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Crypto Fraud Becoming New DOJ Priority

by | May 13, 2022 | Bitcoin Fraud, Crypto Fraud, Cryptocurrency Fraud |

There are different types of cryptocurrency; the most commonly traded, including bitcoin, is digital money that is not backed by any government. It exists on a decentralized network of computers based on technology called blockchain and protected by unbreakable codes.

Initially, bitcoin and other crypto was seen as a useful tool for criminals trying to avoid scrutiny of their transactions, because while the transactions are recorded, the identities of those making them can be obscured. But more and more, law enforcement has been able to pierce the veil of anonymity by using sophisticated software that harnesses big data to link transactions to people, taking advantage of the fact that most cryptocurrency transactions are recorded in public ledgers that can never be erased.

The Securities and Exchange Commission (SEC), Commodities Futures Trading Commission (CFTC), and IRS all assert regulatory control over cryptocurrency under certain circumstances. For SEC regulation, a given cryptocurrency must qualify as a security, or the “investment of money in a common enterprise with a reasonable expectation of profits to be derived from the entrepreneurial or managerial efforts of others.”  The SEC Enforcement Division recently announced its plan to add 20 positions to the Crypto Assets and Cyber Unit, bringing the unit to a total of 50 positions.

The CFTC has authority to regulate crypto as a commodity in accordance with the Commodity Exchange Act. The CFTC has recently stated that crypto enforcement is a top priority because of its high risks for investor fraud.

The IRS has also taken the position that cryptocurrency investments are assets that should be treated like any other for tax purposes, permitting it to tax returns on crypto investments. Through its Criminal Investigations Division, the IRS can pursue money-laundering crimes committed with cryptocurrency.

As cryptocurrencies continue to grow in market cap and influence, cryptocurrency fraud has become more common. In 2021, according to the Federal Trade Commission, people reported losing $294 million in cryptocurrency payments to fraudsters, compared to losing about $44 million in credit card payments to them.

Along with the increase in crypto fraud, federal prosecutions are on the rise.  Just this week a 25-year-old Rhode Island cryptocurrency trader was sentenced to 42 months in prison for defrauding 170 people of more than $5 million.  And in the Southern District of Florida, an indictment was unsealed charging the CEO of a purported cryptocurrency mining and investment platform of allegedly orchestrating a $62 million global investment fraud scheme.