In September, a federal judge from the U.S. District Court for the Eastern District of New York ruled that U.S. securities law can be used to prosecute individuals with fraud cases involving cryptocurrency offerings. As the decision is believed to be the first and only court ruling on the matter, it may set precedent in future cases, especially as the federal government has increased its focus on cryptocurrency crimes.
According to court records, the ruling stems from a case involving a Brooklyn resident who was indicted on charges that he defrauded investors using offerings for cryptocurrencies, which federal prosecutors alleged was a violation of the federal Securities Exchange Act.
Cryptocurrencies, including the most famous iteration Bitcoin, are digital currencies treated as currency by users, though they are not legal tender. “Initial coin offerings,” including those offered by the defendant in this case, have raised billions of dollars from investors in recent years.
As prosecutors allege, the defendant raised as much as $300,000 by soliciting investors to purchase initial coin offerings for two cryptocurrencies: one called Diamond, which prosecutors say he claimed were backed by real diamonds, and another called REcoin, which was purportedly backed by real estate. Neither form of virtual currency was backed by diamonds or real estate, prosecutors claim.
Following his arrest, the defendant’s attorneys requested a dismissal of the charges, arguing that the cryptocurrencies were not covered by the SEC because they were currencies, not securities. In his written opinion, the presiding judge rejected the argument, claiming federal securities law required flexible interpretation and that the Securities and Exchange Commission (SEC) considers some digital currencies to be securities.
Crypto Crimes: An Evolving Legal Area
Regulation, oversight, and enforcement of laws pertaining to cryptocurrencies are still constantly evolving, but growing interest in cryptocurrencies and their use in crime have prompted the recent creation of a new Cyber-Digital Task Force to aid federal law enforcement in investigating cryptocurrency-related offenses. In the absence of laws directly addressing cryptocurrencies and various crimes – including white collar crimes and fraud offenses – decisions such as these play an important role in shaping how federal courts may interpret existing laws, and how they prosecute and penalize convicted offenders.
At Friedman Nemecek & Long, L.L.C., L.L.C., Attorney Ian N. Friedman and our legal team have established our practice as a frontrunner in cyber litigation and crimes involving cryptocurrencies. Highly technical concepts, coupled with a pervasive misunderstanding of how cryptocurrencies function and a lack of specific laws and case law, make these cases complex and challenging matters, both for the defense and for prosecutors.
In order to level the playing field and protect one’s rights in this evolving legal area, anyone under investigation or indictment for a crypto-related offense should be intent on working with attorneys who not only possess extensive experience and insight in cases involving federal crimes, but also the unique issues they entail.
If you have questions about a criminal case involving cryptocurrency, our firm is readily available to help. Learn more about your rights, options, and potential defense strategies by contacting us for a confidential case review. Our firm serves clients throughout Ohio and in federal courts throughout the country.