DOJ targets crypto industry for enforcement | Volkov Law Group

A basic truism – you don’t want to be the subject of a Justice Department investigation. The wheels of justice – prosecutors and law enforcement – ​​can cause real harm to organizations and individuals who break the law.

The DOJ is coordinating resources to investigate and prosecute cryptocurrency criminal activity. This should not come as a surprise to anyone.

The Department of Justice announced with great fanfare the creation of the DOJ’s National Cryptocurrency Enforcement Team (“NCET”) which was organized to target cryptocurrency exchanges, crypto infrastructure and others that facilitated the movement and disguise of illegal financial schemes. The NCET consists of prosecutors from various DOJ components, including the Money Laundering and Asset Recovery Section, the Computer Crime and Intellectual Property Section, and other prosecutors from individual US Attorneys’ Offices.

NCET is focused on crypto-based fraud and money laundering schemes.

Earlier this summer, the DOJ indicted six defendants in four separate cases for cryptocurrency fraud. In one case, the DOJ sued the largest non-fungible token (“NFT”) scheme. The other criminal cases involved a fraudulent investment fund that purported exchanges, a global Ponzi scheme involving the sale of unregistered crypto-securities, and a fraudulent initial coin offering.

A quick summary of each case is provided below:

Crypto NFT Scheme: US v. Le Ahn Tuan – A Vietnamese national was charged with one count of conspiracy to commit international money laundering involving the “Baller Ape” NFT. Tuan was involved in the Baller Ape Club, an NFT project that sold NFTs in the form of cartoon characters, often including the monkey figure. Shortly after the first BFTs were sold, Tuan engaged in a “rug pull”, ended the investment project, deleted the website and stole the investors’ money. Tuan and his co-conspirators laundered investors’ funds through “chain hopping”, which involves converting coins across multiple blockchains.

Crypto Ponzi and Unregistered Securities: US v. Pires, Goncalves and Nicolas – Three defendants were charged in the Southern District of Florida with conspiracy to commit wire fraud and securities fraud stemming from a global cryptocurrency Ponzi scheme that generated approximately $100 million from investors. Pires and Goncalves were both founders of EmpiresX, along with Nicholas, the alleged “Head Trader” of Empires X, and fraudulently promoted EmpiresX, a cryptocurrency investment platform and unregistered securities offering by making numerous misrepresentations, including false guarantees of returns to investors . Pires and Goncalves laundered investors’ funds through a foreign cryptocurrency exchange and operated a Ponzi scheme by paying earlier investors with money secured from later investors.

Crypto Initial Coin Offering: United States v. Michael Allan Stollery — was the CEO and founder of Titanium Blockchain Infrastructure Services (“TBIS”), a cryptocurrency investment platform. Stollery was charged with securities fraud for his role in TBIS’s $21 million initial coin offering. To lure investors, Stollery falsified TBIS white papers, planted fake certificates and fabricated supposed business relationships.

Crypto Commodities Scheme: US v. David Saffron –– was the owner of Circle Society, a cryptocurrency investment platform. Saffron used the Circle Society to encourage investors to participate in an unregistered commodity pool to combine contributions to trade the futures and commodities markets. Saffron falsely represented to investors that he was trading the investors’ funds for profit using a trading penalty and that the trading penalty would generate returns between 500 and 600 percent. To push his plan, Saffron met with wealthy investors in luxury homes in the Hollywood Hills and elsewhere, and traveled with a team of security guards to create the false appearance of wealth and success.

The US Attorney’s Office for the Southern District of New York is also focusing on cryptocurrency enforcement issues. Recently, the USAO-SDNY charged three people, including a former Coinbase product manager, Ishan Wahi, in the first cryptocurrency insider trading case. The government alleges that Wahi used highly confidential information about which assets Coinbase planned to list on its exchanges to tip off his brothers and a friend who used the information to make over $1.5 million by trading ahead of the Coinbase announcement.

In another case, the USAO-SDNY accused an individual, Nathaniel Chastain, a former executive at OpenSea, a leading NFT platform, of using confidential business information about which NFTs would be displayed on the website so that he could secretly buying dozens in advance knowing that the price of the NFT would go up when it was displayed on the homepage.