On June 30, the DOJ charged six people in four separate cases with a fraudulent NFT trading scheme.
The first case alleged that an individual committed internet fraud and engaged in a conspiracy to commit international money laundering in connection with a high-profile NFT. The person charged allegedly engaged in a “rug pull” by terminating the NFT project, deleting the website and keeping all the investors’ money. The DOJ also alleges that the individual laundered the investors’ funds through “chain hopping,” a form of money laundering in which one type of coin is converted to another type, and funds are moved across multiple blockchains and cryptomixers totaling $2.6 million from investors. .
The second case charged three people with conspiracy to commit wire fraud and conspiracy to commit securities fraud in connection with a global cryptocurrency-based Ponzi scheme that generated approximately $100 million from investors. Two of the individuals were also charged with conspiracy to commit international money laundering. The DOJ alleges that the individuals engaged in an unregistered securities offering, making numerous misrepresentations regarding an alleged proprietary trading fine and falsely guaranteeing returns to investors and potential investors. The DOJ alleges that the individuals laundered investors’ funds through an offshore cryptocurrency exchange and operated a Ponzi scheme by paying earlier investors with money obtained from later investors.
The third case involved the CEO of a cryptocurrency investment platform, who was charged with one count of securities fraud for his role in a cryptocurrency fraud scheme involving an initial coin offering, which raised approximately $21 million from U.S. and overseas investors. The CEO allegedly falsified the coin’s whitepaper, planted fake testimonials on its website and made alleged business connections with the Federal Reserve Board and dozens of prominent companies.
The fourth case involved the owner of a cryptocurrency investment platform, which allegedly encouraged investors to participate in an unregistered commodity pool, which is a fund that combines investors’ contributions to trade in the futures and commodities markets. The owner allegedly represented to investors that he traded investors’ funds for profit using a trading robot that could perform over 17,000 transactions per hour on various cryptocurrency exchanges, and that his trading bot would generate between 500% and 600% returns on the amount invested . The DOJ alleges the owner fraudulently collected approximately $12 million from investors.
Putting it into practice: It is likely that crypto- and NFT-related enforcement cases will continue to increase at a faster pace. It remains critical for market participants to ensure that they have the proper state and federal licenses and registrations required to offer their products. These enforcement actions should be viewed in light of the recent federal push to regulate blockchain and related technologies (we have discussed this in previous blog posts here).
