US DOJ Announces Four Cryptocurrency Fraud Lawsuits | Insights and Events

Consistent with its leadership role in the investigation and enforcement of offenses involving cryptocurrencies and other digital assets, on June 30, 2022, the United States Department of Justice (DOJ) announced four measures to separate applications related to cryptocurrency fraud and other misconduct, which are summarized below.1 Notably, all four lawsuits involve alleged cross-border wrongdoing in the digital asset space prosecuted under longstanding fraud-based laws.

Enforcement measures

These enforcement actions reflect the DOJ’s continued attention to a variety of cross-border wrongdoings in the digital asset space.

  • Money laundering and electronic fraud: In United States vs. Le Ahn Tuanthe DOJ has charged a Vietnamese national with conspiracy to commit wire fraud and money laundering in connection with his alleged role in carrying out a fraudulent investment scheme involving the non-fungible token (NFT) “Baller Ape “.2 The DOJ alleges that the defendant and his co-conspirators launched a fraudulent investment scheme that purported to offer investors the opportunity to purchase Baller Ape NFTs, but after the investors transferred their cryptocurrency to the defendant and his co-conspirators, the defendant and his co-conspirators prematurely terminated the investment program and stole the investors’ assets.3 Subsequently, the defendant allegedly engaged in “chain-hopping”, which, among other things, involves converting one type of cryptocurrency to another to disguise the source of the funds and may constitute a form of money laundering. .4
  • Securities Fraud, Wire Fraud and International Money Laundering: In United States v. Emerson Pires, et al.the DOJ has charged Brazilian and U.S. nationals with conspiracy to commit securities fraud, wire fraud, and international money laundering in a “global cryptocurrency-based Ponzi scheme.”5 The defendants allegedly promoted their cryptocurrency investment platform through, among other things, false claims about a proprietary trading robot and their ability to generate guaranteed returns and operating a Ponzi scheme that paid previous investors with money obtained from later investors.6 The DOJ also alleges that the non-US defendants laundered investors’ funds through a foreign cryptocurrency exchange. The DOJ touted its use of blockchain analysis to help the investigation.seven
  • Securities Fraud: In United States vs. Stollerythe DOJ alleges that a US national committed securities fraud through an initial coin offering (ICO) for a cryptocurrency investment platform.8 Among other things, the defendant allegedly made false statements regarding the platform’s purported clientele, including several well-known US corporations and financial institutions such as the Federal Reserve.9 To carry out the scheme, the defendant allegedly created a new cryptocurrency token, BAR, which it claimed would enable “holders. . . [to] participate in [the platform’s] future earnings and in appreciation of the value of BAR digital assets.ten The DOJ alleges that the defendant “obtained approximately $21 million in the form of various digital assets, such as Ether and Bitcoin, and money from dozens of investors located in at least 18 states, including California, and abroad, who bought BAR”.11
  • Commodity Fraud and Electronic Fraud: In United States vs. David Saffronthe DOJ has charged a US national with conspiracy to commit commodity fraud, wire fraud and related charges.12 The accused and his co-conspirators allegedly obtained at least around $15 million in funds from investors by fraudulently promoting various cryptocurrency trading schemes, including a scheme to trade options contracts on various cryptocurrencies and fiat currencies through an unregistered commodity pool.13 The accused and his co-conspirators also claimed to use an artificial intelligence (AI) trading bot, which they claim could execute 17,500 trades per hour on various cryptocurrency exchanges and regularly generate between 500% and 600% returns.14

Take away food

The enforcement actions recently announced by the DOJ suggest several key elements of the agency’s enforcement approach.

  • Regulation by application: The DOJ noted that even in light of the “relative newness of digital currency,” the agency is “dedicated[d] to use all available tools to protect consumers and investors against fraud and manipulation.15 These latest enforcement actions reflect the agency’s growing efforts, in cooperation with the Securities and Exchange Commission, Commodity Futures Trading Commission and other federal agencies, to control misconduct in the digital asset space, despite the lack of specific legislation and regulatory guidance on these issues. .
  • Public-private partnerships: The actions also reflect the role the private sector can play in combating cryptocurrency fraud. As noted above, due to the “newness” of digital assets as an emerging technology, malicious actors may seek to leverage the reputations of high-profile companies and financial insights to inform their schemes. fraudulent an “appearance of legitimacy”.16 Here, the DOJ pointed out that these “exemplary” actions[y] the importance of public-private partnerships” and the agency’s “strong relationships with industry partners”, which provided “information leading to [the] investigation and final indictment[s].”17
  • Cross-border application: The actions are notable for their international reach, with two of the actions involving transnational schemes and targeting defendants located outside of the United States. This may reflect the DOJ’s broader acknowledgment that “criminal schemes involving digital assets” are often “transnational”. [in] nature.”18 As a result, the DOJ pointed out that “[c]cross-border collaboration is essential” for an effective framework for detecting, investigating and prosecuting criminal activities involving digital assets.19

1 Press Release, United States Department of Justice, Department of Justice Announces Enforcement Action Charging Six Individuals with Cryptocurrency Fraud Offenses in Cases Involving Over $100 Million in Intentional Losses (June 30, 2022), https://www.justice.gov/opa/pr/justice-department-annonce-une-action-enforcement-facturant-six-individus-crypto-moine-fraude.

2 Indictment ¶ 1, United States vs. Le Ahn Tuanno. 2:22-cr-273-JLS (CD Cal), https://www.justice.gov/criminal-vns/case/file/1516756/download.

3 Identifier. ¶¶ 2-3, 32.

4 Identifier. ¶¶ 10, 34.

5 Press release, United States Department of Justice, above footnote 1.

6 Identifier.

seven Identifier.

8 Indictment ¶¶ 1, 9-10, United States vs. Stolleryno. 2:22-cr-207-JLS (CD Cal), https://www.justice.gov/criminal-vns/case/file/1516766/download.

9 Identifier. ¶¶ 21(a)-(d).

ten Identifier. ¶¶ 17-18.

11 ID. ¶ 22.

12 See generally Indictment, United States against Safranno. 2:22-cr-276-DSF (CD Cal), https://www.justice.gov/criminal-vns/case/file/1516761/download.

13 ID. ¶¶ 18, 52.

14 Identifier. ¶¶ 20, 23.

15 Press release, United States Department of Justice, above footnote 1

16 Identifier.

17 Identifier.

18 Report at 9, US Dep’t of Justice, How To Strengthen International Law Enforcement Cooperation For Detecting, Investigating, And Prosecuting Criminal Activity Related To Digital Assets, (6 June 2022), https://www.justice.gov/ag/ page/file/1510931/download.

19 Identifier. to 1.

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