Prosecution Rises: Cryptocurrency Gatekeepers and Individual Owners
The popularity of cryptocurrency has been on the rise, and given its recent dramatic decline in value, the federal government is poised to step up its regulation and enforcement of criminal laws targeting its illegal use. The Biden administration has identified rules and regulations that would apply to an industry that has previously seen little government regulation and will increase its investigation and prosecution of individuals who are engaged in the crypto market.
Experts anticipate that supervision of the nascent industry will be spread across several regulatory agencies, including the Securities and Exchange Commission (SEC), the Department of Justice (DOJ), and the Commodity Futures Trading Commission (CFTC).
In October, top government officials met to identify their agencies’ priorities for white-collar criminal law enforcement and prosecution. They identified cryptocurrency as an emerging target and plan to emphasize the investigation and prosecution of individuals and so-called gatekeepers as opposed to focusing on corporate malfeasance.
SEC to Focus on Crypto Gatekeepers
During a panel discussion at the American Bar Association’s annual institute on white-collar crime, SEC Enforcement Director Gurbir Grewal indicated the agency will focus on gatekeeper accountability. According to Grewal, "They're the first line of defense more often than not against all manner of misconduct. That's why we'll be taking a hard look at gatekeepers like auditors and audit firms, attorneys, and underwriters." He also said the SEC will target unregistered and fraudulent initial coin offerings, unregistered crypto exchanges, and crypto-lending and award programs to “make sure that those players and actors are abiding by the rules."
DOJ Will Use Data-Based Investigations to Target Individuals
At the same ABA conference, Nicholas McQuaid, the principal deputy assistant attorney of the DOJ’s criminal division, said the DOJ will focus on prosecuting individuals, as opposed to corporations, and will expand its use of data probes, which grew out of the successful use of data in healthcare fraud prosecutions. The newly-created National Cryptocurrency Enforcement Team (NCET) will investigate and prosecute criminal misuse of cryptocurrency and assist with data-based investigations and prosecutions.
CFTC to Target Digital Assets and Blockchain Sector
Vincent McGonagle, acting director of enforcement for the CFTC, said his agency will examine the use of digital assets and the blockchain-based decentralized finance sector. He stated that the CFTC has brought several actions against entities that offered digital assets like Bitcoin and other cryptocurrencies on a margin or finance basis, stating that those assets should be on an exchange. He also noted that digital assets may be just one component of potentially illegal activity and might be mixed up with other assets over which the agency has jurisdiction.
Biden Administration Seeks to Align Cryptocurrency Regulation
These announcements indicate an attempt by the federal government to take a unified approach toward regulating cryptocurrencies and prosecuting people for what the government perceives to be their misuse. Companies and individuals working in the digital space should be aware of the additional scrutiny and the likelihood of increased investigations and prosecutions, and businesses should continue to evaluate their compliance programs and ensure they are mitigating cryptocurrency risks.
President Biden’s March 9, 2022, Executive Order on Ensuring Responsible Development of Digital Assets recognizes the growth of cryptocurrencies and the opportunities they present. It also acknowledges the need to align the government’s approach to regulating cryptocurrency and how those laws will be enforced.
Despite the increased focus on cryptocurrency regulation, its status—as a security, a commodity, a currency, or something else—remains unclear. Industry and government officials continue to criticize Congress and federal regulators for failing to provide clear guidance to people who wish to engage in lawful cryptocurrency transactions.
The development of specialized units within the DOJ and FBI and announcements from government agencies about how they will investigate and prosecute the misuse of cryptocurrencies are indicative of the government’s evolving response to the increased use of cryptocurrency and the need for users to remain vigilant.
Hope Lefeber: Experienced Defense Against White-Collar Crimes
If you are under investigation or have been charged with a crime relating to your use of cryptocurrency, you need aggressive and experienced legal representation.
New York City federal criminal defense attorney Hope Lefeber has been defending people accused of white-collar crimes in federal court for more than 30 years. Ms. Lefeber began her career as an enforcement attorney with the SEC, where she learned first-hand how the government prepares and prosecutes white-collar criminal cases. Ms. Lefeber knows how to analyze complex financial records and how to defend people who have been accused of financial crimes in federal court.
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