Federal regulatory and law enforcement agencies have been redirecting and expanding their resources to investigate and combat frauds involving crypto and other digital platforms. The SEC recently requested $200M from Congress to hire additional 170 new employees, many to focus on crypto-related cases.  These new hires will include lawyers in the Division of Enforcement’s Crypto and Cyber Unit (CACU) that focuses on violations of federal securities laws. This request is in addition to the 20 positions added in 2022.

With the recent collapse of FTX, and fraudulent conduct or hacked accounts involving Ethereum, Celsius, Nomad, Wormhole and BlockFi, to name a few, there is good reason for increased budgets, new hires and advanced technology to investigate, uncover and prosecute crypto-related frauds.

Until recently, crypto platforms, initial offerings and digital start-ups were less regulated than traditional financial offerings and investments. With the advent of so many major collapses and frauds, however, law enforcement and Congress have focused their attentions on regulating these platforms to help prevent pump and dump schemes, unregistered money transfers, know your customer requirements, and money laundering.

A major example of this increased scrutiny is the SEC’s recent Wells Notice to Coinbase, a well-established company that was publicly listed in 2021 and has repeatedly attempted to register its spot platform. The Notice listed potential claims Coinbase could face including operating as an unregistered exchange, listing unregistered securities in the form of digital assets, and offering services such as staking and wallet activity that could violate securities law. Coinbase is pushing back hard on these potential claims arguing that the SEC has not specified which digital assets potentially qualify as securities, which aspects of its stalking service are of concern and whether Coinbase’s recent updates corrected any of these potential issues. Moreover, Coinbase has argued that the SEC has dramatically changed its position from May 2021, when SEC Chair Gary Gensler told Congress that there was no framework for crypto at the SEC or at the U.S. Commodity Futures Trading Commission, and that he looked forward to working with Congress to develop one. By the end of 2022, however, Gensler said that he believed the SEC had enough authority to regulate the space. It is Coinbase’s position that these two statements are “diametrically opposed.”

The increase in regulatory and enforcement actions here in the United States, and more recently in countries traditionally sought for their lax monetary regulations, has caught many “crypto entrepreneurs” unaware. Many in this burgeoning field are young who get their “advice” from chat groups, Instagram and other platforms where influencers flaunt their apparent wealth and possessions all allegedly obtained through their skills at buying, trading and investing in crypto and NFTs. Many are completely unaware, while other intentionally ignore, the many statutes, regulations and rules that regulate digital assets and platforms.

Stahl Gasiorowski Criminal Defense Attorneys has represented a number of individuals investigated and charged with crypto-related frauds and failures to register. To contact Mr. Stahl, call 908.301.9001 for the NJ office and 212.755.3300 for the NYC office, or email Mr. Stahl at rgs@sgdefenselaw.com.