (ICO) for a cryptocurrency funding platform.⁸ Amongst different issues, the defendant is alleged to have made misrepresentations regarding the platform’s purported buyer base, together with a number of well-known American firms 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 enable “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, equivalent to Ether and Bitcoin, and money from dozens of traders positioned in at the very 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 expenses.¹² The defendant and his co-conspirators are alleged to have obtained at the very 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 means of an unregistered commodity pool.¹³ The defendant and his co-conspirators additionally claimed to make use of a synthetic 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 just lately introduced enforcement actions recommend a number of key components to the company’s enforcement method.

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 obtainable instrument to guard customers and traders from fraud and manipulation.”¹⁵ These newest enforcement actions mirror the company’s rising efforts, in cooperation with the Securities and Trade Fee, Commodity Futures Buying and selling Fee, and different federal companies, to regulate misconduct within the digital asset area, however the absence of particular laws and regulatory steering on these points.
Public-Personal Partnerships: The actions additionally mirror 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, dangerous actors can to hunt to depend on the popularity of outstanding firms and monetary intuitions to supply their fraudulent schemes with an “look of legitimacy.”¹⁶ Right here, the DOJ harassed that these actions “exemplif[y] the significance of public-private partnerships” and the company’s “sturdy relationships with business companions,” which yielded “info 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 concentrating on defendants positioned exterior of the USA. This may increasingly mirror the DOJ’s broader recognition that “prison schemes involving digital property” are sometimes “transnational [in] nature.”¹⁸ Accordingly, the DOJ has emphasised that “[c]ross-border collaboration is important” to an efficient framework for detecting, investigating, and prosecuting prison exercise involving digital property.¹⁹